'Affordable' Care: $1 Pay Hike Costs Middle-Class Family $9,355 Hike in Premiums

Terence P. Jeffrey | August 9, 2013 | 4:19am EDT
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President Barack Obama signed the Patient Protection and Affordable Care Act into law on March 23, 2010. (AP File Photo)

(CNSNews.com) - When the Patient Protection and Affordable Care Act (AKA Obamacare) is fully enforced on individuals and families next year, a middle-aged, middle-class couple with three children could be hit with a $9,355 hike in their annual health-insurance premiums if their annual household income happens to increase by just $1.

Under ACA, all Americans are required to secure health insurance. Those who do not get it through their employer can buy it through government-run health-insurance exchanges, which the law requires to be set up in every state. People buying their Obamacare-mandated health coverage through these exchanges will be eligible for federal subsidies in the form of a refundable tax credit---as long as their adjusted gross household income is between 100 percent and 400 percent of the Federal Poverty Level (FPL).

People whose household income is too small to qualify for the subsidy will be put on Medicaid. People whose household income exceeds 400 percent of the FPL will get no subsidy at all.

According to the IRS, which responded to a CNSNews.com inquiry on the issue, a household earning an annual income that is just $1 more than 400 percent of the FPL is ineligible for an Obamacare subsidy, period.

As explained by both the IRS—which wrote the regulation governing the Obamacare subsidy--and the Congressional Research Service, which published a July 31 report on the matter (Health Insurance Premium Credits in the Patient Protection and Affordable Care Act), the Obamacare insurance-premium subsidy essentially works as a cap on the percentage of annual income an eligible person is required to pay in health-insurance premiums.

This percentage-of-income cap gradually increases as a household’s income increases from 100 percent of FPL to 400 percent.

For households with income between 100 percent and 133 percent of the poverty level, for example, insurance premiums are capped at 2 percent of household income. From there, the cap gradually rises until it tops out at 9.5 percent of income for households making between 300 percent and 400 percent of the poverty level.

For households with incomes over 400 percent of FPL—even just $1 over, according to the IRS—there is no cap on the percentage of their income they can be made to pay for their Obamacare-mandated health-insurance premiums.

“ACA will provide premium credit support scaled to individual and family income relative to poverty such that eligible families and individuals’ premium contributions will be limited from 2.0 percent to 9.5 percent of income,” explained the Congressional Research Service. “Individuals and families with income at or above 400 percent of poverty will be ineligible for premium credits.”

The regulation governing the “premium credit” or subsidy is also calculated on the assumption that the household will buy the second-lowest-cost “Silver” plan on the health-insurance exchange. There are “Gold” and “Platinum” plans above the "Silver" plan and "Bronze" plans below it. Under Obamacare, a household is free to buy a cheaper Bronze plan or a more expansive Gold or Platinum plan, but, as CRS explains it, “if the individual/family enrolls in a plan with a premium that exceeds the premium for the reference plan [the Silver plan], the individual/family is responsible for paying that additional amount.”

What does this mean in cold hard cash?

The Kaiser Family Foundation maintains an online "Subsidy Calculator” to give individuals and families an idea of how much their health insurance will cost under Obamacare and how much of a federal subsidy they may get—or not get—to help pay for it.

Because the federal government has not yet published the Federal Poverty Level numbers for 2014, the calculator uses the FPL numbers for 2013. This year, the FPL for a family of five (a mom, a dad, and three children) is $27,570. Four hundred percent of FPL for a family of five is $110,280.

That means that, under Obamacare’s health-insurance subsidy rule, a family of five that earns $110,280 in a year, and buys health-insurance on the government-run exchange, will have their premiums capped at 9.5 percent of their income (if they buy the second-lowest costing “Silver” plan or a cheaper plan).

But if the mom in this family gets a 50-cent raise and dad gets a 50-cent raise, too—so that their adjusted gross household income increases by a combined $1 (to $110,281)—the family will no longer have a cap on the percentage of their income they must pay for health-insurance premiums.

So, what will that $1 increase in household income cost them?

Under the Obamacare law, the cost of the premiums a family can be charged for health insurance varies according to the age of the people in the household, the number of children, and other factors.

CNSNews.com put a hypothetical family of five through the Kaiser Family Foundation subsidy calculator. In this family, there were three children and a mom and a dad who were both 56 years old--and who did not smoke.

This hypothetical family started out with an annual income of $110,280—exactly 400 percent of the Federal Poverty Level. According to the Kaiser Family Foundation subsidy calculator, their total annual premiums for an Obamacare-approved “Silver” health-insurance plan were $19,832. Under the Obamacare subsidy regulation, this family would be required to pay $10,477 of that premium—which equals 9.5 percent of their household income, the Obamacare cap on premiums for people earning between 300 percent and 400 percent of the Federal Poverty Level.

The rest of this family’s annual premium--$9,355—would be covered by the federal government in the form of subsidy payments that the Treasury would send directly to the family’s insurance company.

But, continuing our hypothetical example, this mom and dad each get a 50-cent raise in their annual salaries. As a result of those 50-cent raises, their household income climbs an entire dollar to $110,281—putting their household income exactly $1 over 400 percent of the Federal Poverty Level.

When this $1 increase in household income is plugged into the Kaiser Family Foundation subsidy calculator, the calculator accurately notes that the family no longer qualifies for Obamacare’s 9.5-percent-of-household income cap on their health-insurance premiums.

According to the calculator, the family’s total annual premium for their Silver health-insurance plan remains $19,832. Now, however, because they earn too much money to qualify for the federal subsidy, they must pay every penny of that $19,832 premium. As a result, the cash they must pay out of pocket for their health insurance plan goes from $10,477 per year to $19,832 per year, an increase of $9,355.

Because Obamacare health insurance premiums will vary according to the age of the purchasers, the size of the family, and other factors, not all families will take the $9,355 hit our hypothetical family took here for getting a $1 raise that put their income over 400 FPL and made them too wealthy to get an Obamacare subsidy.

A family with different demographics might have a smaller—or bigger—increase in their premiums.

For example, a family of four, in which both parents were 56 years old, would hit the 400-percent of FPL threshold at $94,200. Their annual premium for a “Silver” plan would be $17,915, according to the Kaiser Family Foundation subsidy calculator. If they kept their income at $94,200 or less, they would need to pay $8,949 per year for their insurance and the government would pay an $8,966 subsidy to their insurance provider.

But if this family increased its annual income—to $94,201—they would become ineligible for the subsidy, lose the 9.5 percent-of-income cap on the premiums they are required to pay, and would need to pay the entire $17,915 cost of their health insurance plan themselves. Thus, the $1 increase in their income would cost them an $8,966 increase in their Obamacare insurance premiums.

It could be worse.

If the stress of paying an additional $8,966 for health insurance as a result of their $1 increase in income caused the mom and dad in this family to start smoking, insurance companies would be allowed to increase their premium as a penalty for their tobacco use.

According to the Kaiser Family Foundation calculator, when the parents start smoking this family will see its annual premiums rise to $24,956.

And, under Obamacare and its subsidy regulation, this middle-aged, middle-class mom and dad—who earned a $1 increase in their annual income—would have to pay every penny of that $24,956.

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