ObamaCare: What you need to know... (Part 3)

For the last few days, I have been on a quest to figure out how to calculate the cost of an ObamaCare health plan. Today, I gave up. At the end of the day, the only way to really find out what the cost of an ObamaCare plan will be to your family is to sign up for one, use it for a year, and then pay your taxes... in 2015. Practically speaking, Americans electing to sign up for an ObamaCare plan must simply submit their application to their exchange to see what plans will be available to them and at what cost. It will be an estimated cost, of course, because the total cost won't be settled until they file their 2014 taxes in April of 2015.

If you're interested in the details, keep reading...

The un-subsidized costs of an ObamaCare plan are easy to find, and here is where you can see them.

Most of the plans, however, are completely out of the question for low and middle income families. The cheapest unsubsidized Bronze plan available to me has an $822/month premium, a $10,000/yr family deductible and a $12,700/yr maximum family payout. That's simply not affordable for my family.

But of course, the PPACA has provisions to make these plans more affordable. So I went looking for how that works and how much I can expect to pay in the end.

The Kaiser Family Foundation website has quite a lot of information about the Patient Protection and Affordable Care Act (PPACA), and this PDF document found on the subsidies calculator page under "Frequently Asked Questions," titled "How do premium subsidies work?" states:

New eligibility rules enacted under PPACA—as revised by the recent Supreme Court decision on the law—give states the option of extending coverage in Medicaid to most people with incomes under 138% of poverty (for my family of six, that would be $43,594). For people with somewhat higher incomes, up to 400% of poverty (for my family of six, that would be $126,360), PPACA provides tax credits that reduce premium costs. People with incomes up to 250% of poverty (for my family, that would be around $79,000) also are eligible for reduced cost sharing (e.g., coverage with lower deductibles and copayments) paid for by the federal government. The premium tax credits and cost-sharing assistance will begin in 2014.

There is a lot in that paragraph, so let's break it down. Here is what may affect what you will have to pay for ObamaCare:

1. Medicaid. PPACA gives states the option of extending coverage in Medicaid to most people with incomes under 138% of poverty.
2. PPACA tax credits that reduce premium costs. Those are available, not from states but from the federal government, to people with incomes up to 400% of the poverty line.
3. Reduced cost sharing. Every ObamaCare plan is built so that the cost of the plan is shared between the government and the individual insured. Again, from the Kaiser Family Foundation site: "PPACA provides for reduced cost sharing for families with incomes at or below 250% of poverty by making them eligible to enroll in health plans with higher actuarial values." More on this in a minute.

Let's stop for a minute and define some terms:

• Medicaid - According the Wikipedia page on Medicaid, it is a "United States health program for families and individuals with low income and resources... Medicaid is the largest source of funding for medical and health-related services for people with low income in the United States." The benefits you may receive depend on your means. And, critically for the PPACA, it is "jointly funded by the state and federal governments and managed by the states, with each state currently having broad leeway to determine who is eligible for its implementation of the program. States are not required to participate in the program, although all currently do." The original ObamaCare law stipulated that states would be required to expand medicaid to cover the costs of ObamaCare, but the Supreme Court ruled that unconstitutional. So, many states chose not to. (Medicaid is not to be confused with Medicare.)
• I'm not going to try to define the federal poverty line here. Apparently, it's complicated. For our purposes, though, you can find your family's percentage of the FPL using this chart.
• Actuarial Value - According to healthcare.gov, this is "The percentage of total average costs for covered benefits that a plan will cover. For example, if a plan has an actuarial value of 70%, on average you would be responsible for 30% of the costs of all covered benefits."

So now, back to the job of figuring out how much your ObamaCare plan will cost you. From what I can figure, this is what you would need to do:

1) Medicaid

• Figure out you how much you will make in 2013. This is critically important, and it's probably the easiest step. This allows you to figure out where your income is relative to the federal poverty line mentioned above.
• If you're in a state that has expanded Medicaid, and you are under 138% of the poverty line, you'll need to contact your state Medicaid office to figure out what benefits are available to you. If you live in a state that has chosen not to expand Medicaid, you probably still need to contact your state Medicaid office, particularly if you have received medical coverage through them in the past. You'll want to find out how the new ObamaCare laws will affect the state-run medicaid programs that are available to you, if any.

2) Tax credits that reduce premiums

• A tax credit is a "sum deducted from the total amount a taxpayer owes to the state". (Tax credits should not to be confused with tax deductions, which reduce the amount of income that is subject to tax.) In the United States, there are two kinds of tax credits: refundable, and non-refundable. ObamaCare tax credits are refundable, which means that you may receive a refund from the government when you file your taxes. Many US tax credits can be stacked up so that you actually receive more money from the federal government than you pay in taxes. That is not the case with tax credits for the various ObamaCare health plans. The tax credits available for the ObamaCare plans are tied directly to the total cost of each plan, so the most you can receive from the government to subsidize your ObamaCare is to make the monthly amount you pay for the plan (i.e. your premiums) zero.

• If your income is between 100% and 400% of the FPL, and you purchase coverage through a health insurance exchange, you are eligible for a tax credit to reduce the cost of coverage. (Please see footnote 1 for more details about exceptions.) However, you need to be very careful to estimate your 2014 income correctly. If you estimate too low, you may lower your ObamaCare monthly premiums by those tax credits, but you may end up owing the government taxes at the end of the year. If you estimate too high, you'll be paying higher premiums, but then you'll get a larger tax return. And, of course, changes in your income may change how much of your plan will be subsidized by the government. This is why it's so difficult to figure out the exact cost of the plan to your family: the final amount that you'll pay for an ObamaCare health plan in 2014 will be dependent upon your income for 2014.

3) Reduced cost sharing

• In general, if you pick a Bronze plan, your plan will pay 60% of the average overall cost of the care provided to you and you will pay the other 40%. The split is 70-30 for Silver plans, 80-20 for Gold plans, and 90-10 for platinum plans. The out-of-pocket costs to the individual for any particular plan come in the form of co-payments, deductibles, co-insurance, and perhaps other ways I don't know about. Each plan has the ability to structure their co-payments, deductibles and co-insurance the way they want, but this "reduced cost sharing" works by changing that percentage split in the following way:
• If your income is 100-150% of the FPL, the split is 94%-6%.
• If your income is 150-200% of the FPL, the split is 87%-13%.
• If your income is 200-250% of the FPL, the split is 73%-27%.
• So, this "reduced cost sharing" will impact how much you pay by modifying the "actuarial value" of the plan you choose. Instead of paying 30% of the "total average costs for covered benefits", you might pay 13%. But even if you've stuck with me this far and you've figured out the actuarial value of your plan, the details are still dependent on how the plan structures its co-payments, deductibles, premiums, co-insurance, etc.

There are still so many questions that could still be explored, but this post has gone on long enough. For families that are near the federal poverty line, though, ObamaCare will cost very little. In my case, the silver plan that I would likely choose would cost around $85 a month and have a $500 out-of-pocket maximum. Although Indiana chose not to expand Medicaid, I qualify for the tax credits and for the reduced cost sharing.

But if you've stuck with me this far, you know one thing is clear: handling your healthcare this next year and figuring out how much to budget for it is going to be precisely as fun, and just as predictable, as doing your taxes. Be prepared to get friendly with the IRS.

My next post will begin the discussion about Christian sharing ministries.

1) From the Kaiser Family Foundation (PDF):

Who is eligible for premium tax credits?
Citizens and legal residents in families with incomes between 100% and 400% of poverty who purchase coverage through a health insurance exchange are eligible for a tax credit to reduce the cost of coverage. People eligible for public coverage are not eligible for premium assistance in exchanges. In states without expanded Medicaid coverage, people with incomes less than 100% of poverty will not be eligible for exchange subsidies, while those with incomes at or above poverty will be. People offered coverage through an employer are also not eligible for premium tax credits unless the employer plan does not have an actuarial value of at least 60% or unless the person's share of the premium for employer-sponsored insurance exceeds 9.5% of income. People who meet these thresholds for unaffordable employer-sponsored insurance are eligible to enroll in a health insurance exchange and may receive tax credits to reduce the cost of coverage purchased through the exchange.