Question on Obamacare Premium Subsidy

Discussion in 'Healthcare/Insurance/Govt Healthcare' started by legodad, Jul 2, 2012.

  1. legodad
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    legodad Rookie

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    I was hoping some people here who have more knowledge than me could shed some light on the Obamacare premium subsidies. We are a family of 3. My wife stays home and takes care of our son. I work full time and earn $30k per year. At the moment we cannot afford health insurance. Our son gets coverage via the Oregon Health Plan for free. After mortgage, bills, food and clothing we may have $50 at the end of the month to spare, but alot of times we have nothing at all.

    My employer offers me coverage for $60 a month which I cannot afford right now so I don't have it. For coverage for my whole family it is $700 per month which is completely out of the question for us financially. From what I have read my wife and I will both be required to buy health insurance or pay a $695 penalty per year come 2014. After looking through various tables I should have to pay no more than 4% of my income which is $100 per month. I earn too much to be covered by medicaid.

    I have two questions. If I cannot afford $60 per month now then obviously I cannot afford $100 per month. So it seems to me I will be paying $58 per month in a penalty tax (which again I cannot afford) with still no coverage? And is the $695 penalty for both my wife and I or is it per person?

    Secondly it seems the premium subsidy is paid via a tax credit. Obviously lower income families are going to struggle to pay for the first 12 months before they see a dime of the tax credit. Is there a system in place where families will receive the subsidy on a monthly basis upfront?

    Thanks in advance.
  2. legodad
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    legodad Rookie

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    OK I think I may have found the answer to one of my questions. It seems if your insurance premiums are greater than 8% of your income you do not have to purchase insurance and you will not have to pay the penalty due to financial "hardship".

    This sure is going to still leave ALOT of us poor with no options. I have to admit the more I read into this law the less I am impressed with it. I have a feeling the money would bet better spent investing for jobs that pay a decent wage so us workers could afford to pay $700 a month for our families.
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  3. Greenbeard
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    Well, there's good news and there's bad news. And the good news isn't necessarily that good.

    First of all, your calculations are correct. If you were buying insurance in an exchange and were eligible for the premium tax credit, you'd be protected in the sense that you wouldn't have to pay more than a given percentage of your income on insurance premiums (this is called the applicable percentage of your income). Given your income and family size, you're right that the number is a little over 4% of your income (or around $100 per month).

    The good news it that this doesn't preclude you from getting coverage, even given how financially strapped you are. The key thing to understand here is that insurance plans in the exchange are sold in four actuarial tiers, corresponding to how generous they are in paying out benefits for a standard population. There will be bronze, silver, gold, and platinum plans in order of increasing generosity. Platinum (i.e. "cadillac") plans would have high premiums but relatively low deductibles and other out-of-pocket costs. At the other end of the spectrum, bronze plans are similar to what folks generally call catastrophic plans--they'll have lower premiums but higher deductibles, etc.

    The way the value of the premium tax credit is calculated is:

    (Price of the 2nd cheapest silver plan in your market) - (applicable percentage of your income * (your income)
    In other words, once you put the specified percentage of your income toward premiums, the tax credit pays the rest of the way toward the second cheapest silver plan available to you. If you buy that second cheapest silver plan, you're set.

    But you could still buy a more generous silver plan, or even a gold or platinum plan. In that case you'll pay all the additional premium expenses above the value of the subsidy and the applicable percentage of your income. However, you could also go the other way and buy a less generous plan: that's either the cheapest silver plan or a bronze plan. If you do that, you still get the full value of the subsidy (as if you were buying the second cheapest silver plan), but since the premiums are going to be lower your own contribution toward premiums will be lower.

    So if you bought a bronze plan, you could likely get your required premium contribution near $0. The not-so-good part of that is, as I said, a bronze plan is essentially catastrophic coverage. Should anything go wrong, it leaves you with more out-of-pocket costs (e.g. via a higher deductible) than a silver plan would, though the law still includes upper limits on that. Moreover, while the ACA also provides subsidies for those kinds of cost-sharing expenses, you forgo them if you don't buy a silver plan. But you can get insurance that will offer catastrophic coverage and very little comes out of your pocket to cover the premiums.

    Now for the bad news. You're stuck in the middle of some controversial penny pinching on the part of the federal government. Under the law, folks with an offer of employer-sponsored coverage generally are not eligible for federal premium tax credits in the exchanges. However, if the cost to the employee of the employer-offered coverage exceeds 9.5% of the employee's income, he does get access to exchange subsidies.

    The trouble is in defining what the means. If it means the required contribution to a family plan is more than 9.5% of your income, then you and your family obviously meet the standard--the $700/month you'd need to spend on your employer's plan is way over the threshold, meaning you'd be able to opt out of it and still get federal subsidies for a non-group plan in the exchanges.

    An alternate way to define this is to say it only applies if the cost of self-only coverage exceeds 9.5 percent of your household income, regardless of whether you have a family and need family coverage (as you do). The $60/month contribution required by your employer for self-only coverage obviously is below 9.5 percent of your income, meaning by this standard you would not be eligible for exchange subsidies.

    This is currently a very hot and contentious issue, though Treasury has provisionally indicated it will go with the latter definition, which throws a bone to fiscal conservatives but is bad for folks like you. But the matter isn't closed, consumer advocates are up in arms, and the final decision is yet to come. So stay tuned.

    Yes, it's an advanceable tax credit. So you'd sign onto the state of Oregon's exchange website, enter some information (including your income), and it will calculate what the value of your premium credit should be. It'll give you the option to take it upfront and if you choose to do that, the value of the tax credit will be applied when you choose a plan through that website. You don't have to wait until April to get that money.
  4. Oddball
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    Oddball BANNED Supporting Member

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    Thanks, Cass!
  5. legodad
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    legodad Rookie

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    Thankyou for the excellent information! My company has less than 50 employees so I took your notes to our CFO to go over. After a discussion it is looking like they will wait to see what the exact stipulations will be on subsidy eligibility and they are willing to not offer any coverage so we can go to the exchange with subsidies if need be.

    Thankyou again for clarifying this complicated matter!
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  6. onecut39
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    onecut39 Senior Member

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    It depends on whether your inability to afford the premium is due to your income..........or your lifestyle.

    If you really have no money you will be subsidized. If you have no money because of your new car and European vacation that is another matter,

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