What’s an Affordable Premium for You? : David M. Herszenhorn
By: Health Insurance
Submitted: 2009-09-23 19:40:52 | Word Count: 1188
A central question in the debate over how to revamp the American health care system is whether insurance will be affordable for people who currently do not have it.
Affordability, of course, is in the eye of the beholder. For many middle-income Americans, the proposal put forward by Senator Max Baucus, the Montana Democrat and chairman of the Finance Committee, makes several determinations about what would or would not be affordable.
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Let’s go through some of them and see if you agree.
A Prime Demographic Target
A key demographic to consider is the large number of Americans earning between 300 percent and 400 percent of the federal poverty level, which for a family of four translates to between $66,150 and $88,200 a year. (These are the numbers for 2009, and they get adjusted each year.)
Under the Baucus proposal, folks in this category would not be eligible for subsidies to help purchase insurance unless the cost of premiums exceeded 13 percent of income, or $8,599.50 to $11,466.
Experts say that most people in this income range who currently have insurance already are paying more than 13 percent of income toward their premiums. But remember that the people who would gain coverage do not currently have insurance, so the fact that most people are spending more provides context, not a before-and-after comparison.
Also, remember that premiums do not include out-of-pocket expenses such as co-payments and deductibles. These costs would be capped at $5,950 for individuals and $11,900 for families. A number of health expenses, especially out-of-network services, might not count toward this out-of-pocket maximum.
So under the Baucus plan, a couple with two children earning just over $88,000 could be on the hook for up to $23,366 in premiums and out-of-pocket expenses, and perhaps more.
That amounts to more than 26 percent of income, and most likely would only happen in a year of serious health problems. But again, circumstances matter: a family that currently has no insurance and chronic medical conditions already may be spending much more.
Those Eligible for Subsidies
Under the Baucus proposal, individuals and families earning between 200 percent and 300 percent of the poverty limit ($44,100 to $66,150 for a family of four, and $21,660 to $32,490 for an individual) would be eligible for subsidies, in the form of tax credits, to defray the cost of health insurance premiums. And the cap on out-of-pocket expenses would also be set lower, at $2,975 for individuals and $5,950 for families.
For folks earning between 100 percent and 200 percent of poverty, the out-of-pocket maximum would be $1,983.33 for individuals and $3,966.66 for families.
The maximum premium costs for an individual or family would be set on a sliding scale, from 3 percent of income for those earning 100 percent of the federal poverty level to 13 percent of income for those earning 300 percent of the poverty limit. For a family of four, that would mean $661.50 at the low end, up to $8,599.50.
For individuals and families earning less than 200 percent of the poverty limit, there would be both subsidies to help with premium costs as well as subsidies to limit out-of-pocket expenses.
Keep in mind, too, that individuals and families would be required to obtain health insurance or face a penalty of up to $3,800 per year for families earning more than 300 percent of the poverty limit.
According to the Baucus plan, individuals and families whose insurance premium costs — after deducting government subsidies or employer contributions — exceed 10 percent of their income would be exempt from the penalty. But that exemption might be of little solace to a family forced to go without health coverage.
Insurance Costs Are Uncertain
What insurance premiums will cost is not yet known. Insurance companies seeking to sell coverage through the new state insurance marketplaces, or exchanges, would have to develop plans that meet the overall requirements of the legislation, including minimum benefit levels.
Insurers would likely offer a variety of plans, and the expenses that any individual or family would face cannot be predicted without knowing both the parameters of the plan and the individual or family health situation.
Aides to Mr. Baucus say that lawmakers chose 13 percent of income as the cap on premiums because more than 90 percent of the people who fall between 300 percent and 400 percent of the federal poverty limit — a total of more than 30 million people — are now paying more than 13 percent of their income in insurance premiums.
By that measure, they say, the legislation provides a discount on insurance costs.
In addition, families in relatively good health and who use in-network health care providers generally would not come close to the maximum in out-of-pocket expenses, and in some cases the out-of-pocket costs might be fairly low.
Of course, most of the people who would obtain coverage under the legislation currently do not have insurance.
And Now Come the Adjustments
During the Finance Committee mark-up this week, some lawmakers will be pushing to make the subsidies more generous. Senator Debbie Stabenow, Democrat of Michigan, for instance, has said that premium costs for families in the 300 percent to 400 percent of poverty range should be capped at 6.5 percent of income — half of what Mr. Baucus proposed.
Mr. Baucus has acknowledged that steps will likely be taken to make coverage more affordable, but doing so will add to the cost of the bill, currently pegged at $774 billion over 10 years. President Obama has said he does not want it to cost more than $900 billion.
Some health policy experts are raising another question: whether the legislation can perhaps be made more flexible to protect families in the event that they have a year with unexpectedly high expenses. Doing so would potentially mean setting a cap on both premiums and out-of-pocket costs that would be tied to a percentage of family income.
Out-of-pocket expenses present another potential obstacle. Even if a family could afford the monthly health insurance premiums, the prospect of high deductibles or co-payments could mean that medical care is unaffordable when its actually needed.
Another question is whether geographic adjustments should be made to account for regional differences in the cost of living.
In the end, affordability will be defined by Congress and President Obama. How would you define it? What’s a fair price to pay for insurance?
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