Locked into Obamacare Poverty: Earn More, Lose Your Subsidy, Be More Dependent on Government. Obamacare Insurance a Bad Deal (a continuing series)

percentageincomerequiredtobepaidtoinsuranceYounglosesubsidypercentageincomerequiredtobepaidtoinsurancelabelThe Federal government has a long history of establishing income ceilings that keep generations of people in poverty.  Examples include the failed welfare program that required reform in the 90’s and the Medicaid program that discourages people from earning higher incomes lest they lose that government aid.  Now theObama administration has added another in Obamacare that claims to offer those earning less than 400% the Federal Poverty level “low cost” health insurance.  In fact, the insurance itself costs more than ever before, but the insurance company is receiving subsidy checks on behalf of those earning less than $45,960 for an individual wage earner and less than $94,200. However an analysis of the subsidy-eligible insurance plans under Obamacare reveals that the young will not receive the same subsidy as those in older age groups and will have an even stronger incentive than most to stay at a lower income level throughout their lives.  So just when people should be working to strongly advance their earning potential and careers, they will instead be motivated to remain mediocre.  Thus a new generation of government-dependent people will be created.

The fact is that the young will not be eligible for subsidies up to 400% of Federal Poverty level (FPL) in most cases. In most cases those between ages 18 and 34 will only receive subsidized insurance if they earn less than 300% of the FPL, or $34,470. Those who are over 51 will generally receive a full subsidy up to 400% of FPL.  This was according to a study of insurance rates (from 15 states that had release insurance rates as part of their exchanges) by David Hogberg, Ph. D., a senior fellow for health care policy at the National Center for Public Policy Research and Sean Parnell, president of Impact Policy Management, a public policy consulting firm.  These numbers were confirmed by the Sun Beam Times founder Dr. David McKalip for younger Florida residents.

The available subsidies are calculated using a complicated formula that begins with the cost of the “second lowest cost Silver Plan” available under Obamacare minus the “applicable percentage”.  The calculation for “applicable percentage” includes the  “‘‘(ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.” (section 1401 of  the Patient Protection and Affordable Care Act also known as Obamacare).  Decoding this language means that people are required to spend a certain percentage of their income on health insurance before they receive the subsidy (see graph above from the Congressional Research Service study linked below). Since the cost of a silver plan is relatively low for those who are young (but still higher than it was before Obamacare), application of the subsidy formula means that as income increases, it overcomes the cost of the premium and the subsidy disappears at about 300% of  the Federal Poverty level. The details of this study are worth reading at the National Center for Policy Research.

Obamacare’s planned success partially rests on the assumption that mandating the young and healthy to buy insurance will expand the pool of money available to pay for the medical costs and insurance and of the older and the sicker.  Given the loss of subsidies for the young, this is less likely to happen.  In addition, the young can simply pay a $95 tax (not a “fine” according to the Roberts Supreme Court ruling) and avoid the purchase until a later time when they are sick and then the law requires they be given insurance coverage when they are sick.  Given the fact that many young people feel they can forgo insurance, they are not likely to contribute 8%-9.5% of their income $28,000-$34,000 income to health insurance even if they receive the subsidy (as evaluated here). That would mean giving up $2,700-$3,200 annually for a product that is watered down, rationed insurance coverage at best.

In addition to the economic impact, the subsidy structure is likely to have a negative societal impact. ASsume a person has decided they like Obamacare enough to buy it and get the subsidy. They now are offered a raise of a few hundred dollars but it will put them over the top of the 300% FPL limit and they will lose all of their subsidy and end up a net loser financially. These people are likely to remain locked into a lower income job to keep their insurance. This is similar to the phenomenon of people being locked into jobs they don’t like now to keep their employer-provided health insurance.  

Another notable fact is that the Congressional Research Service has predicted that only about 20 million people will even be likely to receive the subsidies envisioned under Obamacare. That will cost the taxpayers $796 million in redistributed wealth between 2014 and 2023 on top of the increased cost of health insurance itself and the loss of full time jobs that are converted to part time jobs to game the Employer mandate.  Obamacare continues to prove itself bad for individuals, economically unsustainable and bad for American society.