Thursday, August 27, 2015

Which insured Americans get no subsidy whatsoever?

Who are the Americans who get no help from the federal government paying for their health insurance?

The uninsured, of course. Also, those who buy their insurance in the nongroup market (on- or off-exchange) and a) earn too much to qualify for subsidies, and b) are not self-employed.

It's important to recognize that the self-employed do get a subsidy: the self-employment health insurance deduction. If your health insurance costs less than your total self-employed earnings, you can deduct the whole cost from your earnings. A recent study indicates that this deduction takes an average of 22% off the average self-employed tax filer's health insurance bill.

My question: what percentage of buyers in the nongroup market are not subsidy eligible and not self-employed? They are the only insured Americans who get no government aid paying for insurance. Most of them, that is: there is also a medical expense deduction available to any household that spends more than 10% of its Adjusted Gross Income on medical expenses, including insurance. Only expenses over 10% of AGI can be deducted.

At present, there is no clear answer to this question. Perhaps the best hints come from Kaiser's 2015 survey (conducted February through April) of those insured in the nongroup market-, on- and off-exchange. Of approximately 17 million people in the nongroup market, about 28% are self-employed. Of the 70% who say they are employed, about 40% are self-employed.

Slightly more than half of buyers in the nongroup market obtained premium subsidies, according to Kaiser. Of the roughly 8 million who did not, I would assume that virtually all are employed -- the only exceptions being a)  those who don't work but whose investment and interest income was above the subsidy threshold, 2) undocumented  aliens who earn enough to pay full freight, 3) a handful who opted for catastrophic insurance sold on-exchange, and 4) those who qualified for subsidies but somehow obscured that fact in their marketplace applications (e.g., by stating that they did not plan to file a tax return) and still opted to buy. All of these exceptions are very small.

What percentage of those who declared themselves self-employed earn too much to qualify for subsidies? Alas, this is what we don't know. I would guess that it's high, though.  Those who earn out of subsidy eligibility include everyone who earns more than 400% of the Federal Poverty Level (FPL) and some mostly younger buyers earning as little as about 250% FPL for whom the cheapest available plan costs less than 9.5% of income (since unsubsidized premiums are much lower for younger buyers, their subsidy threshold is lower).

It seems likely to me that relatively few salaried Americans a) earn too much to qualify for ACA subsidies and b) are not offered insurance by their employer (though their number would include some victims of the family glitch). In any case, let's estimate a range, assuming that Kaiser's estimates are on target (and they do have wide margins of error in some categories).

If 90% of self-employed buyers in the nongroup market are unsubsidized, then 72% of unsubsidized nongroup market buyers are self-employed. That would suggest about 2.25 million buyers who get no subsidy (excepting those who can take the medical expense deduction -- a caveat that applies to scenarios below).

If three quarters of self-employed nongroup buyers are unsubsidized, then 60% of unsubsidized buyers are self-employed, and about 3.2 million get no subsidy. That's where I'd place my guesstimate.

If the self-employed are evenly divided among the subsidized and unsubsidized, then about 4.8 million insured Americans get no subsidy.

The subsidy-eligible self-employed actually get a double dip: their subsidized premium can be deducted from their taxable income -- which in turn reduces the income used to calculate the subsidy. The snake consumes its tail.

In his new ebook ObamaCare is a Great Mess, IBD reporter Jed Graham proposes a new tax credit for the unsubsidized, worth 20% of the cost of the benchmark silver plan in that person's region. If the above guesstimates are close to target, a majority of the unsubsidized do have access to tax deductions for health insurance, worth an average of perhaps 22% of whatever plan most of them choose. It does seem reasonable to extend some form of credit to those who are not truly wealthy, not self-employed and lacking access to employer-sponsored insurance. That's a fairly small group.

Of course, tax deductions are like coupons for consumers -- not everyone jumps through the required hoops to access them. We've woven quite a kludgy mess for ourselves, haven't we?

P.S. I'm on vacation this week; hence to scanty posting.

P.P.S. 8/28: I was mulling shortly after posting this yesterday that a higher percentage of the self-employed than I was assuming may be subsidy-eligible. A snapshot here from workplace consultant EMSI indicates that that is correct, and also that there may be more people who earn extra money on the side through self-employment than earn their whole living that way. The largest categories are farmers/ranchers/agricultural managers, carpenters house cleaners,  In some low income self employment sectors, like home healthcare and house cleaning, a fair number of workers may be Medicaid eligible.

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