As this blog as previously noted, the Patient Protection and Affordable Care Act’s reform of the individual health insurance market has the potential to generate middle class political blowback among what I’ve dubbed the “401 percenters.” These are households earning more than 400 percent of the federal poverty level — too much to qualify for advance tax credit subsidies to defray premiums for plans offered in the state benefit exchange marketplace. For individuals, that’s an annual income higher than $45,960 and $62,040 for couples.
Two newspaper stories published this month spotlight the 401 percenters with surveys pointing to premium affordability problems, particularly among those in their 50s and 60s. A New York Times analysis found premiums for this age group reaching as high as 20 percent of household income. Even younger people may find coverage unaffordable. For a hypothetical 40-year-old couple, a USA Today analysis found in half of the counties in 34 states where the federal government operates the exchange, the lowest cost bronze plan falls short of the Affordable Care Act’s definition of affordable coverage. Affordable coverage is defined as premiums not exceeding eight percent of income. For older individuals, it’s more problematic. The USA Today analysis found more than one third of the counties don’t offer an affordable plan for any of the four tiers of coverage — bronze, silver, gold or platinum — for those 50 or older and ineligible for subsidies in the exchange marketplace. Affordability is critical to the success of the risk pooling mechanism since affordable premiums bring more covered lives into the pool. Conversely when premiums are unaffordable, the size of the pool is limited, sharply increasing the likelihood of adverse selection taking hold.
The Affordable Care Act allows those whose premiums would place them within the law’s definition of unaffordable coverage to apply for a certificate of exemption from the state exchanges on the basis that payment of such premiums would constitute a financial hardship. In addition to exempting these individuals from the Affordable Care Act’s requirement that all individuals have some form of medical coverage or pay a penalty, the certification entitles them to purchase lower cost “catastrophic” coverage on or off the exchange marketplace. The income of each member of the household must meet the eight percent affordability threshold.
While catastrophic plans offer lower premiums, the tradeoff is high annual deductibles: $6,250 for individuals and $12,500 for families. At least three primary care visits are covered, however. For some households, a higher cost bronze plan that’s Health Savings Account (HSA) compatible may be a better value. Like catastrophic plans, they also come with high deductibles. Deductibles can be paid with pre-tax HSA dollars (but not the premiums). For the self-employed, HSA-compatible bronze plan premiums may be tax deductible. Those in the “401 percenter” cohort would be well advised to consult with their tax advisors for definitive guidance.
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