Several years ago, I was surprised to discover that I qualified for an Obamacare premium subsidy. The Biden Administration passed enhanced tax credits, capping premiums for benchmark plans at no more than 8.5% of income for families earning far above 400% of federal poverty level (FPL). The 2010 Affordable Care Act (Obamacare) originally limited subsidies to those earning no more than 400% of the FPL. I had subsidized coverage for a year and the following year there was a change in my retirement planning, and I lost my subsidy. I owed an extra $5,500 when I filed my tax return, due to IRS clawing back my subsidy. I also lost my subsidy the following year, and this year.
Public health advocates worry that a lot more people could lose their subsidy next year. The following is from NBC News:
But there’s a catch: That funding expires at the end of 2025, and the Democrats who passed it along party lines (first in early 2021, before extending it the following year) have since been swept out of power. The new Republican-led Congress has made clear it won’t extend the money in the “big, beautiful bill” it’s using as a vehicle for President Donald Trump’s domestic agenda.
Some in the GOP are open to a bipartisan deal to extend the funds. But it’s far from clear Republican leaders will allow it, as many in the party want the funds to expire. Letting the money lapse would save the government tens of billions of dollars, but it would strip away coverage for about 5 million Americans, according to the nonpartisan Congressional Budget Office.
There is a fundamental problem with the premium tax credit (PTC) subsidy. Like any subsidy, it makes it easier for insurers to raise premiums. If Uncle Sam is paying two-thirds of my health coverage, I only care about one-third as much when prices rise. My subsidized health coverage was terrible. My coverage had a deductible of $8,700 at the time. My share of the premiums were around $200 a month, which was far more than the coverage was worth. The government kicked in an additional $450 a month. Talk about a rip-off: I literally never filed a claim or sought care through my health plan because it was impossible to find a doctor who accepted it. The company that insured me in 2022 was not allowed to provide coverage in Texas in 2023 because its provider network was so paltry as to be nonexistent.
The year after I lost my subsidy, my premiums increased to around $8,500 annually. That amounts to little more than a sick tax because I was very unlikely to receive any benefit. For instance, my premiums are around $8,500 with a $9,100 deductible. That meant I must spend $17,600 before I get any medical benefit other than reducing my (exceedingly small) risk a catastrophic illness would bankrupt me. That is not the kind of coverage most Americans want or need.
Another way to look at Obamacare is that it attempts to force relatively healthy people like me to overpay far beyond my own expected costs to achieve a public policy goal: subsidizing the extremely sick. About 5% of patients account for about half (51%) of medical expenditures. Indeed, a mere 20% of the population accounts for 80% of medical spending. The caveat is that it is not always the same 20%, but sometimes it is.
Obamacare banned annual caps and lifetime caps on benefits. That is the first thing Republicans should repeal. The health coverage most people want is coverage that does not break the bank and allows them to see a doctor when they need to. Most Americans would gladly trade coverage for $2 million treatments (after a $9,100 deductible) for cheaper coverage that provides some physician visits and generic drugs. Allowing Americans to buy coverage with reasonable coverage limits would boost access to care for most people. What to do about the uninsurable population is a problem that could be managed with a high-risk pool.
Rather than repeal Obamacare, perhaps a Republican Congress could reform it to allow the kind of coverage most Americans actually want and can afford. Perhaps allow me to buy unsubsidized coverage priced for my risk. Or maybe allow any subsidies to flow into HSAs.
Kiplinger: Tax Rule Change Could See Millions Lose Health Insurance
NBC News: Republicans face new pressure to extend expiring Obamacare tax credits
Thanks for posting.
Let’s explore this a little further. Why would an insurance company charge so much for a lousy policy?
Because persons like you, probably in your fifties or early sixties, have a lot of claims. Under guaranteed issue, which the ACA mandates, the insurer has to have a huge cash hoard to pay the claims.
This happens every single time a state or federal agency adapts guaranteed issue. New York,
Washington state, every single time.
The solution is to have a high risk pool supported by taxes, and let healthy people buy cheaper insurance. Could any Congress pass the higher taxes? I am not sure.