Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans

In the past I have written about how government tax credits will help young adults (18-34) who must buy their own coverage because they don’t have access to “affordable, comprehensive” employer-sponsored coverage.

But older Americans forced to purchase their own insurance will save even more. Precisely because a 50-year-old’s premiums may be three times higher than a 20-year-old’s, his subsidies will be larger.

Subsidies are designed to fill the gap between the percentage of your income that you are expected to contribute toward the cost of a premium (with the government assuming that if you earn more, you can spend more on health insurance) and the actual rates that insurers in your market charge for a benchmark Silver plan..

Families USA estimates that while the majority of 18-34 year olds shopping in the Exchanges will qualify for help from the government, fully  30% of the those who receive tax credits  will be 35 to 54, and 12.5% will be 55 or older.

Note that younger Americans will not be subsidizing these tax credits  for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000) Very few twenty-somethings are that fortunate. A New KFF Report Offers Eye-Opening Final Numbers on Premiums and Subsidies for 40 –Year Olds and 60-Year-Olds in 17 States

In  August the Kaiser Family Foundation  (KFF) published an “Early Look at Premiums” in California, Colorado, Connecticut, DC, Indianapolis, Maryland, Maine, Montana, Nebraska, New Mexico, New York, Ohio, Oregon, Rhode Island, South Dakota, Virginia, Vermont and the state of Washington.

The report reveals what a difference the tax credits will make for 60-year-olds, 40-year-olds and 25-year olds in the most populous city in each of these 17 states (Los Angeles, Denver, Hartford, Indianapolis, Baltimore, Portland, Maine, Billings, Omaha, Albuquerque, New York City, Cleveland, Portland, Oregon, Providence, Sioux Falls, Richmond, Burlington and Seattle.)

Thanks to the KFF report, the prices that I quote below are not estimates or averages. They are final rates that have been approved by those states.  (In a very few cases KFF did not have final numbers; I don’t include those states in my discussion.)

Let me add that this report represents a major step forward for KFF.  The Kaiser Family Foundation Calculator, which I have recommended in the past, is now outdated.

The calculator provides only a very rough estimate of what insurance is likely to cost in 2014, based on average premiums nationwide. Trouble is, rates vary widely depending on where you live. Premiums mirror how much health care providers in your area charge.  In some cities, insurers are forced to pay hospitals and doctors with market clout 30% more than in others. As a result, the calculator’s estimates are back-of-the-envelope guesstimates. (KFF made that clear at the time.)

Now, KFF is collecting the actual rates that insurers will be charging, and it has come up with a formula to update its calculator. Using that formula, you will be able to find out what healthcare insurance will cost in your town, whether you will qualify for a government subsidy, and how large that tax credit will be.

I will be writing about how you can customize the calculator as soon as more state regulators report the premiums that carriers will be allowed to charge in cities throughout their states.

In the meantime take a look at to some of the eye-popping premiums in Kaiser’s August report. These numbers will change the lives of millions of older customers.

 As the table below reveals, in 2014, a 60-old living on $28, 725 in Sioux Falls, South Dakota will be able to buy a Bronze Plan for just $44 a month.

Without help from the government, she would have to shell out $508 monthly, for the very  same plan.

60-year-old-monthly-premiumThis table also shows that in 2014, a 60-year-old in Harford Ct. earning $28,725 would pay Nothing for a Bronze plan. Under Obamacare, his subsidy would cover the entire $423 monthly premium.

Imagine  what the numbers in the chart above will mean to the 14% of Americans in their late 50’s and early 60s who were uninsured last year either because:

—  they suffer from a “pre-existing condition” and can’t manage the  premiums insurers charge anyone who is or has been sick (ranging from a Vet suffering from Gulf War Syndrome to someone with a bum leg injured 10 years ago in a skiing accident);

— or because they cannot afford to shell out 5 times what a 20-year-old would pay for a policy. (This is what carriers in many states now demand of 60-year-olds.)

Then there are the millions of older Americans who are underinsured. In theory they are “covered,” but their policy comes with a $5,000 to $10,000 deductible, which means that they cannot afford to use it and/or it does not cover the essential benefits that they need.

             Older Americans Will Have Choices

The chart above shows that “Bronze: plans cost less than “Silver” policies. HealthBeat readers may remember that Bronze Plans are the least expensive policies that will be sold in the Exchanges.  Like Silver, Gold and Platinum plans they cover all essential benefits and offer free preventive care.

Bronze premiums are lower than plans on the other three tiers because their co-pays and deductibles are higher. Though under Obamacare, total out-of-pocket spending is capped at $6,350 for an individual and $12,700 for a family.  After that, their insurer must pick up all bills for essential care.

But people who receive tax credits don’t have to use the subsidy to buy a Bronze plan. If that single 60-year-old living in Sioux City preferred, she could choose a silver plan that carries a price tag of $561. After subtracting her subsidy, the table shows that the policy would cost her $193 monthly.

That is far more than the $44 she would pay for a Bronze plan. Nevertheless at 60, this might well be a wise choice. Since her income is less than $34,470, if she buys  a Silver plan, she will qualify for a “cost-sharing subsidy” that will slash both her co-pays and deductible.(Click on “ cost-sharing subsidy” for a short explanation of who qualifies and how it works.)

Rather than facing the possibility of having to spend $6,350 out of pocket if she sees several specialists, takes two or three pricey prescription medications, is sent for a CAT scan and/or  lands in an ER late one night, her exposure would be limited to half that  amount –or  $3,175 a year.  Whatever happens to her, no insurer who sells her a silver plan in the Exchanges can ask her to pay more than $3,175 out of pocket.  But, remember, she will be eligible for a cost-sharing subsidy only if she buys a Silver plan.)

 Older Americans who live in areas where medical care is not as expensive will pay even less. The table shows that a 60-year old in Burlington, Vermont with income of $28,725 could use his subsidy to purchase a Bronze plan for $116. Without the tax credit it would cost him $336.

Meanwhile in Providence, Rhode Island he would wind up paying just $16 a month for a Bronze plan priced at $446. How could his premium be that low?  He pays only $16 because in Providence the benchmark silver plan carries a relatively rich premium of $622, and, as I explained in an earlier post, that’s the price the IRS uses to calculates tax credits. As a result, the subsidy is larger in Providence than it would be in a city like Portland, Oregon where the benchmark silver plan is cheaper.  In Providence, the subsidy covers more of the Bronze plan premium.

                  If You Are 40, How Much Will You Pay?

 Kaiser’s “Early Look at Premiums” also offers a table indicating how much a single 40-year-old will be asked to lay out if she is purchasing her own coverage in her state’s Exchange. Once again, the table assumes that the individual shopping for insurance earns $28,725.

40-year-old-monthly-premiumBecause the 40-year-old is younger, premiums before subsidies are not as high as they are for a 60-year-old.  Even so, under Obamacare, the vast majority of states will let carriers demand that a 40-something significantly more than a twenty-something. A single 40-year who isn’t eligible for a tax credit (because she earns more than $45,960) will have to pay somewhere between $140 a month (in Baltimore) to $250 (in Indianapolis) for the least expensive Bronze plan. 

The benchmark silver plan could cost her as much as $328 (in Hartford, Ct). On the other hand she might pay as little as $228 in Baltimore.

Once again, subsidies make an enormous difference.
After applying the subsidy, a 40-year-old earning $28,750 in Hartford could pick up a Bronzer plan for $97; in Omaha she would pay $119

If she preferred the Silver plan it would cost her $193 in any of the 17 cities. The price of a benchmark Silver Plan is the same in each city because subsidies are pegged to the cost of the benchmark (second least expensive) Silver plan wherever you live. As I explained in an earlier HealthBeat post , when calculating subsidies the Affordable Care Act expects you to spend a certain percentage of your income on health insurance; the more you earn the more you are expected to contribute. In the case of someone earning $28,750 he or she is expected to cough up $193. The tax credit makes up the difference between $193 and the actual price of a silver plan in a particular city.

       Why Such a Wide Range of Prices ?

All Bronze plans must cover the same benefits. Why then do we see such huge differences in “sticker prices” (before subsidies)?

Insurer’s premiums turn on four factors:

1)   how much insurers have to pay doctors and hospitals in a particular city; in some places, health care providers have the market clout to charge 30% more than in other towns;

2)   the network of healthcare providers that the carrier chooses to include in his plan—in a given city brand-name hospitals  may be able to  command steep reimbursements even for simple procedures;

3)   whether state insurance regulators flexed their muscles when negotiating with insurers, rejecting proposed rates that they viewed as too high, forcing carriers to slash their premiums if they wanted to peddle their products on the state’s Exchange;

4)   whether a particular carrier is interested in attracting single 40 year-olds — or whether the insurer views these aging “Bros” as potentially expensive customers.

Here, the actuary pricing an insurance company’s products faces many unknowns:

Just how healthy is the average uninsured or underinsured 40-year-old in this city?  When he does have insurance, will he use it, or will he put off going to the doctor?

Some observers suggest that once the uninsured are covered, these new customers in the Exchanges will rush to see doctors who then will begin billing insurers for all sorts of tests and treatments.

But the truth is that most people don’t enjoy meeting a stranger, taking off their clothes, and facing questions such as:  “How often do you drink? Have you thought about losing some weight? 

My guess is that if a 40-year-old feels healthy, he may not be in a hurry to visit a doctor.

More Numbers: A Family of Four Earning $60,000, a 60-Year old Couple, a Single 25-year old .

 While the charts above apply only to single 60-year-olds and single 40-year-olds earning $28,750, the Appendix of the Kaiser Report  (beginning on p. 9) provides details on premiums, both before and after subsidies, fo

— a 60-year-old couple earning $30,000;

— a family of four with $60,000 in income that includes two 40-year-old adults,

 —and a 25-year-old earning $25,000.

The surprises range from the news that a family of four earning $60,000 and living in Washington D.C. will be able to buy a Bronze plan that covers the entire family for just $144 a month to the fact that after using their subsidy a 60-year-old couple living on $30,000 in Indianapolis will pay nothing for a Bronze plan. Meanwhile a 25-year-old earning $25,000 in Portland, Maine will be able to purchase a Bronze plan for $97 a month, and get free preventive care (including contraception).

Alternatively, she could decide not to buy insurance, pay a penalty, and get nothing in return.

21 thoughts on “Reverse “Sticker Shock” Part 2 –Subsidies Mean Enormous Saving for Older Americans

  1. You say:

    “Note that younger Americans will not be subsidizing these tax credits for their elders. Under the Affordable Care Act subsidies are funded by device-makers, drug-makers, hospitals—plus taxpayers earning over $200,000—and couples earning over $250,000)”

    This is not true. Mostly the subsidies for people under 65 are funded by taking away the 50 years of contributions I have made to the Medicare trust funds.

    • Dennis Byron

      Absolutely not true.

      Try reading the research brief that I link to. (The link is there so that you can see the evidence behind what I’m saying.)

      All of the funding for the subsidies (and other parts of reform) is spelled out in the Affordable Care Act, in detail.

      I realize that most people don’t have time to read the legislation. Unfortunately this means that they are misled by people who spout off without having the legislation either.
      That’s why I wrote the research brief.

      Also MEDICARE BENEFITS are not cut under Obamacare. Some private sector for-profit medicare advantage insurers who were being overpaid (far more than Medicare would spend caring for the same patients.) Under the ACA, some will see their funding cut –but only if they are not succeeding in providing better outcomes. If a Medicaid ADvantage insurers
      funding is cut, the senior can switch to a different Medicaid Advantage Insurer or go back to regular Medicaid.

      • Your answers are just some kind of deception. You are certainly not arguing with the actuaries, the CBO, and President Obama himself (Nov 2009 interview with ABC) that the funding for Obmacare comes out of the Medicare trust funds are you?

        Are you quibbling with the word “mostly?” Or is it some other deception such as maybe the Medicare money goes more to expand Medicaid or some such word game you are playing while the piddling tax you mention goes to subsidy?

        And putting the words “Medicare benefits” in upper case, doesn’t make that part of your comment correct either. I didn’t mention benefits at all — just the effect on the trust funds — but you are incorrect in two ways in your attempt to change the subject:
        — Most of the cuts are not to Part C but to Parts A and to a lesser extent B
        — The subsidy will be cut for all insurers, not just some (I presume you mean it will not be cut for all plans)

        • Dennis–

          You fail to provide any evidence to back up your assertions.

          In the future, please do not try to use this blog as a platform for your fear-mongering unless you can back it up with persuasive evidence in the form of URLs linking to evidence-based research.

        • Dennis–

          Please see my reply above.

          I wish that you could provide evidence to back up what you say.
          Otherwise your assertions will not appear on HealthBeat.

          I can’t let this blog become a platform for mis-information.

  2. Maggie’s two posts on the realties of Obamacare under the exchages (sticker shock articles 1 and 2) must be widely circulated asap and repeatedly. We must drive these reality messages home. Thanks Maggie.

  3. I hope Mr. Obama reads Health Beat before he starts his Obamacare sales pitch in October, so he has all this good news spelled out so clearly and can articulate it effectively.

  4. Maggie:

    The subsidies are coming from somewhere. The rich don’t pay enough in total to make much of a difference. Corporations do not pay tax, they just pass on costs whether material, labor, overhead or taxes in increased prices which makes the taxes they pass on regressive because the poor consume more of their income. They also can then save less.

    This country has 100 Trillion dollars in debt and unfunded liabilities. When is the madness that we can afford everything for everybody going to end?

    “Socialism is great until you run out of other peoples money to pay for it.”

    Charles

    • Charles–

      As I explained, “the rich” (people earning over $200,000– $250,00 for a couple– cover only part of the subsidies. Insurers, drug-makers and device-makers are contributing more to the cost of the subsidies. Under Obamacare, they will be gaining many new customers who will come to them, subsidies in hand, able to pay their bills. This is why they agreed to chip in to help pay for the subsidies.
      T
      Conservatives suggest that businesses in the health care industry will pass those costs on to the rest of us.But insurers cannot continue to over- pay device-makers drug-makers and others who over-charge. Under reform, Mecicare is cracking down on those who demand exorbitant prices, and insurers have said that they are are going to follow Medicare’s lead.

      Meanwhile President Obama already has made it clear that regulating drug prices is
      “on the table.”

      Like every other developed country in the world, the U.S will begin saying “No” when drug-makers make unreasonable demands.

  5. “My guess is that if a 40-year-old feels healthy, he may not be in a hurry to visit a doctor.”

    Truer words have never been spoken. The only time I go to the doctor is if I am having symptoms I can’t manage at home. When I was in my 20’s and 30’s that meant almost never. Now that I’m in my forties, it’s a little more often, but not that often.

    I get a yearly physical and routine labs because I have mild hypertension.

    Any other time I go, it’s because I have an obvious problem. And that’s still seldom. I take out far less from the health care system than I put into it with premiums.

    And I don’t think I’m an outlier. Forty really isn’t old to the health care industry; we’re still more desirable as customers to insurers than sixty year olds. Which means our premiums will go to the health care of those chronically ill. When we get chronically ill, the younger and healthier among us will pay the premiums that support our health care. Meanwhile, if they have a catastrophic problem, they’re covered and don’t have to worry about losing their house or their car.

    It’s really win win.

    Great article, Maggie.

    • Panacea–

      Thanks much. It is good to know that a health care provider understands the problems–and the needed fixes You will be part of the solution.

  6. Thanks for a valuable post, Maggie. It will be a great relief to see the disappearance of $1200 monthly premiums for a single person who is aged 55-65 and forced into the individual insurance market. Read enough blogs as you and I do, and you know of the suffering that has been out there.

    This is not a major point, but I do not fully follow how the drug companies and hospitals and insurers are actually paying for the subsidies. As I remember the negotiations in 2009, they promised Pres Obama a certain amount of price restraint in exchange for the extra business they would see thanks to the ACA.

    OK now we are about to realize the exchanges and subsidies. The US Treasury will be writing checks to health insurance companies when a subsidized patient enrolls.
    (this may be called a tax credit for Congressional fig-leaf purposes, but the Treasury has to write checks during the year. I cannot imagine we will make the newly insured pay high premiums all year and then try to recover their subsidy through a next-year refund.)

    So let’s say that 7 million persons on the Exchanges will get subsidies that average $3000 apiece. (I am just grabbing a number — the actual total will depend a lot on how many families go to the Exchanges vs individuals.)

    Anyways that is $21 billion more a year flowing out of the Treasury. Other than the medical device tax, are there any medical providers actually writing checks into the Treasury to cover the $21 billion?

    No rush, but help me out here. Thanks

    • Bob–

      First, thanks very much.

      Secondly, please see the brief that I have written about how Obamacare will pay for itself.

      I linked to it in the post

      It explains, point by point, who will be paying for what in the Affordable Care ACt.

      Companies in the HC industry will profit when many more customers appear, subsidies in hand,to buy their services and products. For that reason, they agreed to help finance reform. Taxpayers who earn over $200,000 ($250,000 for a couple) also will contribute to help fund subsidies, but the health care industry is paying a larger share of the costs. Given the profits that insurers, drug-makers, device makers can expect to reap, this is fair.

      Meanwhile, state regulators are clamping down on how much insurers can ask in premiums. In many states they’ve really slashed rates.

      As a result, insurers are going to be pushing back against device-makers, drug-makers and certain hospitals that have been gouging all of us.

      This chain reaction should bring down the cost of healthcare, not only in the Exchanges, but in the market where employers purchase coverage for employees.
      This year, for the first time, in a long time, inflation in that market slowed appreciably.

  7. Pingback: Obamacare and the bad-news bearers

  8. When Obama said that the ACA would be paid for
    (in part) by agreed-upon cuts to Medicare fees for hospitals and drug makers, he was relying on what I think is called
    the ‘unified budget’ theory of US Government.

    Which says that if we save money in Program X, we can raise spending in Program Y , and the national debt will not increase.

    This is carried even further sometimes. It is asserted that if Program X spending goes up less than expected, well, that is savings too and it enables us to spend more on Program Y.

    A more fiscal-conservative approach would say that if we want to spend more in Program Y, we should raise taxes explicitly for Program Y. Let Program X save money and stand on its own.

    I am not wise enough to know which is better. I would point to a recent post in The Incidental Economist which showed that Medicare fees have indeed stayed flat — but Medicare utilization and Medicare enrollment keep going up, therefore
    Medicare spending is going up no matter what we do.

    Don’t get me wrong. I like the new Medicare taxes on individuals making more than $250K. I would like to see more of that to help pay for the ACA.

  9. I went back to your excellent Century Report in 2011 on paying for the ACA subsidies.

    I now realize that the ‘contribution’ from hospitals and drug companies .was only to account for $107 billion over 10 years. So it is not a deal breaker issue.

    Still, I am not aware of a single check received at the federal treasury from these entities. (The medical device tax will not bring in $10.7 billion a year to my knowledge.)

    This one aspect of the ACA has a little smoke and mirrors to it, in my opinion. The crafters of the ACA had the very hard task of expanding social legislation in a political climate that resisted any new taxes. This drove them to lug in ‘cats and dogs’ of barely-related changes in other parts of the federal budget to say that the ACA was paid for. The ‘tanning salons’ tax is almost comical, and the proposed new rules for 1099’s on small business purchases were not comical but outright bad policy.

    I still favor new taxes for new programs, and not gimmicks. But maybe over time we will be glad that the ACA got through Congress with its gimmicks.

    • Bob–

      I’m very glad you read the report. I spent a few months on it. It was the last major brief I did while at TCF.

      Device manufactuers will pay the tax. Obama and Reid are definite about this and device-makers can easily afford it.http://www.usatoday.com/story/news/politics/2013/09/26/medical-device-tax-repeal-government-shutdown-debt-ceiling-health-care/2878449/

      The big device makers reap huge profits (which explains how they are able to spend so much on lobbyists), hide defects in their products (thus killing people) and way over-charge. They make tdrug industry look like a charitable organization.
      (Device makers also bribe doctors to use their products.)

      As for insurers and hospitals, their contribution is written into the bill. It’s the law– a
      law ratified by the Supreme Court.

      Because the Republicans keep making so much noise about repealing parts of it, all of it, postponing it etc. people don’t seem to grasp that it’s happening. Now. The funding is mandatory. Nothing that Republicans can do to stop it. Even shutting down the government won’t stop it because the funding is mandatory.

      Congress certainly did patch together some odd taxes to fund the bill. But there is a good reason for virtually all of them. For instance the tanning salon tax is directly related to health care– tanning salons lead to skin cancer. Obama himself has said that Congress should repeal the proposed new rules for 1099s http://www.thefiscaltimes.com/Blogs/Gooz-News/2010/11/09/Gooz-News-Plenty-of-Critics-But-Where-are-the-Health-Care-Reform-Defenders
      I think they may have either repealed it or rewritten it.

      It is remarkable that Obamacare’s opponents can’t take in the message: “You lost. Get used to it.”

      Over time, we will tweak parts of the bill. But first we have to begin implementing it and see where the real problems are. The Republicans don’t have a clue. Most haven’t attempted to read the bill. They just like to talk about it.

      What’s important is that we fix any parts of the bill that aren’t working to protect patients and make healthcare more affordable. That’s what the bill is all about: patients.

      What we don’t want to do is change parts of the bill simply because lobbyists don’t like them . . .

      What we really need at this point is campaign finance reform: Much, much shorter elections that will thus be much less expensive (as in other countries). Strict caps on how much anyone can spend or raise. No TV advertising. (TV ads rarely do a good job of addressing issues and they’re too expensive.) Televised debates are okay. If politicians didn’t need so much $$$$ to run for office in this country, special interests wouldn’t be able to buy them.