ObamaCare at the Fair
On Saturday I went to festival in the California foothills. Nestled in and betwixt the funnel cakes and fried candy bars you could sign up for Obamacare with the fine folks of Covered California. So I sent my family off to the rock-climbing wall and spent some time talking to the two ladies administering government healthcare at the fair. I played as dumb as I could and ultimately was told that I would qualify for subsidies if the amount my employer charged to cover my family was more than 9.5% of my annual W-2 wages. That is inaccurate; it has to cost more than 9.5% of income for a single plan. That is a big difference. But hey, they are getting better. At least this time the question was not "do you think it is unaffordable?"
Assume that a person makes $30,000 per year. Then coverage for that person can be as expensive as $237 a month and still be affordable under the law. A typical employer single rate costs double that amount. Hence an employer can charge approximately 50% of the cost of employee healthcare and still offer an "affordable" plan under the commands of PPACA. Note, however, that most carrier contracts require an employer to pay at least 75% of the cost of single coverage, anyway. So the bar for PPACA affordability is a low one.
What this enroller asked me, however, was if what I paid for family coverage exceeded 9.5% of my income. That is a wholly different standard. Many employers will pay something like 80% of the cost of employee coverage and then pay 50% of the cost of additional dependents. It is not uncommon for family coverage to be $1,500 a month or $18,000 per year. Well, if an employer could only charge me back $237 a month on that $1,500 premium they would be picking up the tab for $1,263 a month or 84% of family coverage. Very few employers do that. Government administrators at IRS and HHS knew that when they drafted these regulations and opted to tie the affordability test solely to single coverage to avoid a massive avalanche of unaffordable plans and completely gutting employer sponsored healthcare in one clean swoop.
The enroller then asked if my wife and I were married. She seemed genuinely sad when I said we were. [Pouty face]. The subsidies work better for single people, she explained. This prompted me to do the research below.
Marriage Penalty
Cohabitating couples make out better than married ones because the federal poverty level does not elevate equally with the number of individuals in the family. The federal poverty level is $11,490 for an individual, but only increases to $15,510 for a married couple — only $4,020 more. Thus, two unmarried people living together qualify for larger federal subsidies than they would if they were married.
Example of a couple moving in together to share expenses, each earning 200 percent of the FPL (about $23,000 annually).
- If that same couple were to marry, their combined household income of approximately $46,000 would rise as a percent of the poverty level from 200% (individually) to 296% for a family of two.
- Tying the knot boosts their family income on paper, but has the opposite effect on their bank account. Individually they would each qualify for a subsidy of about $1,087, or $2,174 per household. If that same couple were to marry, their combined subsidy would drop to $753.
- Getting married costs them $1,421 annually.
I've calculated the penalty and it is generally between $1,000 and $1,500 per couple for combined incomes between $22,000 and $55,000.
For more on this see Devon Herrick, Obamacare's War on Marriage, National Center for Policy Analysis. The numbers in my above example came from his research.
Covered CA's Dismal Numbers
In the fourth hour of today's show, Jack and Joe lamented their excessive consumption of Mrs. Gottwals' cinnamon rolls this morning and discussed the Covered California numbers as well as another little sneaky pre-holiday, regulatory release offering up more tax dollars to insurers who are stung with high claims in the Exchanges: - Covered California has a goal of enrolling 500,000 to 700,000 subsidy eligible Californians by March 31, 2014.
- Covered California just announced that it would proceed with its original plan to cancel 1.1 million existing individual policies (their estimate)––80% of them by December 31.
- Covered California also just said that 510,000 of them would qualify for a subsidy.
- So, if only the canceled policyholders who are subsidy eligible replace their canceled policies Covered California will make the lower end of its entire 2014 enrollment goal - doesn't sound like they are aiming too high here.
- Besides the 1.1 million who have lost their policies because of cancellation, Covered California estimates that 5.3 million Californians are uninsured and eligible to purchase coverage on the state exchange––about half with subsidies.
- Covered California is spending $250 million in federal grant money on an "outreach" campaign to get people signed up.
- Through mid-November, Covered California has enrolled about 80,000 people.
- None of these 80,000 have actually made a payment yet. NONE. All this means is that they have selected a plan. A bill is now being generated by the insurer. So how many will actually pay? Far less.
- Less than 1,000 people who list Spanish as their principle language enrolled in October.
- Demographic of October enrollees (29,113 total):
- Ages 18-25 - 2,344 people - 8%;
- Ages 26-34 - 4,580 people - 15.7%;
- Ages 35-44 - 4,937 people - 17%;
- Ages 45-54 - 6,865 people - 23.6%;
- Ages 55-64 - 10,387 people - 35.7%;
- This is how a death spiral begins.
Sources: Robert Laszewski, Trying to Make Sense of Covered California's Numbers and Dana Howard, Deputy Director of CoveredCA.com, 11/22/13 Interview by H. Hewitt.
Takeaways:
- Of the 80,000 I expect only about 55,000 to actually pay for the insurance. The 80,000 includes people like me who have placed a few different plans in the cart and have no intention of actually paying for the plans.
- That means we could have taken the entire $250 million marketing budget and used it to pay $4,545 for each person who is actually going to pay for Obamacare. That is a monthly premium of $379.00 per person. We could have bought them high deductible HSA compatible plans for that amount of money. And this is only the marketing budget.
- Also note that 1.1 million are losing coverage but their entire goal is only to enroll 500,000 to 700,000 people for this first year. Obamacare means less people will have coverage in California by their own numbers.
All Armstrong and Getty podcasts available here.
Playlist of Craig's Appearances on Armstrong and Getty in 2013 here.
