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Sunday, March 8, 2015

Obamacare confusion - real and made up

Our health care system is too complex. I'm not only referring to the numerous tax provisions in the Affordable Care Act (ACA or Obamacare), but the system itself.  For example, if you have health insurance, do you know what it covers, how costs are computed, how insurance companies and the medical profession make money?

On March 4, the US Supreme Court heard oral argument in King v Burwell on whether individuals who obtained health insurance through the federal exchange (because their state did not establish its own exchange), are entitled to a Premium Tax Credit (PTC).  The PTC provision in the Code (Section 36B) makes reference to state exchange. The Administration interprets that as also meaning a federal exchange. Millions of individuals have obtained (in 2014) and are currently obtaining for 2015, a PTC to help pay for health insurance.

When requested in advance, the PTC funds go directly to the insurance company to lower monthly premium costs. When the insured files his or her tax return, he or she must reconcile the advance PTC to the actual PTC based on true household income that is not known until after the end of the year.

A Wall Street Journal op ed on March 2, 2015 by Congressmen Ryan, Kline and Upton ("An offramp from ObamaCare"), bemoans the problems of Obamacare.  I think a good part of it plays off the complexity of the system and the low understanding the public has of the ACA and our health care system in general.  For example, these lawmakers present an alternative subsidy proposal (alternative to the PTC):

"The credit would be “advanceable”—that is, you would get it when you needed it; you wouldn’t have to wait for tax season. It also would be “refundable”—that is, you would get the full amount no matter the size of your tax bill. And would adjust the size of the credit for age; the elderly, who face higher coverage costs, would get more support."

Their statement makes it seem that the current PTC is not advanceable when it is and most individuals likely get it in advance in order to be able to afford the monthly premiums.  The current PTC is also refundable. That is, if it exceeds your tax liability, you get the balance.  Their statement about adjustments for age is partially correct.  The PTC is based on age because the PTC ties to the cost of the second lowest cost silver plan. That cost is higher the older you are.  But, there are other ACA flaws for age, such as assuming health insurance is affordable for everyone if it is less than 9.5% of their household income (the percentage is the same for all ages - see my "tax oddity" post of 12/31/14).

The lawmakers do acknowledge the significant subsidy employees with employer-provided coverage get. What is missing is that starting in 2014, millions more get subsidies through the PTC or expanded Medicaid. BUT, millions continue to get no subsidy at all and likely can't afford coverage. These individuals have income above 400% of the Federal poverty line and no employer-provided health insurance. If they don't qualify for Medicaid or Medicare, they are out of luck if they can't afford coverage.  Meanwhile, they are helping to support subsidies for the majority. 

Improvements are seriously needed. The current system is too complex, confusing, inequitable, expensive, - and, not providing health care commensurate with the costs.

What do you think?

King v Burwell references:

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