The paradox of Affordable Care Act individual health coverage affordability

The Patient Protection and Affordable Care Act at Section 1401(b)(3)(a) provides advance individual health plan premium tax credit subsidies within six household adjusted gross income tranches between 100 and 400 percent of the current year federal household poverty levels. At the low end, the subsidies are calculated so that households with incomes between 100 and 133 percent of federal poverty pay no more than two percent of their incomes for a health plan. At the upper end, tax credits are applied so that households earning between 300 and 400 percent of federal poverty levels would pay no more than 9.5 percent of income. The subsidies are only available for health plans sold on state health benefit exchanges.

While designed to make individual health coverage more affordable to low and moderate income households, the subsidies employ a one size fits all approach that doesn’t easily achieve that goal in some parts of the nation such as those with high housing costs. Particularly for those over age 50, given the law allows health plan issuers to base premiums in part on age, and who earn close to or slightly above the 400 percent household income subsidy cutoff. And when their individual plan premiums rival or equal a significant portion of their monthly mortgage or rent payment. When that happens, the house payment is going to win out over the health insurance premium every time.

Case in point is San Jose, California resident Miguel Delgadillo, as reported by the San Jose Mercury News:

Until the price of health insurance comes way down, he said, don’t bother him.

“What little income there is after taxes goes to my house payment — that’s my top priority,” said the 55-year-old part-time teacher.

He said he likes the idea of a national health care law, but not the $451 he would have to pay each month for health insurance. That’s the cost of the lowest price plan available to him.

Delgadillo, who has been uninsured for seven years, shares a dilemma with tens of thousands of other Californians: He’s a middle-class person who narrowly misses the income threshold that would qualify him for a subsidized health plan.

That leaves Delgadillo potentially subject to the Affordable Care Act’s individual shared responsibility penalty for not having some form of minimum essential health coverage, which for 2016 is the higher of 2.5 percent of adjusted gross income or $695 per adult and $347.50 for children under 18, up to a household maximum of $2,085. Similarly situated individuals might do the math and figure it would cost less to pay the penalty than purchase coverage. Delgadillo and other similarly situated households may be able to avoid paying the penalty when filing their income tax returns if they can show that the lowest cost plan available to them would exceed 8 percent of actual household income.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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Frederick Pilot

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