What Are Obamacare Subsidies Really? – Part 1 of 2


Rose AOne of the things about “unprofessional” insurance agents is that they are often so interested in getting their commissions that they will only tell you the good things about a policy but not the negative.

In my opinion, a true insurance professional is going to tell you both the good and bad and allow you to make an informed decision.

What bothers me about “unprofessional” insurance agents also bothers me about politicians.  It has been over 3 years since the national “Health Care Reform” debates culminated with the passage and signing of the Patients Protection and Affordable Care Act.

With the partisan passions at fever pitch during the 111th congress it did not surprise me, although I still think it was less than honest, that members of congress and the President would only tell the part of a story that justified their political ambitions.

While they were ready to share the sad stories about people who had no health insurance, had claims denied, had policies cancelled or were forced to file for bankruptcy protection even though they had “health insurance,” they failed to give America all the information.

The politicians and President often failed to tell us what type of “health insurance” people had who were forced to file for bankruptcy.  Seldom did they tell us what the diagnosis was and why an insurance claim was denied.  I never heard one politician explain how, or why, a doctor or hospital’s fee was so high.

The PPACA was passed because health care is so expensive but nobody took the time to ask why it costs so much.  In my opinion, the politicians treated the symptoms but ignored the underlying cause of the crises.

Now that more than 3 years have passed and the final implementation of Obamacare starts in October of this year, the politicians are at it again.

Things may not be as bad as they were in 2009-2010 but the president and his followers are using the same tricks now that they did then.

If you are a supporter of Obamacare, you are brain-washed into thinking that the tax-credit subsidies are going to make everything alright for most Americans.  The politicians are talking only about the rose petals on the tip of the plant.  They are ignoring the thorns that are also on the stem.

WHAT IS COVERED

Often, it is implied that tax-credits will be available to allow Americans to choose which plans they want in the new health insurance exchanges.  That is not entirely true.

The language of the PPACA states that tax-credits will only be available for Americans to purchase, “the second lease expensive Silver plan that is offered in a state’s exchange.”

That is a marvelous benefit for people who have no health insurance, of any sort, now.  However, there is a potential problem.

Many middle-class Americans are already paying for a plan that pays 80% Actuarial Value.  The Silver plans will only cover 70% Actuarial Value for medium level health care.

Since all the plans will have similar maximum-out-of-pocket costs, it makes no difference which plan you have if you are treated for a major disease, like cancer.  You are going to pay the same amount of money regardless.

(My recommendation is for you to look to supplement your Essential Health Plan with a Critical Illness plan.  It will give you the money to pay those “maximum-out-of-pocket” bills if you are diagnosed with cancer, heart attack or stroke.)

My concern is the conditions that are not as minor as a sore throat but not as major as cancer.  A kidney stone, hot appendix, cataract could leave cost a person more money under a Silver plan than it would if they had not been tempted by a tax-credit and gotten a Gold (80% Actuarial Value) plan

WHO IS ENTITLED

The politicians are talking like every American, other than the extremely rich, will be eligible for a tax-credit to help with the cost of health insurance.  That is not correct.

Only certain Americans will be eligible for the tax credits.  In order to qualify you must meet all of the criteria below.

  1. Your house-hold income must be 400% of less of the Federal Poverty Level (FPL).
  2. Anyone who receives a tax-credit cannot be eligible for “affordable” group health.  That includes both employees and dependents.

HHS rules state that “affordable” is defined by using only the employee.  If an employee elects to cover an entire family under the group plan, the plan is determined to be affordable based solely on the cost of insurance for the employee.  The cost for coverage for the spouse and children are not to be considered when determining if health insurance premiums are “affordable.”

Recently, a single mother complained to me that health insurance for her and her children would not be affordable because she is trying to pay off some debt that was left to her by an ex-husband.

It broke my heart to have to explain to her that the I.R.S. did not care how much debt she had.  The Individual Mandate, that is in Obamacare, requires every American to buy government approved insurance.  The government will help pay the premiums for some people but they will only consider their incomes and not their bills when determining how much help they will give.

WHO PAYS FOR THEM

The politicians talk about the “free” subsidies but they are not completely “free.”  Somebody is paying for them.

Although the “subsidies” are going to be paid to the insurance companies by the Internal Revenue Service, the money is coming from the national treasury.  That is the same account that pays for our military and other government programs.

The national treasury is funded by taxes paid by American citizens and companies.  The following methods are the ways the tax-credits will be funded.

  1. American citizens will continue to fund the national treasury with their income taxes each April.
  2. Insurance companies will be required to pay new taxes to fund the tax credits.  In 2014 insurance companies are expected to pay over $8 billion in new taxes.

That new expense is expected to be rolled into the cost of health insurance premiums by most insurance companies.  If you elect to use an insurance company that does this, part of the reason why your health insurance will be so expensive will be the double taxation you pay.

Not only would you be required to pay income taxes directly, you would also be paying additional taxes through your health insurance.

Tim Barnes, CLU has over 25 years of experience helping people make informed decisions about their health insurance.  You can read more about him on the ABOUT page of this blog.

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