Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

A couple of premium increases under “Reform”

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Joe is 21 and works in an auto shop.  Tammy is 20 and has a job as an office assistant.  They each earn $21,600.  They can currently buy reasonable insurance in Arkansas for $50 a month.   Under reform, because they are low-income, they will enjoy significant subsidies.  This will enable them to buy insurance for $114 a month (the cost at exactly 200% of FPL).  Their premiums will double.

Now, Joe and Tammy run off and get married in July of 2014.  Their family income shoots to $43,200.  They are obligated to report this non-economic change in status immediately to the Health and Human Services Secretary.  The Secretary will forward this information to the IRS and the Exchange.  The Exchange will then cut their subsidies, raising their out of pocket premiums to $171 per month.  At this time, it is unclear to me whether the regulators will require them to purchase a family policy or not, which will require both of them to cancel their current coverage and start a new coverage.  This may mean exposing them to an additional annual deductible, because our esteemed legislators didn’t think of things like “deductible carryover” when defining the benefit and regulatory structure.  Regardless, the fact they get married will result in lower out of pocket subsidies, meaning that this premium increase of 50% will now be for a slimmer benefit.

All subsidies are to be determined on an annual basis.  The first year that Joe and Tammy file a joint return, they will owe back taxes to cover the larger subsidies they enjoyed for the part of the year before they were married.  Because their final income stayed below 400% of poverty, this penalty is maxed at $400.  If they had been extravagantly rich, say earning $29,141 each, then they would face a penalty equal to the entire size of the pre-marriage subsidy.

Bottom line: Joe and Tammy will face large premium increases, despite the subsidy, because they are young.  They will then face a 50% premium increase when they get married.  They will face potential retroactive liability if they get married during the year, or if they fail to inform the Secretary in a timely fashion about their change in status.  They may be forced to cancel one or both policies they are currently on, exposing them to additional out of pocket costs.

One reason I don’t buy the argument that “reform is a moral imperative” is that I know people like Joe and Tammy.


Written by Victor

March 20, 2010 at 1:49 pm

Posted in Healthcare Reform

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