How The Affordable Care Act Pays For Insurance Subsidies

November 07, 2013 2:57 AM

The new health care law will provide around $1 trillion in subsidies to low- and middle-income Americans over the next decade to help them pay for health insurance.

Johanna Humbert of Galien, Mich., was pleasantly surprised to discover that she qualifies for an insurance subsidy, since her current plan is being canceled. Humbert makes about $30,000 a year, so she’ll get a subsidy of about $300 a month. The new plan is similar to her current one, but it will cost $250 — about half of what she pays now.

But where will the money come from to pay for subsidies like these?

On his show last Friday, liberal comedian Bill Maher called the Affordable Care Act a “Robin Hood” plan. “It does take from the rich to make better the poor,” he said.

You can certainly make a case for that, says economist Joseph Antos of the American Enterprise Institute. “In a general sense, the rich, of course, subsidize the poor. The rich pay more income taxes,” he says. “So, yes, absolutely, that’s how subsidies are supposed to work.”

So if you’re a low-income person getting a tax credit from the U.S. Treasury to subsidize your health care, a big chunk of that credit is coming from taxes paid by the well-off.

The Cost Of Subsidies

But the authors of the Affordable Care Act didn’t want the subsidies to become a drain on the Treasury and add to the deficits. So they included provisions designed to offset the cost of the subsidies.

MIT economist Jonathan Gruber, who helped develop the law, says about half the costs are offset by projected savings in Medicare payments to insurers and hospitals. Another quarter is offset by added taxes on medical-device makers and drug companies.

“The other source of revenue is a tax increase on the wealthiest Americans,” he says. “Those families with incomes above $250,000 a year will now have to pay more in Medicare payroll taxes.”

Those provisions actually make the bill a net positive for the federal budget, according to the nonpartisan Congressional Budget Office. By the CBO’s accounting, Obamacare will produce a surplus. Gruber says the law will “actually lower the deficit by about $100 billion over the next decade and by $1 trillion in the decade after.”

However, many Republicans have expressed skepticism about those findings.

New Policy, New Marketplace

The subsidies do mean some low-income people will pay almost nothing for insurance, while higher-income people will pay the full market price.

Dentist Aaron McLemore of Louisville, Ky., makes more than $100,000 a year, and doesn’t qualify for any subsidy on the Obamacare exchange. The 31-year-old’s current policy is being canceled. A new policy from the exchange will more than double his monthly premium and boost his annual deductible to $7,000.

His higher costs aren’t subsidizing lower-income policy holders, whose subsidy has already been paid by the government. But he is providing a subsidy in another way: The Affordable Care Act requires him to buy a policy with features he doesn’t need.

“Seeing as I’m a single male with no kids or dependents, and I’m paying for pediatric dental care and maternity care, it doesn’t make a whole lot of sense to me,” McLemore says.

What Obamacare is doing is moving McLemore out of the individual market — where people are sorted by age and health history and scope of coverage — to a market more like the traditional, employer-based group policy, in which young and old workers get the same coverage and pay the same premium.

Gruber, the MIT economist, says that model reflects the basic idea of insurance.

“The notion of insurance is we’re protected against risk,” he says. “What that means is that [during] a period of time when we’re healthy, we pay more in premiums than we collect in benefits. In those periods of time we’re sick — and we all go through them — we collect more in benefits than we pay in premiums.”

Young, healthy people subsidize older people, who are more likely to be sick. Of course, most of those younger folks will eventually become old folks and experience the same benefit.

UPDATE 1-Two U.S. hospital chains dismiss Obamacare technical woes

Source Link:  http://www.reuters.com/article/2013/11/05/hospitals-reform-idUSL2N0IQ1JN20131105

Tue Nov 5, 2013 2:49pm EST

By Susan Kelly

Nov 5 (Reuters) – Two U.S. hospital operators said on Tuesday technology problems bedeviling the federal government’s online health insurance marketplace were gradually diminishing and will not stop them from pushing ahead with plans to provide care to those who sign up.

“If any company had three years’ notice about having a website functioning for a major product launch on October 1, it would have worked. It’s frustrating that it did not work,” hospital operator Tenet Healthcare Corp’s Chief Executive Trevor Fetter said in an interview with Reuters following the company’s third-quarter earnings conference call.

While the glitches that have prevented many potential health plan enrollees from signing up are disappointing, “we’re not terribly concerned about it,” Fetter said.

That is because those uninsured patients will not be able to access the new plans until January anyway, so there is still plenty of time to sign up, he said.

Fetter said problems with online access to the federal insurance exchange have been lessening, and patients can also enroll through call centers, where waiting times have been coming down. State exchanges such as the one set up in California are working much better and are offering a selection of affordable plans, he added.

“This is a really important innovation,” Fetter said. “I wouldn’t judge it by the initial performance of the federal website.”

HCA Holdings Inc Chief Executive Richard Bracken said issues with the federal website have not deterred the company from its own plans to contract with insurers to provide care to new patients.

Ninety-seven percent of HCA’s U.S. hospitals have an exchange contract with access to a bronze level insurance plan, he said. Such plans have the lowest premiums.

“We are well-positioned to participate and provide healthcare services,” Bracken said on the company’s earnings conference call.

Tenet said it has contracts with about three-quarters of all the exchange plans that are offered in its markets.

EAGER FOR PATIENTS

Hospital companies have a lot riding on the success of the insurance exchanges. Hospitals are struggling with declining admissions as many Americans have stayed away from the doctor due to lack of insurance or high deductible on their plans.

The companies expect patient admissions to grow and bad debts to decline as more patients gain insurance to pay for their care.

Tenet shares fell about 9 percent on Tuesday, to $43.96, after it provided a disappointing outlook for the fourth quarter when it released its third-quarter results on Monday.

HCA, the largest publicly owned U.S. hospital operator, was one of the only hospital chains to report a modest increase of less than 1 percent in admissions to its facilities in the third quarter. Its shares fell 2.5 percent Tuesday to $46.53.

Jefferies & Co analyst Brian Tanquilut said he believes hospitals in 2014 will benefit primarily from more people being eligible for the Medicaid health insurance program that serves the poor.

“The health reform story is intact, but near term, the volume headwinds, which have been hampering hospitals for five years, continue to persist,” he said.