The Obamacare Cliff

This morning our local newspaper reported on the decision by Covered California (our local, and apparently functioning, health insurance exchange) not to allow extension of the insurance plans that don't comply with the requirements of the Affordable Care Act.  And of course they provided us with a family that would lose its cheaper insurance, and have to pay nearly double for ACA-compliant insurance.  And we are supposed to feel sympathy for her.

Well, I do, up to a point.  First, she is "out of subsidy," which means that she has an income at least close to $100,000 a year.  That's far above the median for Sacramento County.  In fact, she's probably in the top five percent, income-wise.  Now her ACA-compliant plan will cost her $1,200 a month which, by my calculator-aided computation, is $14,400 a year. That's a lot of money.

It's a lot more than she used to pay, $7,740.  But that sum depended on two factors.  First, the insurance company never had to cover anyone who was old or got sick.  In fact, it might not even cover her family if one of the insured got sick.  Insurers regularly went through applications when someone got sick, looking for any forgotten visit to the doctor, over the counter medication, anything that would enable the insurer to claim a pre-existing condition and/or "lying" on the application, and cancel the insurance.  Second, the cost of caring for the sick was covered by the government.  Our health insurance system was often described as "cherry-picking" and it was very good for those who got picked. Not so much for everyone else.

Now even with an income in the top five percent, she's paying almost fifteen percent of her income for insurance, more if she goes to the doctor.  What that should highlight, but doesn't, is that the cost of health care in the US is far more than our income can support. We just don't make enough money to pay for insurance that expensive.  That's why we have subsidies for most of the population.  If you're within subsidy, you won't pay more than 9.5% of your income for insurance, and the smaller your income, the less you pay.

But for those who fall off the cliff, the cost is very steep, and it's worse for people who are just above the 400% of poverty than for people who are richer, particularly if they are also older.  Just off the cliff, people can pay a quarter of their income for insurance, again before they've been to the doctor.  That means that, as your income increases, the percentage of income you pay decreases.

Now for the immediate problem, there's a simple solution.  Get rid of the cliff.  Just change the law to provide that no one who has an ACA policy pays more than, say, 10.5% of income for a silver plan.  It's true that there would be a few people with very high incomes who would be subsidized, but the vast majority of rich people already have very good insurance.  I don't think we'd find Jamie Dimon searching the exchange for insurance. But given the make-up of Congress these days, that's not likely to happen.

And the two other obvious problems aren't likely to come up for discussion.  The first is that the poverty line is, for the parts of the country where people live, a convenient work of fiction.  The poverty line for a single person is $11,500.  Our rent is more than that, and we don't live in an expensive part of California.  The poverty line for a two-person household is $15,500.  To give you a sense of how silly these figures are, we need only compute how much rent someone should be paying on that income, assuming that 30% of income makes sense.  (It doesn't, but that's another issue.)  Again, using my trusty calculator, I find that 30% of $11,500 is $287.50 a month.  You can't rent a room for that anywhere in California.  Our two-person household could spend $387.50 a month for rent, still not enough for a single room in a shared household or residential hotel.  So people who make 400% of poverty aren't really making that much money, if we also look at the cost of living.

The second problem is that our insurance costs far more than providing health care in other advanced capitalist countries.  Health care costs are higher here than in France, where new mothers receive visits from a nurse who can help with any new baby problems.  (Contrary, however, to popular misconception, the visiting nurses do not do the laundry or whip up a three-course French lunch.)  The US system is so expensive that it would be cheaper to send our elders to France, and then pay the government of France to insure them.  Dean Baker at CEPR seriously proposed this, although he used Britain as his example.  (I'd be willing to accept less subsidy for the better food.)

Only a tiny number of Democrats and no Republicans suggested that we might rein in the cost of care--paying doctors, hospitals and drug companies less, keeping our payments more in line with those of other countries.  In other countries the government determines the reasonable cost of various products and services, and that's that.  Here we had a discussion of "death panels" and government bureaucrats keeping people from obtaining needed care.

It's so much fun to realize that we're going to waste so much money and cause so much misery because our politicians suck, some because they don't believe that knowledge should play any role in decision-making, and others because they don't have the backbones of slugs.