Monday, December 23, 2013

What subsidy cliff? Jared Bernstein and Dean Baker defend the Affordable Care Act

I spent my last post peering over the edge at various points of the Affordable Care Act's subsidy cliff -- the income cutoff beyond which shoppers for health insurance are ineligible for subsidies.  I was prompted by a New York Times article spotlighting  who stand to lose most by this cutoff: middle aged and older, with incomes just over the line. In brief: if you're 27 and single, premium subsidies fade out gradually. If you earn one dollar more than the subsidizable limit, it may cost you $100 per year. If you're 55 and looking to cover a family of four, however, that extra dollar may cost you almost $9000 in subsidies.

While I had a couple of quibbles with the Times article, I thought it was fair.  The subsidy cliff is a real design flaw. A pair of 55 year-olds covering a 23 year-old son or daughter in New Jersey with an income of $79k shouldn't have to pay $1300/month for rather crappy insurance, which is what they would pay in Essex County, NJ.

I was somewhat taken aback, then, to discover that the fiery Dean Baker and the more mild-mannered Jared Bernstein both took rather furious issue with the Times article (by Katie Thomas, Reed Abelson, and Jo Craven McGinty). Baker's rhetoric is harsher than Bernstein's, but I think he does have a point. Bernstein's rebuttal strikes me as more of a reflex partisan pushback.* Take his opening salvo:
No question there are people paying more for health care under the ACA, but the examples in here seem awfully cherry-picked to support the headline claim that the new law “Frustrates many in Middle Class.”
You could call the case studies in the Times article cherry-picked, I guess, but they were cherry-picked by definition. The article was avowedly about a narrow subset of ACA shoppers who are just over the line for subsidy eligibility: not wealthy enough to easily absorb premiums that capture over 10% of their income but too affluent to qualify for help.

Then there's this:
–But what of this “cliff” business on which the piece focuses, i.e., that the family takes a huge hit by not being eligible for the subsidy?  As noted, the subsidy cutoff for a family of four is about $94,000 and the family’s contribution is capped at 9.5% of their income, or about $9,000.  The Chapman’s, the family featured in the piece, with income of $100,000, may now pay about $12,000 per year for coverage.

The piece states: “If they made just a few thousand dollars less a year — below $94,200 — their costs would be cut in half, because a family like theirs could qualify for federal subsidies.”  But $9K is not half of $12K, so at least as I read it, they’re exaggerating the cliff effect (h/t, PvDW).
According to ValuePenguin, a New Hampshire family like the Chapmans -- two adults in their mid-fifties with two kids and an income of $94k --  will get a subsidy of $531 per month and will pay in the range of $740-750 for a benchmark silver plan -- or $466/month for the cheapest bronze plan. That is less than half of what they'll pay now for that plan.

Bernstein has a shadow of a point  that the Times article cast its featured unfortunates as more representative of the middle class than they in fact are. My first reaction to the Times article was tinted by that objection -- due mainly, I think, to the headline, "New Health Law Frustrates Many in Middle Class." Depends what your definition of "many" is. But Bernstein overplays it:
The family featured in the piece was chosen to be above the subsidy level—their income was $100,000.  That’s certainly and fair point and I’m not denying they’re “middle-class.”  But the piece should have mentioned the median, or more to the point, the fact that according to Census data, the ratio of income to the the poverty threshold for families in the middle fifth of the income scale is 3.5, again, below the subsidy cutoff of 4.
Well, maybe. But first, the Federal Poverty Level (FPL) used to calculate subsidies isn't regionally adjusted. In the example I cooked up in my prior post, the subsidy cutoff for a family of three in New Jersey was $79k -- certainly not affluent in the parts of the state encompassed by metro New York. Second, not everyone at 350% FPL will get a subsidy -- that depends on whether the second cheapest silver plan in your area exceeds 9.5% of your income, which is a big bite if you're at say 350% FPL.  Then too, Bernstein seems to be quoting an average for that middle income quintile - -but many within the quintile may be subsidy-ineligible.

Finally, the Times article does place its examples in context:
Ninety percent of the country’s uninsured population have incomes that fall below that level, according to one recent analysis. As a result, the subsidies “are well targeted for people who are uninsured or underinsured,” said Sara R. Collins, an executive with the Commonwealth Fund, a private foundation that finances health policy research. “That is really where the firepower of the law is focused.”
Dean Baker leads off with a rhetorically ridiculous charge -- "the NYT is trying to dislodge Fox News" -- and moves on to something more substantive: A comparison between what the unsubsidized pay on the individual market to what most insured Americans' employers pay.  Pooh-poohing the Times lament that the Chapman's may have to spend 12% of their income on the health insurance premium (and up to another 12% on out-of-pocket costs, I would add), Baker points out:
If we go to the Kaiser Family Foundation website we find that the average employee contribution for an employer provided family plan is $4,240. The average employer contribution is $11,240. That gives us a total of $15,470. Most economists would say that we should treat the employers payment as a cost to the worker since in general employers are no more happy to pay money to health insurance companies than to their workers. If they didn't pay this money as health insurance then they would be paying it to their workers in wages.

If we say that this family has a $70,000 annual income (roughly the median for two earner couples), then the cost of the health care policy would be close to 20 percent of their income, even adding in the $11,240 employer contribution to their income.
True enough, and important. (I was quite struck some weeks ago when Adrianna McIntyre made the same point about her own employer-provided insurance: it was 15-20% of her total compensation, if I remember right. My wife's, which covers her and me and one young adult son, is about 20% of her compensation.)  You could add, too, that many of those with incomes high enough to make them subsidy-ineligible but lacking access to employer-provided insurance are self-employed and thus can take the self-employment health insurance deduction, which in the Chapman's case could be worth 25% of their premium, if Mr. Chapman's income from (I presume) freelance farm work exceeds the premium cost.

The article, however, was about the cliff -- what older people stand to lose if their income is one or two or five thousand dollars above the subsidy cutoff (or, for that matter, one or two or five dollars). It's also about the disappointment of people in the individual market who find that the ACA makes coverage less, not more, affordable. They're a relatively small subset, yes,** But the plight of many of them is real.

One argument for the ACA was that it would empower many people to take a risk -- leave a job providing insurance and start a business, for example. It will fulfill that promise for many, e.g., those expecting to earn little in their business's early days, or those with preexisting conditions who now won't be shut out of the individual market.  However, for those expecting to earn say $46--120k by going into some kind of private practice (or, in the case of well-paid nurses and others, go part-time and per diem), the loss of employer-provided insurance remains a big one. For some, the ACA will make that loss bigger.

Finally, Baker, like Bernstein, could do with a dive into ValuePenguin, which provides most of the info available on without the signup/application hassle (and better in important ways than the shop-only feature).  Baker concludes:
In this respect [compared to employer provided insurance], the $1,000 a month that the Chapmans are paying under Obamacare looks pretty damn good. It is more than 20 percent less expensive than the average policy in the Kaiser survey. Of course a lot depends on what is covered and the extent of the deductibles, but based on the information given in the NYT article there is no reason that anyone should be shedding tears for the Chapmans. 
$1000 a month buys the Chapmans only a bronze plan. The deductibles on plans in that range in New Hampshire are between $3500 and $5750, with out-of-pocket maximums of $6350 per individual and $12,700 per family, the highest allowable under the ACA.  The lowest deductible requires 25% coinsurance for costs below the deductible.

Them's high costs. One real gap of the NYT article, mentioned in my last post, is that it doesn't lay out what the Chapmans get currently for their apparently extraordinarily low $665 premium. But the comparison wouldn't necessarily favor the ACA plan. 

* I might be partly guilty of the same impulse in my multi-chapter pushback against tough coverage of the ACA by Wall Street Journal reporters.

** Update, 7/17/15: The subset of those who pay more in the individual market than they would have pre-ACA is not so small. According to Kaiser, a bit less than half of individual market customers buy their plans off-exchange and hence get no subsidy, and about 13% of exchange customers are unsubsidized. A majority of those who are unsubsidized are paying more than they likely would have pre-ACA -- though that is not true for the very substantial percentage who have a pre-existing condition or a household member with one. A brief rundown of gains and losses among those in the individual market is here.

The ACA's subsidy cliff for older buyers
Self-employed? That pre-ACA health insurance tax deduction is still there
Young, self-employed, and seeking insurance? See an accountant

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