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Edited on Wed Dec-30-09 02:07 AM by Land Shark
I thought I would run the "best case scenario" for health care insurance "subsidies" and see what it all means, in real life. The results for a family of four earning $33,076 under the Senate version is in the table below. On the subject of these so-called "subsidies," people are widely urged to turn to Health care reform calculators like the one at Kaiser Foundation to see how they will fare under the House-passed bill or the Senate Leadership bill. Paul Krugman, in particular, cops a "gee whiz" attitude claiming it is unreasonable for progressives not to be pleased with the subsidies. OH, REALLY???? Paul Krugman should run the numbers below on behalf of an average person not able to afford health care insurance premiums, then get back to me!The background:The "subsidies," it is critical to mention, come in the form of a refundable TAX CREDIT. That means you don't see a dime of the government "subsidy" for your health care insurance until you both apply for and actually receive (presuming you qualify in full by not owing any tax beyond your withholding), a tax REFUND. A tax refund happens, if it does at all, in the calendar year following the tax year in which you must personally pay the premiums in full. However, if you owe any tax, then your "subsidy" will be withheld to the full extent of your tax owed. If you have applicable tax liens or student loans in default, for example, your tax refunds can and will be captured and you won't ever see the tax refund "subsidy" until your tax problem goes away.But in the Kaiser calculator, as in the general media, they ignore the basic facts regarding tax credits and it's blithely claimed that folks earning less than 400% of federal poverty guidelines will get some sort of "subsidy" for the mandatory insurance purchase individuals and families not qualifying for Medicaid or "financial hardship" will have to make, with an average premium cost per year well in excess of $10,000 per family. The output of the Kaiser calculator provides the total annual premium cap, the amount of the government "subsidy" for the person or family of four, provides a "cap on premium as % of income" of a low number off by a factor of 12 times (because the percentage of ANNUAL income figure is for a cap on MONTHLY premium) and also provides a number for the "Person/family premium payment." This "Person/family premium payment" figure is especially misleading and deceptive, because it implies that this figure is all the person or family will have to pay annually for premiums, when in fact the person or family will have to pay 100% of the insurance premiums for over a year while waiting for both the tax year to end as well as for all the information that will be needed to file their tax return and obtain the possible tax credit via their tax refund the following year. Of course, if they owe Uncle Sam a dime or more for any reason, to that extent they will never see this "subsidy" because their refund will be captured or reduced.
In addition, with deductibles averaging around $1000 with many higher deductibles around (particularly for the more affordable policies sure to be chosen by those of lesser means), it is important to remember the working definition of deductible:
DEDUCTIBLE: A deductible is what you, the "Insured" must pay before "We," the Insurance Company, must pay anything at all for your "health care."
So, in light of the above, the actual reality for a family of four, where the vaunted "subsidies" are the highest (and Medicaid is not available), who make only a very modest $33,076 per year (the breakpoint at which the House bill no longer provides for Medicaid) or an even more modest $29,327 in the Senate bill, is the following additions to their already-tight monthly budgeting, if this bill were to start in a few days, effective for the year 2010 (which it doesn't):
FAMILY OF FOUR, age 44, INCOME: $33,076 (House) or $29,327 (Senate)
January, 2010 PAY $992.00 to INSURANCE COMPANY; PAY out of pocket up to $1000 or $2000 deductible for all actual health care, unless you've already paid the full deductible, in which case the insurance company might pay (see the many pages of fine print)
NET AS OF JANUARY 2010: In the Hole $992.00 plus all doctor visits (deductible not yet paid)
February, 2010 1. PAY $992.00 to INSURANCE COMPANY; 2. PAY out of pocket up to $1000 or $2000 deductible for all actual health care, unless you have already paid the full deductible, in which case the insurance company might pay (see the many pages of fine print)
NET AS OF February 2010: In the Hole 2 times $992.00 or $1,984.00 plus all doctor visits (deductible not yet paid)
March, 2010 1. PAY $992.00 to INSURANCE COMPANY; 2. PAY out of pocket up to $1000 or $2000 deductible for all actual health care, unless you have already paid the full deductible, in which case the insurance company might pay (see the many pages of fine print)
NET AS OF MARCH 2010: In the Hole 3 times $992.00 or $2,976 plus all doctor visits (deductible not yet paid, unless the family is unlucky/unhealthy)
April, 2010 1. PAY $992.00 to INSURANCE COMPANY; 2. PAY out of pocket up to $1000 or $2000 deductible for all actual health care, unless you have already paid the full deductible, in which case the insurance company might pay (see the many pages of fine print)
NET AS OF APRIL 2010: In the Hole $992.00 or $3,968 plus all doctor visits (deductible not yet paid, unless the family is unlucky/unhealthy)
MAY, 2010 (same old same old)-- $4960 in the hole, plus all doctors’ visits, unless the family's unhealthy/unlucky and thus has costs in excess of the four-figure deductible...
JUNE, 2010 (same old, same old) now $5,952 in the hole, plus all doctors’ visits, etc...
JULY, 2010 (who can afford this? ... same old huge payment...)
AUGUST, 2010 (can a family of four making $33,076 annually really afford to front $992 a month to help the insurance companies???)
SEPTEMBER, 2010 (money too tight to mention, but total up front is now $8,928 plus all doctor's visits until the hefty deductible is all paid.)
OCTOBER, 2001 (reeling from $9,920 advanced to insurance companies, not counting deductible or out of pocket expenses for all actual health care)
NOVEMBER, 2010: VOTE DEMOCRATIC!!!! This highly "subsidy-protected" family of four (Vote Democratic!) is now out of pocket a whopping $10,912 for the calendar year. They have no hope of receiving their subsidy real soon even though they qualify for the highest available "subsidy" of 90%. Surely, they will reward the Democratic party at the polls. no?
It will be at least February 2011 at the earliest before this family of modest means sees subsidy money at all, and when they do it will be minus their personal/family "share" of the insurance premium of $992 (according to the Kaiser calculator) they will, of course, NEVER get back...
DECEMBER, 2010 out of pocket $10,668 for the year, with a government subsidy "IOU" (when you file your tax return and if "you" do not owe Uncle Sam) of %9,676.
JANUARY, 2011 (waiting til January 30 for tax forms, meanwhile, another monthly insurance premium is paid, bringing the total advanced to $11,557. Meanwhile, later in this month comes THE NEW CONGRESS, and, in January 2012, a PRESIDENT is sworn in. VOTE DEMOCRATIC!)
FEBRUARY, 2011 (this is an optimistic best possible scenario so...) we assume the taxpayers file and receive the maximum possible refundable tax credit of $9,676 around February 15, but not before having to pay February insurance, which now means they're out of pocket $13,888 but they get $9,676 from Uncle Sam, leaving them net, at this point in time, $2,938 permanently in the hole.
For those not wanting the best possible outcome, and think you'll realistically file in April, 2011 for the 2010 tax year, then you'll be out of pocket $15,872 minus $9,676 tax credit = NET $6,196 permanently in the hole.
NOTE WELL: After the first tax credit is finally paid out, and assuming the person files the same time each year, it will only be 12 months' time before a second tax credit for 12 months' insurance can be applied for. But the consumer/taxpayer will not be able to recover for the "gap" between the calendar year and the time the tax refund is obtained.
TRUTH IN LENDING (TO INSURANCE COMPANIES)
Now, we all know that Congress could have made the insurance companies WAIT for their government premium "subsidies" (or, have the insurance companies borrow advances from banks based on the expected Uncle Sam subsidy payouts) but we all know that insurance companies don't have any money, (right?)and the average family of four making $33,076 a year is in the best position to finance this health "care" deal, right? RIGHT!!!
So, the average Joe or Jill will have to finance this "subsidy" deal for Uncle Sam, to help Uncle Sam bailout these insurance companies. Uncle Sam doesn't want to pay until up to 16 months later when you file your taxes, but big insurance companies need your money right now, in January, February, March, etc. And, if you don't finance this "subsidy" deal, Uncle Sam's going to excise tax you up to 2% of your income or more, possibly threaten you with criminal prosecution for not doing the right thing with that extra $13,888 you'll have between January and February of the following year when you promptly file your tax return.
Of course, for a family of four making only $33,076 to advance and loan insurance companies -- for over a year -- a total of $13,888, and then to only get back $9,676, all for the "right" to watch the insurance company look the other way until the entire deductible of up to $2000 or more is paid is UNREALISTIC -- to say the least. So what will happen?
It’s Not Just an Insurance Bailout, It’s a Bank and Finance Operation Boondoggle as Well: Well, everyone knows about income tax refund anticipation loans, right? They’re well known to consumer protection groups since their real APRs are astronomical when hidden fees are all considered. H&R Block makes the biggest chunk of its money off the refund loan business, for people desperate to get their money a week or two earlier and willing to pay an annual interest rate of many hundreds or thousands of percent to get it. It's a huge pile of money for many people, and in numerous cases it's easy come, easy go. Shopping sprees, flurries of debt payments, etc. Now people are going to be needing that refund REAL bad, and MUCH Sooner.
Well, the health care "reform" bill is not just an insurance bailout, it's a boon to CPAs and tax preparers (but only the ones engaged in loan shark anticipation loans) and also to banks, who will have to lend money to many people just to afford the insurance premiums, and will SECURE their loan against the income tax refund (the customer won't be allowed to file without involving the bank with the bank getting the money directly) Indeed, electronic tax refund forms are already prepared to split the refund's electronic deposits between two or more accounts, such as the tax preparer's fee account...
The above was the most-subsidized family of four getting the refund at the most optimistic reasonable time. Those who skip a year of $992 monthly payments will face an even grimmer year TWO: there's the $992 premium payment, plus the annual increases insurance companies insist on, plus the 2% income tax/excise tax to pay -- making it even more difficult to get by in year two on the same old $33,076.
There’s simply no way the average family of four on $33,076 a year can afford to advance a thousand dollars a month in the hopes of getting their refundable tax credit of 90% in February to April of the next year, leaving them several thousand in the hole for their share. BANKS will certainly appear and offer extortionate interest rates to help make this new American dream happen. But banks will only lend to those with good credit or substantial collateral that’s not already secured…
The family of four --or literally anybody of modest means without an employer contribution to the insurance cost – which has bad credit is really in trouble.
For those with bad credit or risking the same, it’s advisable to either:
A. Pay all big corporate creditors of any flavor claiming to be your creditors (and reporting to credit bureaus) like it’s your most serious religious obligation imaginable, because if your credit fails, your financing of the insurance premiums will then also fail, in which case your family’s health insurance will be cancelled, and you will be taxed for that failure the next year. God forbid that any family member would really need health insurance and that their condition would be one of the lucky ones actually covered under policies, because then the bad credit would translate into no health care that might otherwise have been covered by the health insurance.
Or
B. Figure out a Plan B, and fast.
You see, it’s not just an insurance bailout, it’s a bank and tax refund loan provider bailout combined with a shock and awe plan to give us all new religion about paying the piper – all our creditors to keep alive the hope that we can find a bank that will help us finance well over ten grand in premium payments each year, so that, together, we can keep America’s insurance industry alive, and ourselves in a completely neo-feudal condition.
They kept the tax penalties on sun tanning beds – tanning beds are one health-related “sin tax” that many average people can afford to frequent once in a while. Meanwhile, expensive cosmetic surgeries escaped the tax knife.
Every now and then I refer to tanning beds as “proletarian toasters”. Now I’m calling the economics of these “subsidies” for mandatory health insurance “proletarian toasters” as well because everyone subject to these subsidies is going to get cooked – even at a 90% subsidy.
on edit: If the final language out of conference provides for paycheck-enhancement in an EIC manner to the full extent of the subsidy - or for the consumer to forward their portion to the government which then forwards on the total amount (all of this is up in the air given a conference committee) that would reduce the AMOUNT of money to be "financed" above quite a bit but would not change, not even a bit, the amounts "permanently out of pocket" referenced above, which are still in the several thousands of dollars a year - something this family of four clearly can't afford. They will still need financing, albeit of a smaller but still substantial sum of money.
on second edit: TAX BRACKET "CREEP": The House bill is perceived as better in some respects, and under the House bill a person earning $33,075 - one dollar less than the figure assumed above, the family gets medicaid, while in the Senate bill medicaid is given to those earning up to but not more than $29,326. THere will be a substantial disincentive not to earn a dollar more than whatever figure becomes law unless and until one can earn several thousand dollars more -- at least -- in order to be able to afford the 10% nonsubsidized portion - even if that portion were to be advanced promptly by the government on a monthly basis. |
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