Income Inequality, the State of the Union, and the Affordable Care Act

The President focused on income inequality in his State of the Union speech.  This is an important issue; as the gap widens between those rich and poor.

But income inequality is built into our public policy at so many levels – and even at the lowest ends of the economic spectrum sometimes the “wealthier” individuals receive better benefits than those who may need them even more. 

A case in point is how the insurance subsidies work in the Affordable Care Act in the aftermath of the Supreme Court ruling of 2012.

In these, the poorest individuals and families – those living below poverty level – fare the worst.

This is an inequality that could be repaired easily and immediately.

Here’s how this particular inequality works.  If you are a single person earning $11,375 per year, you pay the highest percentage of your income for insurance as anyone in any income bracket. 

An example:  If you want to buy “silver plan” health insurance on the open market, it will cost you $2,535 per year – or almost one quarter of your annual income.  Or you can purchase a bronze plan for $2,101.  That is still over 18 percent of your income.

In other words, you can’t afford it.

But if you earn just $230 more per year, or $11,605, then the result is almost magical.  The cost of a silver plan goes down to $232 per year – just two percent of your income.  And if you opt for a bronze plan, it will cost you nothing.

It may seem hard to believe, but it’s true.

The reason is that the first person earns just below poverty level (99 percent of poverty) and the second just above (101 percent of poverty).  And insurance subsidies begin at 100 percent of poverty.

Congress was aware that it was building this severe inequity into the law in 2010, but it was not worried about it. 

That was because it also passed a fix.

It mandated the expansion of Medicaid in all fifty states to people earning 138 percent of poverty.  With Medicaid as an option, few people living near the poverty level would need or want private insurance through an exchange.

But then the Supreme Court created a new problem.  Without acknowledging the inequality in the subsidy, it ruled in 2012 that Medicaid expansion was optional, effectively undermining the fix.

In spite of the eighteen months of political chaos that has resulted from this ruling, many states – and we can now say a majority of them – have moved to remedy the inequality in the only way they can. 

They have chosen to expand Medicaid, taking up the federal government on its offer to pay nearly one hundred percent of the cost.  And over the next several years, most of the remaining states will probably follow, but only after they’ve wasted billions of dollars of their own resources during the delay.

But remedying the inequality isn’t the same as eliminating it.  In states like Connecticut, which have embraced expansion – it just covers it over.

And in states like Florida that have not embraced expansion, it still leaves millions of people out in the cold.

There is a solution for everyone, and the federal government could move forward on it – if it is as serious about reducing inequalities as the President is.

Right now, the federal government exempts people living below poverty in states that have not expanded Medicaid from the mandate that they buy insurance.

But there is a better alternative.  It could offer everyone living below poverty the option of “purchasing” a bronze plan at no cost.  In other words, it could extend the same subsidy to them (when they are not otherwise eligible for Medicaid) as is available to those earning just above poverty.  It would probably also have to waive the deductibles in those plans for this group, and there are ways it could do this.

This would cost the federal government no more than paying for Medicaid expansion.  It would get millions more people covered – many of them adults, and many with chronic conditions.  And it would spare us endless debates in reluctant states.

There are legislators in some of these states who have proposed using new federal Medicaid dollars to purchase private insurance for low-income individuals.  That’s an idea, but expanding subsidies would be a simpler solution.

It would cut out the reluctant state middle man, and reduce inequality directly.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/

Obamacare's Silver Surprise

There was some surprisingly good news this month about the cost of insurance under Obamacare.  It will be cheaper than expected.  But it remains to be seen – will cheaper insurance satisfy Obamacare doubters on either the left or the right?

I doubt it, but first let’s take a look at the details.

A few months ago, the Wall Street Journal warned of health insurance sticker shock when the Obamacare insurance exchanges open for business in another ten weeks. 

There could be an up-to-50 percent increase in health insurance premiums, the Journal warned.

But a report this month from the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (ASPE) brought a surprise. 

Based on data from the first eleven states reporting actual premium numbers, ASPE now says that insurance costs for Obamacare “silver” plans for individuals will be 18 percent lower than originally projected by CBO.

Premiums for the least expensive plans were averaging around $321 per month – before income-based tax credits were subtracted from those costs.

And in five states plus the District of Columbia reporting small group plan numbers, insurance premiums for the all-important “second lowest cost” silver level plans will range from 6 percent to 36 percent less than they would have been if Obamacare were not the law of the land.

What makes a plan a “silver” plan?

Despite what you might assume from the headlines, plan categories are not based on insurance premiums.  They are based on the percentage of the total cost of health care that the plan will pay for everyone in the plan, versus what the plan’s policyholders will pay out-of-pocket.

There are four categories of plans – bronze, silver, gold, and platinum.  All plans will provide coverage for the same group of essential benefits.  But bronze plans will cover 60 percent of the cost of these benefits, silver plans will cover 70 percent, gold plans will cover 80 percent, and platinum plans will cover 90 percent.  Policyholders will pay the rest.

This does not mean that if you have a silver plan, at the end of the year you will have paid 30 percent of your total health care costs and your insurer will have paid 70 percent. 

Those are just the averages, and everyone’s individual experience will vary from the average at least somewhat.

There are two reasons that the cost of the silver plans will get so much attention.

The first is that, along with gold plans, they will be the most widely-available plans.  The second is that the tax subsidies built into Obamacare are based on the projected cost of the second-lowest-cost silver plan.

But not all silver plans will be alike.

One silver plan, for example, may charge a higher premium than another silver plan.  But that plan might cover 75 percent of hospital costs, while the other pays only 70 percent.

Other silver plans might be less expensive than some bronze plans – particularly if they provide less “first dollar” coverage for care – or more expensive than some bold plans.

But while the premium costs of the silver plans may dominate the news and public policy analysis in the coming months, I don’t think that how good you feel about Obamacare is ultimately going to be based on the cost of a silver plan. 

Here’s why.

Deductibles, co-pays, and uncovered health expenses also factor into how satisfied we are with our insurance.

If you believe that being expected to absorb, on average, 30 percent of your health care cost burden when you already have insurance is too big a price to pay, then you will not be happy with a silver plan.  You will either hope you or your employer can afford to pay extra for a gold or platinum plan if one is available, or you will complain as much as you do today about your lousy coverage.

And you will dream again of government-sponsored health care for all.

Conversely, if you think that Obamacare goes too far in requiring insurers to cover at least 60 percent of the health care costs of the people they insure, then you may decline to participate in the system at all and pay the small fine.

And you will join Eric Cantor in the march to health policy irrelevancy by asking the U.S House to repeal Obamacare for a 40^th time.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/