Obamacare Cliff

[ripper1]

I think we may have covered this in an earlier thread. But I am just looking for some opinions on the affordability of these rates for couples making over 400% over the so called poverty rate. If you make up to 62040 you will pay 5894 a year or 491 a month for a silver plan on premiums. If you make 62041 to infinity you will pay 15546 a year or 1296 a month at 0 subsidy. SOURCE: Henry J. Kaiser Family Foundation Calculator.

 

[Htown Harry]

I won't comment on the affordability, but you have correctly identified the cliff effect for policy holders over age 40 or so. I posted a chart that shows it graphically, here:

http://www.early-retirement.org/forums/f38/aca-federal-marketplace-updates-67141-12.html#post1353862

 

[pb4uski]

I think it is the Achilles heel of Obamacare, is not currently well recognized and will catch some people by the short hairs (such as someone whose OT or raise or promotion puts them just over the limit) and they are going to be mad as a wet hen.

The problem is that IMO there aren't any very good solutions. If you grade off the subsidies to get rid of the cliff you end up providing so much in subsidies that it becomes prohibitively expensive and will increase the deficit. If you grade it backwards then it doesn't provide enough relief to make health insurance affordable for the poor and middle class.

 

[Disappointed]

Just looked at Covered California yesterday, platinum PPO for me and my wife without any subsidy will be $1,600. Currently my company is paying $3,300/mo for me. I will be retired at the end of the year and I won't be using Cobra.

 

[Which Roger]

I think it is the Achilles heel of Obamacare, is not currently well recognized and will catch some people by the short hairs (such as someone whose OT or raise or promotion puts them just over the limit) and they are going to be mad as a wet hen.

The problem is that IMO there aren't any very good solutions. If you grade off the subsidies to get rid of the cliff you end up providing so much in subsidies that it becomes prohibitively expensive and will increase the deficit. If you grade it backwards then it doesn't provide enough relief to make health insurance affordable for the poor and middle class.

I agree. Nobody is going to have sympathy for any of us FIRE types who accidentally goes over the cliff (nor should they), but when a middle class family gets a $1000 Christmas bonus, then finds out they are faced with a $5000 tax bill on April 15, it will become a big deal and something will need to change. But as you point out, changing the cliff to a slope isn't easy, so I don't know how the problem will be addressed. But for anyone who will be near the cliff, I think it's safe to assume that something will change, and don't plan as if the law is written in stone.

 

[Fermion]

There has always been a cliff for various things, but not quite this harsh.

We have been denied deduction for tuition, IRA deduction, and probably some others that I have forgotten. The slope for these is so steep that it is practically a cliff.

This one just hits quite a bit lower...400% of FPL instead of 1000% or something for the cutoff.

 

[bUU]

They could put some kind of slope in place without increasing the deficit, perhaps introducing a sliding scale at $1K graduations from (400 - x)% FPL down to (400 + y)% FPL, where y < x (y could even be zero, perhaps - the exact numbers aren't important), which would actually lower the deficit, though by mildly reducing the subsidy for those at the upper end of the current range. This can be readily implemented by a Congress with enough legislators willing to compromise - if the cliff is actually anything close to important enough to be called an Achilles heel, and if this sort of sensibility is actually important, the American voter can decide to fill Congress with people responsible enough to compromise to do what's sensible, instead of voting for ideologues.

 

[Htown Harry]

the American voter can decide to fill Congress with people responsible enough to compromise to do what's sensible, instead of voting for ideologues.

What's your plan "B", BUU?

Seriously, I'm not so pessimistic that compromise adjustments on the PPACA are off the table indefinitely, with or without a macro change in the Washington debating environment. A deeply divided Congress fixed a related 1099 issue shortly after PPACA was passed, if I recall correctly.

For the cliff issue specifically, you and the other posters have demonstrated the math to adjust the cliff is possible. There will eventually be some changes.

 

[Tadpole]

It would seem that the problem is that they did not slope it in the first place. Now if they go back and put in a slope that achieves the same goals financially they will cause some winners right now to become losers in the sloping. I imagine they don't think the politics would be good if winners become losers and promises are broken. Maybe their numbers show less voters will feel like losers with the cliff than with the cliff sloped to actuarial equivalence.

Then too, I always think things are more political than anything else.

 

[MichaelB]

Obamacare cliff is about the cost of health care and the structure of a subsidy, not the people that voted for it or their continued stay as legislator, so let's stay away from that last part. Here are a couple of threads that focused on that from different perspectives

http://www.early-retirement.org/forums/f38/minimizing-magi-for-ppaca-68035.html
http://www.early-retirement.org/for...ies-by-staying-under-the-threshold-65954.html

 

[photoguy]

I agree. Nobody is going to have sympathy for any of us FIRE types who accidentally goes over the cliff (nor should they), but when a middle class family gets a $1000 Christmas bonus, then finds out they are faced with a $5000 tax bill on April 15, it will become a big deal and something will need to change.

I don't think the cliff is that bad for a middle class family. For a family of four the subsidy cutoff at 400% of the FPL is 94k. If you put in some numbers (say mid 40's, 2 kids) the most subsidy they would lose by going over is about 3.5k. That is not bad on 94k income. (The subsidy loss in this situation gets worse as the parents get older.) However given that working couples can also adjust their income by 401k, IRA contributions I think you are looking at well over 100k gross before being hit by the subsidy loss. With 100k+ income, is this middle class?

The people who will get hit the worst by the cliff are older couples (limit is only 62k for 2) without kids. At age 60 they would get hit by a loss of 10k (on 62k income). Again early-retirees who cannot contribute to 401k/ira may have greater difficulty adjusting their income.

I do agree that getting rid of the step function would be nice though.

 

[MooreBonds]

However given that working couples can also adjust their income by 401k, IRA contributions I think you are looking at well over 100k gross before being hit by the subsidy loss. With 100k+ income, is this middle class?
...
The people who will get hit the worst by the cliff are older couples (limit is only 62k for 2) without kids. At age 60 they would get hit by a loss of 10k (on 62k income). Again early-retirees who cannot contribute to 401k/ira may have greater difficulty adjusting their income.

Taking the context out of the confines of this forum and applying it to the 'average couple in America', I think both of your scenarios are atypical, and the later even moreso.

Looking at the average couple (kids or not), how many households with $100k +/- total household income do you think are putting $35k into their 401k each year? I'm sure some are, but I'm also sure that % is likely countable on one hand.

Same with those retired - while I'm sure there are some retiree households earning $62k+, this random google search cites the following recent statistic:

"Median income for households headed by people ages 65 to 74 increased by 5.1 percent, to $43,000, even though in many cases the head of the household was retired."

 

[zinger1457]

Just looked at Covered California yesterday, platinum PPO for me and my wife without any subsidy will be $1,600. Currently my company is paying $3,300/mo for me. I will be retired at the end of the year and I won't be using Cobra.

Your company pays $3300/mo for medical coverage just for you? Must be one hell of a medical plan, I don't pay that much for the whole year.

 

[ripper1]

I don't think the cliff is that bad for a middle class family. For a family of four the subsidy cutoff at 400% of the FPL is 94k. If you put in some numbers (say mid 40's, 2 kids) the most subsidy they would lose by going over is about 3.5k. That is not bad on 94k income. (The subsidy loss in this situation gets worse as the parents get older.) However given that working couples can also adjust their income by 401k, IRA contributions I think you are looking at well over 100k gross before being hit by the subsidy loss. With 100k+ income, is this middle class?

The people who will get hit the worst by the cliff are older couples (limit is only 62k for 2) without kids. At age 60 they would get hit by a loss of 10k (on 62k income). Again early-retirees who cannot contribute to 401k/ira may have greater difficulty adjusting their income.

I do agree that getting rid of the step function would be nice though.

Well, like someone said earlier there is going to be winners and losers. My wife and I are retired on a pension income a little over the threshold. No way to reduce. My healthcare premium with City of Chicago is going to double in the near future as Chicago is getting out of the retiree health care subsidy and transitioning to Obamacare. Thank god for Plan B.

 

[nun]

The cliff has been one of the few complaints with the MA system since it was signed by Romney. It's ridiculous that it wasn't dealt with in ACA. How difficult would it be to have the subsidy phase out with income rather than cut off sharply? Still at least MA is starting to get a handle of healthcare costs, the exchange works well and it's good to know you can never never refused insurance or discriminated against because of a pre-existing condition.

 

[photoguy]

Taking the context out of the confines of this forum and applying it to the 'average couple in America', I think both of your scenarios are atypical, and the later even moreso.

I was mainly addressing Which Roger's point about a middle-class family receiving a $1000 bonus and then suddenly being on the hook for $5k.

Looking at the average couple (kids or not), how many households with $100k +/- total household income do you think are putting $35k into their 401k each year? I'm sure some are, but I'm also sure that % is likely countable on one hand.

The family doesn't need to put $35k into their 401k. They only need to increase their contribution by the amount of that their year end bonus that puts them over the threshold.

Same with those retired - while I'm sure there are some retiree households earning $62k+,

I agree this is the group that will likely get hit the hardest by the cliff in the subsidy.

Well, like someone said earlier there is going to be winners and losers. My wife and I are retired on a pension income a little over the threshold. No way to reduce. My healthcare premium with City of Chicago is going to double in the near future as Chicago is getting out of the retiree health care subsidy and transitioning to Obamacare. Thank god for Plan B.

I'm also very concerned about going over the subsidy limit and would rather it didn't exist.

What is your plan B?

 

[ProGolferWannabe]

Your company pays $3300/mo for medical coverage just for you? Must be one hell of a medical plan, I don't pay that much for the whole year.

Your post made me look---our employer pays about $9800 per year for our family health insurance (excludes our contributions). Maybe the $3300 figure is a yearly/semi-annual figure? It does seem way high.

 

[ripper1]

I was mainly addressing Which Roger's point about a middle-class family receiving a $1000 bonus and then suddenly being on the hook for $5k.




The family doesn't need to put $35k into their 401k. They only need to increase their contribution by the amount of that their year end bonus that puts them over the threshold.





I agree this is the group that will likely get hit the hardest by the cliff in the subsidy.





I'm also very concerned about going over the subsidy limit and would rather it didn't exist.

What is your plan B?

Plan B would be an increase in withdrawal rate.

 

[bUU]

What's your plan "B", BUU?

As I said, it's really up to the American voter to decide whether this is important or not. As much as we bash public figures, we're their enablers.

 

[2B]

My thought on the amount of income needed to fall over the "cliff" is that it's a lot of money. 400% of the FPL is significantly higher than the average/typical American's income. The subsidy will be available to almost all Americans without employer provided health care. Ah, I love the smell of runaway deficits in the morning.

I have a substantial amount of assets and can see myself easily adjusting where I take "income." I can easily stay under $62K. With that "income," I would still be able to spend significantly more than $62K. I'm pretty sure that no one intended people like me and my DW to get the subsidy.

I predict news stories next year of people like me (and others here) with large amounts of assets sucking up the subsidy. They will run right next to the stories of people that qualify for subsidies but still can't afford health insurance or the copays required.

 

[pb4uski]

It seems to me obscene that a couple earning a little over 400% FPL would be expected to spend 20% or more of their earnings for health insurance. If they had health issues with deductibles and copays it would be even more.

The crux of the problem is that our health care system is simply way too expensive. Subsidies are just a different form of cost shifting.

 

[Mulligan]

It seems to me obscene that a couple earning a little over 400% FPL would be expected to spend 20% or more of their earnings for health insurance. If they had health issues with deductibles and copays it would be even more.

The crux of the problem is that our health care system is simply way too expensive. Subsidies are just a different form of cost shifting.

Yes sir, I agree. And unfortunately for me, some of that cost shifting is being squarely dumped on my back.

 

[2B]

Subsidies are just a different form of cost shifting.

Unfortunately, whatever we do we will involve varying degrees of cost shifting and rationing of care.

The pre-ACA system provided care based on insurance and/or ability to pay. It shifted the cost of care to those unable to pay for basic/emergency coverage to the taxpayers and people that paid for their own care/insurance. More expensive procedures were generally not provided for those unable to pay.

The ACA opens the opportunity for insurance to more individuals but will shift the subsidy cost to the taxpayers. The government has gotten hip-deep into what should be in insurance coverage and part of this will be limitations on procedures. Those that have the assets will be able to avoid this rationing of care by going to private clinics. It will be the equivalent of Canadians getting their procedures done in the US because they are denied or seriously delayed by their home country coverage.

 

[MichaelB]

The crux of the problem is that our health care system is simply way too expensive. Subsidies are just a different form of cost shifting.

Yes, our healthcare system is not only too expensive, it is unaffordable. The average family insurance premium is 30% of the median household income. What is remarkable is how few people in the US are aware of how costly this really is, and also how difficult it is to change.

Subsidy is definitely not cost shifting. On the contrary, getting a standard level of coverage that is fully paid for and that includes the entire population minimizes the need to shift costs (and exploit gaps) by providers and allows users to make price comparisons. This is rampant and well documented, and impedes real reform.

Subsidies are transfers that enable the price to be paid by everyone, regardless of affordability. They usually have a marginal stimulative impact on demand. Can we conclude that the excessive cost of US healthcare is the result of too much demand? No research points to that, so paying less would probably not fix, or even address, the core cost issues.

The cliff at 401% of FPL is real, and families at that level of income without subsidized insurance will find themselves in dire straits and few options. We have no real way of knowing if it was a policy choice or legislative compromise, or something else, and now that really isn’t important. Focus is on implementation.

 

[pb4uski]

The reason I suggested that the subsidies are merely a different form of cost shifting is because the subsidies are funded by taxpayers so it ends up being those with higher incomes (who don't get a subsidy but pay the taxes that provide for the subsidy) subsidizing those with lower incomes (who get the subsidy but pay little in taxes).

So at the end of the day the poor pay less than the actual cost of providing their care and the rich pay more than the actual cost of providing for their care. It seems like cost shifting to me.