The future of Obamacare
November 15, 2012
With the life or death of Obamacare (the "act") hanging in the balance of the upcoming election, it amazes me how many people know so little about this controversial legislation. In the following, I will summarize how your health care, particularly cost, will be affected by the act in accordance with your circumstance.
Although a very multifaceted solution to an equally complex problem, the basic idea of the act is to make the health care insurance industry more competitive, while making health care more affordable to low and medium income individuals and families through federal income tax credits. The cost reductions are well worth considering, even for individuals making up to $45,000, and families of four making up to $95,000 per year.
In Nevada County, the 2010 median individual and household incomes were $31,000 and $57,000, so this may be of interest to you.
If you are not eligible for Medi-Cal, where eligibility was expanded under the act to include more people, or Medicare, or insured at work, beginning in 2014 you will be required to buy a policy or pay a penalty in about the same amount. However, because of various exclusions in the act, essentially no individual making less than $30,000 or family of four making less than $60,000 will have to pay a penalty.
The overall range of coverage and choice of service providers will not change.
In each state, an Internet-based marketplace for purchasing health plans, called an exchange, will be established. You will not be excluded on the basis of pre-existing conditions, and rates can only be set according to geographic location and age. However, your premium will effectively be determined only by household income regardless of age, because the tax credit to offset the premium charged by the insurer gets larger for the higher premium cost associated with one's age.
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The policies will be presented in standardized ways so that we can easily compare their features and terms, putting the insurers in a very competitive position. The insurers can also provide plans of varying coverage, just as they do now. The overall range of coverage and choice of service providers will not change. However, only the cost of the typical plan paying 70 percent of covered services will be used as a benchmark to calculate the tax credit available to a given applicant.
The tax credit will be refundable and advance-able, meaning that you can receive a refund even if you do not owe any federal income tax, and if you can demonstrate hardship, your refund will be paid in advance at the time of purchasing the insurance policy so that you don't have to wait until tax time to get reimbursed. In addition to the premium tax credit, there will be credits to offset out-of-pocket costs, such as deductibles and co-pays, primarily for individuals making up to $25,000 and families making up to $45,000. The exchange will provide valuable assistance in getting the credit.
As an example, consider an individual of any age making $30,000 per year. After the credit mentioned, this person would pay no more than about $210 per month for a plan that averaged $421 in California according to a 2010 Kaiser Foundation report. Some pre-existing conditions may have excluded insurability entirely. How about a family of four making $70,000 per year? The premium could be no more than $550 per month.
This family currently is paying $1,147 on average according to the same report! We are speaking here of the total cost of the plan, including what your employer is paying on your behalf. If the total cost is reduced, your contribution would be lower and your wage could theoretically be higher.
It is clear that the "winners" under Obamacare are those within the ranges of incomes discussed above, being increasingly so with age until Medicare eligibility.
Who pays for this? Well, partly those individuals making over $200,000 and couples making over $250,000 per year, especially those with appreciable unearned, investment income. Fees paid by both the pharmaceutical and insurance industries also pay for the program. If the insurance companies conspire despite the competition imposed by the exchange, the premium growth will only increase their required fees to the program, removing much of the monopoly incentive and effect.
Although hardly complete in all details and considerations, after much research I believe this summary to be useful to your understanding, and helpful in upcoming decisions.
Jim Ciaffoni is a semi-retired public utilities manager who lives in Nevada City.