Obamacare wobbles but works for us and millions – Tax credits under Republican plan won’t cover high cost of insurance

  • Tom, Judy and cat, Pippi, as we headed out on our adventure in The Epic Van.

By Tom Nichols

Paying for health insurance for our family of three was my biggest worry after Judy and I quit our middle-class jobs, gave up our employer-subsidized coverage, and hit the road in The Epic Van.

Thanks to Obamacare, health care has been affordable during our first three years of early retirement.

Now, we’re among about 20 million Americans whose health care coverage is at risk as Republicans in Washington proceed with their plan to repeal and replace it.

I don’t want you to shed any tears over the predicament of a couple of well-off Baby Boomers wandering across America and having a good time. We chose to leave the workplace and are healthy enough to return if necessary, though we would earn a lot less than we did.

But I do want you to consider the predicament of millions of Americans between 55 and 65, those who involuntarily lost their jobs and health insurance as globalization and automation swept away their livelihoods.

Or consider those who work in part-time jobs or as private contractors and don’t qualify for employer-subsidized insurance. Or consider those who want to create their own business or need several years of college or technical training to switch careers.

Or consider those who must give up a job to care for a loved one with a permanent disability a debilitating medical condition or terminal illness.

For all those who rely on Obamacare, the Republican plan to replace it is absurdly inadequate.

The centerpiece of the Republican alternative, the American Health Care Act, is a $4,000 tax credit to buy health insurance in the individual market. The most popular Obamacare regulations, insuring everyone with pre-existing medical conditions and allowing young adults under 26 to remain on family insurance plans, are preserved. The least popular regulation, requiring nearly everyone to buy health insurance or pay a tax penalty, is scrapped.

Simply put, the problem with the Republican plan is that tens of millions of households do not have enough income to pay the market price for health insurance plan with a $4,000 tax credit.

Let’s examine the actual market price of health insurance in the United States and the incomes of Obamacare enrollees.

Nationally, it costs $23,419 a year to insure a family under an employer-provided plan, according to a 2016 Kaiser Family Foundation Employer Benefits Survey. That is $18,142 in premiums paid by employers and $5,277 in out-of-pocket costs paid by employees.

Judy and I left behind about $14,000 a year in employer-paid compensation through Judy’s employer, Arizona State University. It’s an untaxed benefit that obscures the market price of family health insurance in the United States. We paid $4,000 in payroll deductions and copays and prescriptions.

I use employer-provided insurance as the basis for market price because it is the largest sector of our fractured and massively inefficient health care system, which expends more in gross domestic product than any nation on earth. Even with trillions spent each year, the United States has one of the lowest life expectancy rates in the industrialized world.

For a moment, let us accept the position of Republicans in our nation’s capital who believe that the repeal of Obamacare, which covers a tiny swatch of our vast health care tapestry, will begin to mend the entire system, unleashing repressed market forces and reducing health insurance costs for everyone, with or without a job.

Let’s agree that Americans deserve more insurance options, but that taxpayers should only pay for insurance with less comprehensive benefits than those offered by private employers or mandated under Obamacare. And offer a plan with higher deductibles without frills, permit insurance sold across state lines to let marketplace efficiencies take effect and lower the average cost of insurance for a family to $15,000 a year. That would be about 35 percent less than the cost of insurance offered by employers. Mission accomplished, say those who support the Republican plan.

Well, please remember that two-thirds of Obamacare enrollees live in households with incomes below $30,000. Under the Republican plan, a couple will get about $8,000 in tax credits to pay for an insurance bill of $15,000, leaving them with a shortfall of $7,000. Paying $580 a month for health insurance, plus deductibles, is almost impossible for anyone who must pay rent and utilities, feed and clothe the kids and keep the car running.

It is not unreasonable to accept the estimate of the Congressional Budget Office that 24 million fewer people will be insured in the United States in 2026 if Obamacare’s system of tax credits and federal payments for Medicaid are replaced with the Republican plan. The plan is projected to cut federal budget deficits by $337 billion over the next 10 years. Insurance premiums would rise substantially in the first several years of the Republican plan but then would fall a bit in later years. It’s projected that insurance rates would be 10 percent lower in 2026 than they would be under Obamacare.

For those of us who are senior, the most ominous provision in the Republican health-care plan is one allowing insurers to charge their older customers five times the rate of their youngest enrollees, instead of three times the rate of their youngest enrollees under Obamacare. There’s no provision in the plan to adjust tax credits for inflation.

There will be winners under the Republican plan. Younger Americans will benefit from lower insurance costs and the households with incomes of more than $250,000, insurance companies and medical device makers will receive billions in tax cuts.

The biggest losers under the Republican plan are likely to be the working poor. The hardest hit will be those who do not qualify for Medicaid and have incomes between 100 percent and 400 percent of the federal poverty level, which is $11,880 to $47,520. You might call them the forgotten Americans.

Now back to Tom, Judy and Nate. On behalf of our family, I want to praise Obamacare in case it is buried this year.

Although wobbly, it works for our family of three with a household income of about $65,000, even in Arizona, where only one health insurer remains in the marketplace in Maricopa County. Obamacare works for us because we are eligible for large, adjustable tax credits based on our income and geography. It means that we still have affordable insurance even though the market price for private health insurance in the Arizona marketplace doubled in 2017.

Here’s how Obamacare has worked for our family of three since we left our jobs:

Judy and I, in our early 60s, don’t have any health issues that require expensive medications or frequent visits to medical specialists. However, we both have pre-existing medical conditions. Judy has celiac disease and I had throat cancer about 10 years ago. Nate, our son, is a healthy young man in his early 20s, just out of college and living in Arizona.

In 2015, the market price of our silver Obamacare plan, which covers about 70 percent of out-of-pocket medical costs, was $1,156 a month, or $13,872 a year. After tax credits, our family of three paid $498 a month. Nate’s portion of the premium was $98 a month. Each of us carried a $3,000 deductible under the plan.

In 2016, the market price for our bronze Obamacare plan, which covers about 60 percent of out-of-pocket medical costs, was $1,066 a month, or $13,788 a year. Judy and I paid $512 a month and expect a federal tax refund this year to offset our insurance premiums a bit more. Nate’s portion of the premium was $83 a month. Each of us carried a $5,500 deductible under the plan.

In 2017, the market price of a monthly premium for our silver Obamacare plan, doubled to $2,191. With the help of Obamacare tax credits, we pay $512 a month. Each of us has a $4,200 deductible.

We await the outcome of the repeal-and-replace fight in Washington before deciding on the extent of our travel in The Epic Van in 2018.

I my next post, I’ll tell you more about our three-year experience under the Affordable Care Act, including our customer experience, adjustable tax credits and how they relate to our federal tax filling, how our son was included under Obamacare, and a summary of out of pocket expenses.

4 Comments

  1. Reply
    Diane Owens March 23, 2017

    Dear Tom and Judy, Thank-you so much for such a well written article. I am 62 and struggling to continue working. I am afraid to quit because of the uncertainty of health care. Your article was easy to follow and provided an understanding of the current state of affairs.

    With kind regards,
    Diane Owens

  2. Reply
    Judy Nichols March 23, 2017

    Thanks, Diane. It was our greatest fear, too. Now we’re just waiting to see how things shake out.

  3. Reply
    Anna Sheinman March 26, 2017

    Hello Judy,

    My husband and I are also planning to retire soon. We are pretty healthy, but obviously still need insurance. What about high deductible plans along with HSA account?

    Thanks,
    Anna.
    SOFLY.CO

  4. Reply
    Judy Nichols March 27, 2017

    Anna, There are plans out there. We aren’t familiar with them. The first two years, we had Obamacare plans that had HSA features. This year, our HMO plan does not. Judy

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