Health Care Penalty

Poof! They’re gone!

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I was reading one of my favorite “popular” (non-technical) magazines the other day.  In particular, the 27 November 2017 issue of Business Week.

Business Week

The article was discussing the poison pill the GOP had thrust in their tax plan.  They plan to kill the mandate to buy health insurance.  (This was written before they DID kill the mandate.  Isn’t it curious no one really complains that they must buy auto insurance?)  Which, as I’ve discussed, can be contrived to appear as if the government was saving money.  (According to the OMB- the US Office of Management and Budget- the costs actually rise, due to the way subsidies are computed.)  But, that’s because the OMB doesn’t realize that the goal of the GOP is to cut Medicare (and Medicaid) benefits, thereby balancing the $ 1.5 trillion gaping hole they are digging into the US budget.

(As a matter of fact, it’s already started.  Senator Orrin Hatch (UT) is now bitchin’ and moanin’ about deficits- the ones he just created by voting for this tax plan.  Don’t worry though- he has a plan- cut Medicare and Medicaid to cover the costs.  He’s not the only one- there’s Marco Rubio (FL) and Pat Toomey (PA), plus Congressman Paul Ryan (WI) who plan to make life harder for the lower and middle classes by slashing these life-saving benefits.)

But, one statement in the Business Week article stuck in my craw.  It’s the dirty little secret that pervades the first few years of PPACA.  The penalties for non-compliance were not properly set.  (Based upon the goal of insuring all Americans, the penalty has to be almost as high as the insurance cost- or folks will opt to pay the penalty.  Which is exactly what’s been happening.)  And, now that they are gone, fewer people will have insurance- and that means you and I are going to have to go back and bail out hospitals that don’t get paid by these free-loaders.

These facts were quoted in the article:   Seventy-nine percent of the 6.7 million households had incomes under $ 50,000, and 37% made below $ 25,000.    (These are the folks who pay the penalty rather than purchase insurance.)

Why that’s true becomes obvious when we consider some typical life situations.   A single individual, a married couple, a single mom with two kids, and a couple with two children.

Single Folks

A single person making $ 50,000 is unable to obtain any subsidy under PPACA.  Assuming this person is in their thirties, the health insurance rates (in most of the US) run $ 425 to $ 550 a month.   That works out to some $ 6000 a year.  Which is about thrice the maximum penalty ($ 2085).    Which is the reason why many younger folks play Russian Roulette and go without insurance.

That single person who makes $ 25K, however, can get insurance for some $ 125 to $ 195 a month.   The top end costs around $ 2340 a year; the bottom end is $ 1500.   But, the penalty is also lower.  While the  $ 2,085 is the maximum penalty, those penalties really are  a sliding scale of 2.5% of income or some $ 625 at this income level.  And, for someone making only $ 25K a year, the difference between the premium cost and the penalty is  substantial.  They would probably opt to go bare.

Married Couples

Same scenarios,  but given the family size is now two, the subsidy level changes.  The insurance costs for the folks making $ 25K is close to $ 1200 a year; those making $ 50K would be able to obtain their silver plan for $ 4800 a year.  So, that means they save roughly 50% by going bare.  (The penalties are still $ 625 and $ 2085, respectively.)

Single Mom with Two Kids

This scenario is one where many of the folks would opt for insurance.  The subsidized cost for this mom making $ 25K  would be under $ 800 a year.  Yes, that’s more than the $ 695 penalty- but the peace of mind and safety for that $ 100 more is immeasurable.

What if she were making $ 50K of taxable income?  Her costs would now be about $ 4800 a year, which is still double the penalty.  (I know I would opt for insurance; it’s not so clear she would.)

4 Person Married Family

I can’t imagine the hardship of having two kids and four mouths to feed, when one’s income is only $ 25K a year.    Somehow, our government gets this, too.  Since the penalty is $ 150 more than the annual premium of $ 540.

But, if that family were earning $ 50K of taxable income, their silver plan would run almost $ 3600 a year.  Which is more than the maximum penalty of $2085.  (Again, the 2.5% penalty maxes out at this level.) This would probably mean the family might opt to pass on the insurance.

So, what?

How does that all turn out as a way for the government to save money?  Because the government is betting that when the mandate is gone,  most of the folks who get subsidies won’t sign up for insurance.  So, no one will pay for subsidies.  How much?

That quote from Business Week tells us that 63% of those making less than $ 25K have been buying insurance .  And, 58% of those making between $ 25K and $ 50K  have been buying insurance.    By giving up some $ 10 billion in penalties, the government is planning to save some $ 300 billion in subsidized or free healthcare.  (Plus killing Medicaid saves plenty of bucks, as it screws the population.)

The cruel economics of healthcare. Somewhat explained.Roy A. Ackerman, Ph.D., E.A.Don’t miss out.  Open season for Medicare Advantage/Medicare Part D (drugs) (for those 65 and over) ends Thursday.  Open seaon for Obamacare/PPACA (for those under 65) ends in 10 days!

Open Season 4 Dummies


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