Posted on 09/22/2013 5:44:23 AM PDT by Kaslin
When it comes to ObamaCare, should you pay the premium for buying health insurance on your state's exchange, or would you be better off skipping it and paying the "penalty" tax instead?
In two weeks time from this writing, you may find yourself having to answer that question, and the answer may not be what you think. In setting up the its system for mandating that all Americans have health insurance, the Patient Protection and Affordable Care Act (PPACA) actually creates some really perverse incentives that may make it more desirable for people to dump their health insurance coverage instead. At least, until they might actually need to have it.
You see, ObamaCare actually mandates that Americans who aren't covered by their employer's health insurance either choose to buy costly policies on their state's newly established health insurance exchanges and perhaps benefit from a tax credit subsidy to do so, or choose to "self-insure" and pay a potentially much less costly tax instead.
Here's how the self-insurance part of that works. Because the PPACA prohibits health insurance providers from denying coverage to people with pre-existing conditions, healthy people can choose to go without any coverage and only buy it when they actually need it. If the amount of any penalty tax they have is considerably less than the cost of the health insurance they might otherwise choose to buy, they might have a powerful incentive to do just that.
For healthy Americans, the self-insurance aspect of their choice would mean that they would simply pay out of pocket for the health care they actually consume - just the same as those covered by health insurance will do through the co-pays and deductibles for the coverage they have available to them. And while you might be surprised at how inexpensive medical care can be if health insurance is not involved, even for major surgical procedures, the real challenge would come if they suddenly find themselves faced with health care costs that are considerably higher than what they might be able to pay out of pocket using their income, savings and credit accounts.
In the worst case scenario, they might have to get their health care provider to delay billing them for up to the maximum 90-day limit that the law mandates health insurers to provide coverage after they enroll, or perhaps just pay their health care costs out of pocket during that short period of time. But they will still be able to get insurance coverage, and if the incentive to drop it remains after they no longer need it, they are free to choose to do so, because the law permits it and because they are honest taxpayers who cannot be denied their rights.
Some might say that these Americans are wasting money on taxes that they could be using to buy insurance instead. But then, those people are ignoring that healthy people can go many years without needing any more than basic, low-cost health care, and that in the year where might might first need health insurance coverage, any tax they might have to pay would be pro-rated for the portion of the year they went without any coverage, reducing any potential waste to a minimum.
Our tool below is the first that's designed to help Americans find out which option under the ObamaCare law, paying a premium or the penalty tax, specifically is better for them. Beginning on 1 October 2013, you will be able to start here to find out how much the plans that will be available on your region's health insurance exchange may cost you.
In doing that, we'll need you to identify the monthly premiums associated with three of the plans that will be available to you: the second-lowest cost "Silver" plan, which is used to find out how much of a tax credit subsidy you might receive, the monthly premium of the lowest cost "Bronze" plan, which sets a limit for how much you might have to pay in ObamaCare taxes, and the monthly premium for the plan you would actually consider purchasing.
Until the exchanges officially open for business, you might consider getting the information for your state from the Commonwealth Fund's links to each state's exchange or scanning news reports for your state to find out what these values might be as they become public. The default values we've entered in our tool below apply for a 21-year old who lives in California. There's more to the default values that we've entered, but we'll cover that in a separate post in the future....
Also, if you're accessing this tool on a site that republishes our RSS news feed, you'll want to click here to access a working version of our tool.
If the checking we've done with other sources is any indication, our tool turns out to be surprisingly accurate. And although it's not designed to do this particular math, we've validated the "loss-of-subsidy" effect on the out-of-pocket cost of health insurance for making one penny more than ObamaCare's subsidy eligibility level that CNBC described here.
In running the numbers from CNBC's example, we see our hypothetical household would get a subsidy of $5,362.56, which would lower their out of pocket cost for their annual premium from $12,783.96 to $7,421.40.
We then ran the numbers again, this time increasing the total household income by one penny to $78120.01. We find that this hypothetical household would lose out on that $5,362.56 subsidy and have to pay the full cost of $12,783.96. That's one heck of an out-of-pocket cost jump for the mistake of earning just one penny more....
But what CNBC missed in its analysis is that in both cases, if the potential health insurance buyers don't expect to have any significant health care expenses in the near term, it makes far more sense for them to choose to self-insure themselves and pay the ObamaCare income tax than it does for them to pay their state's ObamaCare exchange's health care insurance premiums!
After all, for healthy people, having an extra $7,421.40 or $12,783.96 can buy an awful lot of health care if and when they actually might need it, not to mention whatever else they would rather do with that kind of money if they don't.
We suggest that you take advantage of the Manhattan Institute's "Know Your Rates" site so you can compare how your state's average insurance premiums compare to what identical health insurance plans would have cost before the implementation of the Patient Protection and Affordable Care Act's provisions, paying close attention to the rates that apply for the age nearest your own.
Meanwhile, Chris Conover demonstrates that ObamaCare is a deal that never gets better as you get older!...
In building this tool, we've made a handful of assumptions. Here they are, along with links to our references for data:
Beyond this, we've assumed that for some people there may be a "gray area", who would only have a small incentive to not purchase health insurance, where any benefit in doing so is not very large with respect to their household income, and where the decision to buy or not buy should instead be based upon an assessment of what the buyer's actual health care needs for their household will be in the near term, rather than purely upon its cost with respect to the ObamaCare income tax.
Mathematically, we've defined that gray area as being equal to the difference between the penalty tax they might choose to pay or an amount equal to 3.1% of their income before taxes, which closely corresponds to the average expenditure of U.S. households for health insurance, according to the just-released Consumer Expenditure Survey report for 2012.
Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.
Something is terribly wrong here and America needs to wake up.This shouldn’t even be talked about!
It's been wrong since the New Deal, when the USSC ruled that Roscoe Filburn could be penalized for growing his own wheat instead of buying it from someone else.
I prefer the third option...defund and repeal. Vote out ALL ObamaCare supporters on BOTH sides of the aisle.
That is with no prescription coverage. Also, I have to buy a supplement which is $40 a month. I spend more on this “insurance” than I do on food. Insane...
In Muslim countries, this tax is called jizya.
Pay whichever is cheaper. No matter what you do, when Obama’s death panel decides you are no longer of use to the regime, you ain’t gettin’ treatment anyway!
How many "spaces" are available in those neat little FEMA camps?
That's basically the choice I had to make. I've had good results following a "pure foods" diet. It's about eating less, but very high quality foods. If I got the insurance, I couldn't afford the diet, and I'd need medications and therapies and all kinds of stuff to stay healthy.
A few million people just refusing to comply should end this altogether at least that is the argument applied to illegal immigration. You can’t possibly prosecute millions of Americans for non healthcare law compliance no more than you can possibly deport millions of illegal aliens. :-)
There is no penalty in the law other than the fax. The IRS can confiscate your refund. Don’t have a refund, no confiscation. There aren’t enough jail cells to hold everyone. The judicial system would crash under the strain. Single payer is the goal. The crooks in DC could care less if this works.
Where on earth do you get a Medicare supplemental policy for $40 a month? I have a plan F, which covers all my deductibles plus whatever Medicare doesn’t pay and it is $230 a month (United Healthcare). My Part D is $15 a month thru UH as well. In total I pay $350 a month for insurance. I’d like to get something cheaper but since I have a chronic auto-immune disease and have had frequent hospitalizations, I’m afraid to change my coverage.
Ping for later.
One other thing how is the IRS going to penalize non insurance holding citizens when they have no bank account? Most of my low income tenants have no bank account, so how does the IRS get their health insurance "tax"?
Wifey and I have a Blue Shield Plan F.....$287 monthly for the two of us. It’s the only way to fly; in the 18 months of being on Medicare with that supplemental, we’ve had a combined four cataract surgeries, one gallbladder, two angioplasties, two colonoscopies -— and not one additional cent copay to anybody or any place.
Ping for later.
the roberts decision gave us the answer...
pay the tax, and then sue the feds...
the tax is inequitable under the constitution (too many exemptions for it to be equitable)...
the libs and the unions (who got their exemptions) know this..
why do you think implementation is being delayed???
(hint, the pubs know this too, why do you think THEY are trying to delay implementation???)
if it goes before the supreme court, fubocare is DOA in regards to funding...
I don’t know about FEMA camps. I’ve seen many references and lists over the years, and IIRC they all come from one source; people on FR and elsewhere have gone to many of the locations and they are not camps. Some could be, some are old airports, yards with stored school buses, etc etc.
Regarding the gov’s nefarious intentions, in order for their plans to work, we have to be disarmed first.
Hasn’t worked and it won’t.
No need to. Just enough to get the, ahem, attention of the rest of them.
They could shut down your internet access.
How'd ya like THAT!!??
I’ve been on Medicare for almost 8 years and the only things I have had to pay out of pocket is for the glaucoma test you get during an eye exam. Everything else has been covered by Medicare and the supplemental ins. I have no complaints about Medicare. I have also had 3 hospitalizations plus umpteen tests and sonograms and ultrasounds.
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