Health Insurance, An Untold Story

I recently read about a family earning too much to qualify for health insurance subsidies through the ACA (Affordable Care Act aka Obamacare) but too little to afford the premiums. While it seems absurd that a family earning $113,000/year cannot afford health insurance, this is the plight for millions of Americans who do not have access to health insurance through their employer.

Individual policies are more expensive than group policies, cover less, and require more out of pocket expenses. And while employers can deduct premiums paid on behalf of employees in group plans, the ACA levies heavy fines on employers who subsidize the premiums of employees with individual policies. This affects workers at small businesses that do not offer group coverage. Those employees are not allowed to deduct health insurance premiums on their tax return. Only self-employed workers enjoy that privilege.

Today financial planners face a dilemma finding creative ways to reduce income and remain under the threshold for ACA subsidies. It sounds absurd, but the economic impact of receiving a health care subsidy versus paying full price for an individual health policy is a hefty sum. Gold and Silver health care plans, those with decent coverage and lower deductibles, cost north of $2,000/month for families. Subsidies often reduce that cost to less than $250/month. In San Francisco, subsidized individuals pay as little as $5/month. Premiums vary widely depending on state of residence, age, and income level.

Ed Dolan, was a guest on Russ Roberts’ podcast EconTalk, discussing the history of employer-based health insurance. It’s a flawed system and leads to job lock — people remaining in jobs to keep their healthcare coverage.

Dolan advocates for healthcare reform he calls Universal Catastrophic Coverage (UCC). He describes UCC:

UCC would pay for coverage in full for the poor, and would impose income-based deductibles on the rest. For example, a family with income of (say) $25,000 or less would have no deductible in its UCC; one with income of $75,000 would have a deductible of $5,000 (a little less than under an ACA silver plan), and one with income of $400,000 would have a hefty deductible of $37,500. High-income families might consider supplemental insurance to help with deductible costs, for which premiums would be modest since they would be covered by UCC for catastrophic events.

A free market insurance program charges higher premiums for higher levels of risk. The ACA eliminated this market ability with the removal of pre-existing conditions, a concept that Americans support overwhelmingly. After all, aren’t we all one medical test away from uninsurability? Many health problems are simply luck of the draw. So today we have an insurance system built on an unsustainable foundation.

The free market cannot resolve these issues, but a few small fixes would help those who are caught in the individual policy nightmare.

  •  All working Americans should be eligible to contribute to Health Savings Accounts (HSAs). There are high deductible plans that do not qualify for an HSA, which is ridiculous. Make HSAs available to all who are under age 65 and have earned income.
  • Change subsidy levels from a cliff to a regressive stair step. Families earning slightly above current thresholds cannot afford the full cost of premiums.
  • Make health insurance premiums deductible for all who buy individual plans, not just for self-employed taxpayers. If you are worried about the rich “taking advantage” throw in an income phase-out, but make it high — more than $500,000.

These are some quick fixes that could provide temporary relief to those caught in the quandary of earning too much but not enough.

 

 

 

 

 

 

 

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