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Why You're a Lot Better Off with Obamacare Than You Might Think

The ACA's may offer truly dramatic savings.
 
 
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There are many reasons why signing up for Obamacare is a smart choice, but the biggest one is the last thing its Republican critics want to broadcast: the out-of-pocket monthly cost.

On Wednesday, the White House published the most detailed analysis yet of the cost of Obamacare coverage. The policies will cost anywhere from one-quarter to one-third less than what’s now available on the private insurance market. But that’s not what upwards of 25 million households will end up paying each month. It’s far less. Depending on their income, the cost could drop by another one-third to two-thirds because Obamacare has tax credits—federal subsidies—for household earning up to 400 percent of the federal poverty line that are directly paid to insurers each month.

The subsidies and related administration will cost $19 billion in 2014, the Congressional Budget Office has estimated. About 25.7 million people could be eligible for the income-based discounts, a Families USA study found, which will lower actual coverage costs by many thousands of dollars per policy-holder.

Consider the following two examples from the Health Insurance Marketplace Premiums for 2014 issue brief released Wednesday by the White House and the U.S. Department of Health and Human Services. In 36 mostly red states, HHS will be enrolling people via online applications at healthcare.gov because local Republicans have refused to set up state-run exchanges. For these states and their largest cities, HHS listed premiums and subsidies called a tax credit. The credits go directly to insurers monthly; they are not refunded in a lump sum after filing one’s yearly taxes.

Obamacare offers four levels of health plans, called Bronze, Silver, Gold and Platinum. They respectively cover 60, 70, 80 and 90 percent of medical costs. It also offers a low-cost catastrophic plan for young people, but that does not get the additional subsidy.

In these 36 states, a single 27-year-old would pay an average of $214 a month for the lowest-cost silver plan before the tax credit. After the credit is applied, it would cost $145 a month, which is an additional 33 percent discount. The federal government would pay the difference of $69 a month directly to the insurer, which, is a boon for their business but also saves that 27-year-old $828 a year in out-of-pocket expenses.

For families with children, the savings could be thousands a year. A family of four with an income of $50,000 would find the lowest-cost silver plan averaging $774 a month, the  HHS analysis said. But they would receive a $492 monthly credit, which is 64 percent off that price, and end up paying $282 a month. That’s a $5,904 annual subsidy. 

The subsidies would be given to housholds earning between 100 percent and 400 percent of the federal poverty level. In 2013, that’s individuals makig $11,490 to $46,000; two-person families earning between $19,530 and $78,120; and four-person families making between $23,550 and $94,200. These thresholds are revised yearly by the government.

AlterNet contacted the HHS press office on Wednesday to verify the way these subsidies would work and the potential savings involved, because so much of the Obamacare media coverage has not mentioned the combination of cheaper policies and additional subsidies. HHS spokeswoman Joanne Peters confirmed the savings and subsidies paid to insurers. 

There is a lot that remains to be seen about how Obamacare will unfold, as early analyses of health plans offered by insurers suggest that they will not give policyholders as many options as the plans those same insurers sell to companies for employees. However, these truly dramatic savings—from the government’s negotiated costs and additional income-based subsidy—are behind President Obama’s remarks on Tuesday that young people who enroll would pay less each month than some do for their cellphones.

“The main message we have—and we’re using social media, we’re talking to churches, we’re talking to various civic groups—and what we’re saying to people is, look, just go to the website yourself. Go to healthcare.gov; take a look at whether this is a good deal or not and make your own decision about whether this is good for you,” President Obama said.

These savings explain the GOP’s opposition, the President said at an event with Bill Clinton launching the White House’s PR campaign to get uninsured people to enroll.

“I think the resistence that we’ve seen ramp up, particularly over the last couple of months, is all about the opponents of healthcare reform know [that] they’re going to sign up,” Obama said. “One of the major opponents, when asked, ‘well, why is it that you’d potentially shut down the government at this point just to block Obamacare,’ he basically fessed up. He said, ‘Well, once consumers get hooked on having health insurance and subsidies, then they won’t want to give it up.’”

The Nation’s Top Insurance Salesman

Progressive economists like Dean Baker have written that Obamacare is better than most people think, even if it contains elements that bother progressives, such as not creating a non-profit, public system like many Western democracies, or imposing cost controls.

All that is true: Obamacare expands the nation’s private insurance system, and gives the insurance industry millions of new customers and billions in federal subsidies to deliver the healthcare they need. But it also achieves a range of progressive policy goals that cannot be discounted, and were not forthcoming without a push from government.

On October 1, people without employer-provided coverage will be able to start signing up for Obamacare. Those policies will take effect on January 1. But the law has been on the books since 2010, when Obama signed it, and already has changed health insurance norms. The president described these in an hourlong Q&A with Bill Clinton Tuesday.

The law already prohibits insurers from imposing lifetime coverage caps. It requires that they spend 80 percent of premiums on healthcare—not on profits. It allows people to stay on their parent’s health plans up to the age of 26. It provides additional discounts to seniors for prescription drugs under Medicare, the government’s health program for the elderly.

Looking ahead, it prohibits insurers from not covering people if they have a pre-existing condition. Because nearly everyone gets sick with something serious by the time they are middle-aged, that industry practice prevented most people who lost their jobs from getting new coverage. Instead, they had to pay 112 percent of the premium cost paid by their ex-employer through a program known as COBRA to keep their healthcare.

That employer-based coverage model trapped people in their jobs. Obamacare ends that dependency because individuals and families can now buy coverage through government-run Obamacare pools. And most people in lower- and middle-income brackets will find policies whose listed price is a quarter to a third lower than their employer paid—and that’s before the income-based subsidies kick in.

“The insurers put in their bids to participate in these marketplaces,” Obama explained in New York on Tuesday. “It turns out that their rates are up to 50 percent lower that what was available previously if you just went on the open market and you tried to get health insurance. Fifty percent lower in this state. California—it’s about 33 percent lower. In my home state of Illinois, they just announced it’s about 25 percent lower.”

There is one big exception to this rosy scenario that will unfairly impact an estimated 5.5 million truly poor people, thanks to Republican governors and the U.S. Supreme Court.

Obamacare expanded Medicaid’s eligibility to all people whose incomes were under the federal poverty line. (Medicaid is the state-run program for the poor and people with disabilities.) The Supreme Court ruled that states could opt out of Obamacare’s Medicaid expansion when it upheld the law. Twenty-two red states have done so, according to the Urban Institute. As a result, there’s a coverage gap in these states because people’s sub-poverty line incomes are still too high to qualify for Medicaid, but not high enough to trigger the tax credits to help them buy policies in the Obamacare marketplaces.           

There’s other grumbling about Obamacare that’s been stoked by the GOP. The GOP opposes the individual mandate that everyone has to have a healthcare plan, and they also oppose what they say are new costs for businesses with more than 50 full-time employees, which would be required to provide coverage for their workers.

Obama said Tuesday that everyone has to have a plan for the economics of this reform to pencil out. Healthcare accounts for a sixth of the U.S. economy. The savings that should result from the law—which also tracks costs and benefits in ways that have never been done before—will help bring down the federal debt and fortify other retirement security programs, Obama said. Moreover, he said big employers also would get tax subsidies—on par with what’s given to individuals—for covering workers under the law.

“Up to 35 percent of the premiums for each employee would be a tax benefit—a tax credit,” he said. “But if you still aren’t providing health insurance for your employees after that, then we’re going to go ahead and penalize you for it.”

The next few weeks and months will see President Obama become the nation’s insurance salesman in chief. Looking ahead, there may be gripes about the coverage provided by the private insurance industry’s new plans. But it’s clear that millions of American who lack healthcare and coverage will now have a way to get some.

As Obama concluded Tuesday, “Do we want to to continue to live in a society where we’ve got the most inefficient healthcare system on Earth… I think the answer is no.”       

Steven Rosenfeld covers national political issues for AlterNet, including America's retirement crisis, the low-wage economy, democracy and voting rights, and campaigns and elections. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).