Gov't aid destructive of family & ACA "cliffs" for those receiving subsidies

[St_Francis]

I found this comprehensive analysis done by a CAF member, markomalley, and he gave me permission to post it here.

The reason I want to do this is to show how welfare programs are structured to make it very difficult to get off them. I posted an article with a graph to show how several programs have “cliffs” which mean that a person loses much more value than they gain if they increase their income. At that time, I had no info on how the ACA would have this effect, until I ran across this analysis, which is written to show how the ACA provides a disincentive for marriage and an incentive for divorce.

Thanks, markomally, for doing this research and all that math!

One issue that I’ve not seen adequately addressed either in the mainstream or even the conservative media is the impact Obamacare will have on the family.

Obamacare pays out subsidies, on a sliding scale, to families whose modified adjusted gross income (MAGI) is less than 400% of the Federal Poverty Level (FPL). For example, the FPL for a family of 4 in 2013 is $23,550 per year. 400% of that FPL is $94,200 per year. If a family has an MAGI of $94,201 or more, they have the privilege of paying the entire premium cost for an Obamacare policy.

Here is the math on the subject:

The FPL has a slope of <1. The FPL for a family size of 1 is $11,490; for a family size of 2, it is $15,510; for a family size of 3, it is $19,530.
For the purpose of our example, let us say we are dealing with a family consisting of two parents and two children. One of the parents makes a total of $44,001 per year. The other makes a total of $50,202 per year.
Their combined income is $92,203 per year. This gives them 400.01% of the Federal Poverty level.
Meaning that, as a married couple with children, they would be ineligible for any subsidy and would thus have to pay out the $20k+ per year insurance premium for themselves (21.2% of their MAGI).
If the couple divorces and the parent making $50k per year takes custody of the 2 children, the following would happen:
The newly “single” parent, with his/her new MAGI being at 382% of FPL, would be eligible for a subsidy to cap his/her insurance payment at $4,180 per year.
The new “single parent”, with his/her new MAGI being at 257% of FPL, would be eligible for a subsidy to cap his/her insurance payment at around $4,117 per year.
You do the math: stay married and be faced with $20k per year in insurance premiums or get divorced and have an out-of pocket cap of $8,297 per year.

From a financial point of view, the decision is fairly obvious.

Our society has already removed any potential stigma from being divorced as well as any stigma from living together without the benefit of marriage.

How long will it take people to figure out that it is in their interest, in an era of Obamacare, to dissolve their marriages?

Link

 

[Ridgerunner]

Mark is right. But it’s actually weirder than that. what Obamacare really says is “household income”. So two people (any gender?) living in the same “household” along with their earning children are included in the “household” whether they’re married or not.

Of course, since verification of status is on the “honor system” other than the IRS own records, the unmarried “couple” can just lie about it. The married couple can’t, because their tax returns say they’re married. If they don’t admit being married, they have committed a crime.

Even stranger, if you look at the “calculators” that can actually be accessed, you find that after taxes and Obamacare, the net disposable income of a person making $100,000 isn’t anywhere near $60,000 higher than a person making $40,000. It’s only about $10,000 higher after the government takes its bites out. And depending on the lower earner’s family situation, it could be higher, in effect, if the lower earner gets any other form of government aid.

Considering that about 30 million people (probably more) won’t be covered at all, obamacare is fundamentally an income redistribution vehicle, not a healthcare plan.

 

[St_Francis]

Mark is right. But it’s actually weirder than that. what Obamacare really says is “household income”. So two people (any gender?) living in the same “household” along with their earning children are included in the “household” whether they’re married or not.

Of course, since verification of status is on the “honor system” other than the IRS own records, the unmarried “couple” can just lie about it. The married couple can’t, because their tax returns say they’re married. If they don’t admit being married, they have committed a crime.

Even stranger, if you look at the “calculators” that can actually be accessed, you find that after taxes and Obamacare, the net disposable income of a person making $100,000 isn’t anywhere near $60,000 higher than a person making $40,000. It’s only about $10,000 higher after the government takes its bites out. And depending on the lower earner’s family situation, it could be higher, in effect, if the lower earner gets any other form of government aid.

Considering that about 30 million people (probably more) won’t be covered at all, obamacare is fundamentally an income redistribution vehicle, not a healthcare plan.

So, after all this, we will still have 30,000,000 uninsured?

Sheesh!

 

[BillP]

Are you kidding me??

There are several rather large problems with that “analysis”.

First of all a family of four with a HH income of $92,203 is in fact eligible for subsidy because 400% of the FPL is $94,200. The FPL for a four person family is $23,550 so 400% of it is $94,200.

Second, the $20,000 price tag for insurance is fictitious;

Q: Did the IRS say that the cheapest health insurance plan under the federal health care law would cost $20,000 per family? A: No. The IRS used $20,000 in a hypothetical example to illustrate how it will calculate the tax penalty for a family that fails to obtain health coverage as required by law. Treasury says the figure “is not an estimate of premiums.”

factcheck.org/2013/03/obamacare-to-cost-20000-a-family/

Third, the real numbers for a typical family do indicate that the subsidy is “gameable” if the family want to go to the trouble of doing so, but the payoff is far smaller than the “analyst” wants you to think they are. Here is the HJK foundation’s (kff.org/interactive/subsidy-calculator/) take on this scenario:

Family of four, HH income $94,202 will have a premium of $9,416 (NOT $20K!!), receive a subsidy of $656 and pay $8,760 out of pocket.

If the family divorces and arranges themselves as the “analyst” suggests, then- The $50,202 with the 2 kids will have a premium of $6,318 get a subsidy of $2,174 and pay $4,144 out of pocket

• The $44,001 single will have a premium of $3,098 and get no subsidy for $3,098 out of pocket.
• So the net effect is that the total premium is still $9,416, but out of pocket goes down by $1,518 due to the increased subsidy.
  Which is, at least to me, much different than:

You do the math: stay married and be faced with $20k per year in insurance premiums or get divorced and have an out-of pocket cap of $8,297 per year.

I wonder why the “analyst” chose to present his “analysis” in such a misleading way, don’t you?

By the way, in every program with a sliding scale for means testing there are “cliffs” and anomalies in the progression of payments and benfits, its kind of the nature of them.

 

[BillP]

Even stranger, if you look at the “calculators” that can actually be accessed, you find that after taxes and Obamacare, the net disposable income of a person making $100,000 isn’t anywhere near $60,000 higher than a person making $40,000. It’s only about $10,000 higher after the government takes its bites out. And depending on the lower earner’s family situation, it could be higher, in effect, if the lower earner gets any other form of government aid.

Thats simply totally and completely wrong.

Whose calculators are you looking at??

Using these calculators:

calcxml.com/calculators/federal-income-tax-calculator?skn=

kff.org/interactive/subsidy-calculator/

We see that:

• A person making $40,000 per year will pay (at most) $4,054 in Federal income tax, $3,060 in Federal payroll tax and $3,098 in Obamacare premium. They will therefore get to keep $29,788 of their $40,000 (74.47%)
• A person making $100,000 will pay (at most) $18,493 in Federal income tax, $7,650 in Federal Payroll tax and the same $3,098 Obamacare premium. They will therefore get to keep $70,759 of their $100,000 (70.76%).
  So the net disposable income of a person making $100,000 per year is, in fact, $40,971 MORE than a person making $40,000 ($70,759 - $29,788).

So you were off by about $31,000 (or 310%!) dollars there Ridgerunner.

 

[J_Peterson]

How many people will really be affected by this though? I assume most people with income in that range receive insurance through thier employer.

Then again I’m still not certain how or if this will affect those of us whose employers pay a large chunk of the cost.

 

[St_Francis]

How many people will really be affected by this though? I assume most people with income in that range receive insurance through thier employer.

Then again I’m still not certain how or if this will affect those of us whose employers pay a large chunk of the cost.

There are lots of people who do not receive insurance as a benefit, for example, small business owners, contract workers, sales people, and people whose employers are not paying their insurance for one reason or another.

 

[St_Francis]

I don’t know when the analysis was done, maybe at a time when the numbers (real and projected) were different than they are now.

As to the anomalies in the progression of benefits and payments, quite honestly, they should be set up to minimize the difficulty in getting off government aid. It’s not like they are a fact of nature–we are the ones who set it up. The large cliffs are discouraging for those trying to do the right thing; imagine working hard and getting a promotion only to find you lose a benefit you cannot afford to make up for.

Are you kidding me??

There are several rather large problems with that “analysis”.

First of all a family of four with a HH income of $92,203 is in fact eligible for subsidy because 400% of the FPL is $94,200. The FPL for a four person family is $23,550 so 400% of it is $94,200.

Second, the $20,000 price tag for insurance is fictitious;

factcheck.org/2013/03/obamacare-to-cost-20000-a-family/

Third, the real numbers for a typical family do indicate that the subsidy is “gameable” if the family want to go to the trouble of doing so, but the payoff is far smaller than the “analyst” wants you to think they are. Here is the HJK foundation’s (kff.org/interactive/subsidy-calculator/) take on this scenario:

Family of four, HH income $94,202 will have a premium of $9,416 (NOT $20K!!), receive a subsidy of $656 and pay $8,760 out of pocket.

If the family divorces and arranges themselves as the “analyst” suggests, then- The $50,202 with the 2 kids will have a premium of $6,318 get a subsidy of $2,174 and pay $4,144 out of pocket

• The $44,001 single will have a premium of $3,098 and get no subsidy for $3,098 out of pocket.
• So the net effect is that the total premium is still $9,416, but out of pocket goes down by $1,518 due to the increased subsidy.
  Which is, at least to me, much different than:

I wonder why the “analyst” chose to present his “analysis” in such a misleading way, don’t you?

By the way, in every program with a sliding scale for means testing there are “cliffs” and anomalies in the progression of payments and benfits, its kind of the nature of them.

 

[royal_archer]

How does this work if the husband works and the wife does not. Will the newly divorced wife get all of her heath care subsidized? Are there any good resources for researching this?

 

[St_Francis]

How does this work if the husband works and the wife does not. Will the newly divorced wife get all of her heath care subsidized? Are there any good resources for researching this?

Ahhh, that is way over my head!