Category Archives: personal finance

Political Calculations, Mathematics Education and Obamacare

Mark Bertolini is the CEO of Aetna (NYSE: AET). Yesterday, he gave an extended interview with the WSJ's Dennis Berman on the topic of the future of health care, in which he made big news by describing the Affordable Care Act (ACA), which is more popularly known as Obamacare, by saying that "it is in a death spiral."

But the part of his comments that really stood out to us came just after the 14-minute mark of the interview, where he said:

You know that mathematics education in the United States is working when someone says, let's see, I'm going to pay this much premium, I've got a $6,000 deductible, the average deductible across the country is $3,600 dollars, it's up 15% this year alone, right, and when I go to the doctor I'm going to pay cash, nobody anticipates spending a day in the hospital or going to the doctor more than once... so premium, plus deductible, plus paying cash... why do I do this? I'll just pay the penalty and move on.

We here at Political Calculations have been happy to help provide Americans with that particular mathematics education since 17 September 2013, when we introduced our tool "ObamaCare: Should You Pay the Premium or the Tax?" (a 2017 version is also available), in which we made the kind of personal finance math described by Bertolini easy to do for any American with an Internet connection.

So, in a way of speaking, we're the solution to the game of Clue featuring the all-but-confirmed death of Obamacare: it was Political Calculations, on the Internet, with Math!

That said, we do have some thoughts on how to address the situation that Bertolini describes as the result of the adverse selection that has drawn in the sickest Americans eligible for Obamacare while driving out the healthiest Americans. In our view, that outcome will be exceptionally valuable in making good on the failed promise of Obamacare to provide people with pre-existing conditions with the ability to obtain affordable health insurance coverage. Unlike the other failed Obamacare promise that "if you like your health care plan, you can keep it", we think it may be possible to make that kind of health insurance portability a reality, so long as it can be separated from the all the other, excessively wasteful baggage of the Affordable Care Act.

If you want a teaser, we think that the solution to that issue is not subsidized health insurance, but rather reinsurance, which is an idea that we'll explore more at a later date.

In the meantime, if you'd like to see what else Aetna's CEO had to say on about the future of health care, here's the WSJ's full video of the 50-minute interview, but we'll warn you in advance that it starts off with over four and a half minutes of some especially awful background music before it gets going.

Is Obamacare Really Affordable for the Middle Class?

Writing at CNN Money, Tami Luhby or a CNN headline writer asked and answered in a single headline: "Is Obamacare really affordable? Not for the middle class".

Now that's the kind of journalistic efficiency we like to see! But how true is it? Let's dig into the story for the details....

Obamacare is now a tale of two health insurance programs.

For the 85% of enrollees with lower incomes, federal subsidies make the premiums somewhat more affordable. Those even closer to the poverty line can get additional subsidies that reduce the deductibles, which can run into the thousands of dollars.

But for many middle class Americans -- a single person earning more than $47,520 or a family of four with an income of $97,200 -- the pricey premiums and deductibles mean health care coverage remains out of reach....

For the 10.5 million enrollees on the Obamamcare exchanges, health insurance costs are more transparent. And more of the burden falls on the consumers. That is leaving an untold number of Americans opting to remain uninsured, rather than shell out thousands a year for premiums and deductibles. In 2015, 46% of uninsured adults said that they tried to get coverage but did not because it was too expensive, a Kaiser study found.

The big price spikes for 2017 have some current Obamacare enrollees wondering whether they'll renew their plans next year or opt to pay the penalty of $695 per person, or 2.5% of income, whichever is larger.

We thought it might make for an interesting project to consider how 2017's costs for health insurance coverage from the Affordable Care Act (ACA) exchanges might affect a family of four in one of the states that are seeking some of the biggest spikes in health insurance premiums over the previous year.

We selected Arizona, which saw the largest year over year price increase for ACA health insurance in 2017 after having previously ranked among the states with the lowest premiums, which we previously have argued was the result of predatory pricing by one of the health insurers approved to sell health insurance on the state's federal government-operated ACA exchange. Health insurance premiums in the state are now more consistent with those in neighboring states.

We next defined our prospective family of four as consisting of two 40 year old, non-smoking adults and two children under the age of 19. We then went county by county throughout the state to extract the cost of "Silver"-level health insurance coverage available to such a household earning each county's median household income, where we next calculated both the tax credit subsidy they might receive to estimate their monthly premium after subsidies, and also the Affordable Care Act "shared responsibility" income tax they might otherwise have to pay if they were to choose to go without health insurance.

Our results for our hypothetical family of four whose household income puts them exactly in middle of the income distribution of their county are summarized in the following table. If you're reading this post on site that republishes our RSS news feed, but that doesn't neatly render the table below, please click here to access the article as it appears on our site.

Cost of Silver-level ACA Health Insurance for Family of 4 (40-year old, non-smoking couple with 2 children) Earning the Median Household Income for Selected Arizona Counties
Arizona County Median Household Income Before Subsidies: Monthly Premium After Subsidies: Monthly Premium Additional Income Tax (Cost per Month) Monthly Savings (or Losses) to Pay Tax Instead of Buying Health Insurance Comment
Apache $32,396 $1,909 $0 $0 $0 Eligible for fully taxpayer subsidized Medicaid health insurance coverage.
Cochise $45,974 $1,850 $227 $174 $53 Annual savings of $639 to pay the tax instead of buying subsidized health insurance.
Coconino $48,540 $1,909 $261 $174 $87 Annual savings of $1,047 to pay the tax instead of buying subsidized health insurance.
Gila $40,042 $1,728 $160 $174 -$14 More advantageous to buy subsidized health insurance to avoid the additional income tax.
Graham $37,220 $1,850 $131 $174 -$43 More advantageous to buy subsidized health insurance to avoid the additional income tax.
Greenlee $50,818 $1,850 $285 $174 $111 Annual savings of $1,335 to pay the tax instead of buying subsidized health insurance.
La Paz $37,009 $2,260 $480 $174 $306 Annual savings of $3,675 to pay the tax instead of buying subsidized health insurance.
Maricopa $53,689 $1,518 $321 $174 $147 Annual savings of $1,767 to pay the tax instead of buying subsidized health insurance.
Mohave $38,456 $1,909 $143 $174 -$31 More advantageous to buy subsidized health insurance to avoid the additional income tax.
Navajo $36,591 $1,909 $125 $174 -$49 More advantageous to buy subsidized health insurance to avoid the additional income tax.
Pima $46,233 $1,046 $231 $174 $57 Annual savings of $687 to pay the tax instead of buying subsidized health insurance.
Pinal $50,248 $1,728 $279 $174 $105 Annual savings of $1,263 to pay the tax instead of buying subsidized health insurance.
Santa Cruz $47,420 $1,503 $245 $174 $71 Annual savings of $855 to pay the tax instead of buying subsidized health insurance.
Yavapai $44,000 $2,233 $204 $174 $30 Annual savings of $363 to pay the tax instead of buying subsidized health insurance.
Yuma $41,380 $2,260 $174 $174 $0 Almost right at the margin, where health insurance premiums would cost the same as the additional income tax.

In nine of Arizona's fifteen counties, a family of four earning their county's median household income would find it more financially advantageous to pay Obamacare's "shared responsibility" additional income tax than to buy a subsidized "Silver"-level plan on the state's Affordable Care Act exchange. For these counties, the annual savings from choosing to pay the tax instead of subsidized health insurance range from a low of $363 for Yavapai County to a high of $3,675 in La Paz County.

Map of Arizona Counties - Source: http://azarts.gov/programs/poetry-out-loud/

In five of Arizona's counties, a family of four earning their county's median household income would come out financially ahead by buying subsidized health insurance, though here, the annual savings for doing that range from $0 in Yuma County to a high of $588 in Navajo County.

Only Apache County, with the lowest median household income of all counties within the state, a family of four with its median income of $32,396 would be eligible to be enrolled in the state's expanded Medicaid health insurance program for lower income households, and thus would not have to choose between which would be better between paying Obamacare's additional income tax or paying for subsidized health insurance coverage. Across the state, the maximum income for a family of four people to be eligible to enroll in its expanded Medicaid welfare program is $33,534, which is 138% of the federal poverty income threshold of $24,300 that applies for a household of that size.

On just the basis of subsidized health insurance premiums alone then, we find that for household of four people whose annual income is either at, near or above the median household income level for their county within the state, it can be more financially beneficial to choose to pay Obamacare's additional income tax than to buy subsidized health insurance coverage through the Affordable Care Act exchanges. Since the median income defines the middle of the income distribution, this result means that for a majority of such middle class households, Obamacare is less affordable than paying its additional income "shared responsibility" tax for those choosing to go without health insurance.

On a final note, a household with ACA health insurance would still be responsible for paying a considerable portion of any actual health care they might consume, up to the limit defined by the deductible for their insurance, which is above and beyond their basic cost for just having health insurance coverage. In Maricopa County, home to the largest population within the state, the Silver plan with the lowest deductible would require the insured family to pay $2,650 of their actual health care costs out of pocket before the health insurer might start fully picking up the tab for their medical bills.

Once those costs are also considered, a large portion of those below the median household income will find that Obamacare isn't affordable for them as members of middle class.

References

U.S. Census Bureau. 2010-2014 American Community Survey 5-Year Estimates (Median Household Income) via American Fact Finder. [Online Database]. Accessed 4 November 2016.

Kaiser Family Foundation. Health Insurance Marketplace Calculator. [Online Application]. Accessed 4 November 2016.

Health Sherpa. Obamacare Insurance Plans in Arizona. [Online Database]. Accessed 4 November 2016.

U.S. Department of Health and Human Services. Poverty Guidelines for 2016. [Online Document]. Accessed 4 November 2016.



Obamacare 2017: Should You Pay the Premium or the Tax?

Since the Affordable Care Act's health insurance "marketplaces" first went online back in October 2013, we've been proud to offer a unique tool that subsidy-eligible American consumers can use to make the right choice for themselves in shopping for health insurance with respect to their personal financial situation and their health.

That tool will tell you whether it makes more financial sense to buy health insurance through the Obamacare exchanges or to opt out and pay higher income taxes instead, depending upon whichever of these options is less costly for you.

According to recently released IRS statistics, that is a choice that million of Americans have been making since 2014, where after performing similar calculations on their own and finding out how actually "affordable" the Affordable Care Act's health insurance policies are with respect to whatever additional tax they might otherwise have to pay after considering the state of their health. The IRS confirms that in 2014, the first for which Americans had to either demonstrate that they had health insurance coverage or else be subject to a "shared responsibility" tax penalty, some 8,061,604 Americans chose the penalty over paying any health insurance premiums.

The Obamacare tax collectively cost them $1.694 billion, which works out to an average tax paid of $210.14 per income tax return for those who were subject to the tax. By contrast, the average monthly unsubsidized premium for a health insurance plan through the Affordable Care Act exchanges for 2014 was $328, which corresponds to a total cost of $3,926 per year for health insurance coverage.

It would have taken annual tax subsidies of at least $3,716 to have made signing up for health insurance through the Obamacare exchanges a slam dunk choice from a personal finance perspective that year, and though the penalty income tax has since increased to its now maximum rate, which changes where that threshold now lies, similar personal finance math still applies today!

Our tool below will help you decide which option may be more affordable for you in 2017. Beginning on 1 November 2016, you can obtain the relevant health insurance policy cost information you need from either the Healthcare.gov web site, or more reliably, from the independent and far more transparent Health Sherpa site. The default data in the tool below applies for 2017 premium data that has already been published for Pueblo, Colorado.

Also, if you're accessing this tool on a site that republishes our RSS news feed, please click here to access a working version of our tool.

Your Household Data
Input Data Values
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Lowest-Cost "Bronze" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Costs
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings If You Choose to Pay the Tax (or Costs, if Negative)
The Bottom Line

About This Tool

In building this tool, we've made a handful of assumptions. Here they are, along with links to our references for data:

  • The federal government's poverty income thresholds for 2013 will initially apply in 2014.
  • The Kaiser Family Foundation's description of how ObamaCare's subsides will be calculated is accurate.
  • The map of states we used to identify which are expanding their eligibility for their Medicaid programs up to 138% of the federal poverty income threshold and which are not is largely accurate. For states that had not made their determination as 1 September 2013, we've assumed that they are not expanding their Medicaid program's eligibility. We will update this periodically as new information becomes available.
  • CNNMoney's description of how the penalty tax will work is accurate. We also thank Sean Parnell of The Self-Pay Patient blog, who identifies an exemption from the tax that we originally missed - it turns out that people who live in regions where the lowest-cost Bronze plan is more than 8% of their household income even after the subsidy will be fully exempt from the tax! (Of course, you realize that means that skipping out on not paying health insurance too until they might actually need it just became an even more attractive option for those who will be fully exempt from the tax!)
  • The default values associated with selecting the "United States" are those that will apply for a majority of the nation's population.
  • People will mostly act rationally where their financial incentives and the assessment of their health care needs are involved.

Beyond this, we've assumed that for some people there may be a "gray area", who would only have a small incentive to not purchase health insurance, where any benefit in doing so is not very large with respect to their household income, and where the decision to buy or not buy should instead be based upon an assessment of what the buyer's actual health care needs for their household will be in the near term, rather than purely upon its cost with respect to the ObamaCare income tax.

Mathematically, we've defined that gray area as being equal to the difference between the penalty tax they might choose to pay or an amount equal to 4.2% of their income before taxes, which closely corresponds to the average expenditure of U.S. households for health insurance in 2015 according to the most recent Consumer Expenditure Survey. This figure has increased from the 3.1% of income before taxes that was indicated by data in the Consumer Expenditure Survey report for 2012, which is a direct consequence of how the Affordable Care Act has sharply escalated the cost of health insurance in the United States since it became law.

Updates

Here at Political Calculations, our policy is for our tools to always improve over time. This section of this indicates all the significant changes we have made to the text of this article and the code for this tool.

  • 20 September 2013: Modified programming to consider the tax exemption that might apply if the out-of-pocket cost of the least-expensive "Bronze" plan, even after the subsidy tax credit is considered, is still greater than 8% of their household income. Modified text in Assumptions section to indicate change was incorporated.
  • 25 September 2013: Modified text in fourth paragraph to better clarify when an individual opting to pay the tax instead of a premium could acquire insurance if they determine they will need it. Added the Updates section to communicate all significant changes in this post and tool.
  • 27 October 2013: Updated the data for Ohio, which will be expanding its Medicaid program, and also for Pennsylvania, which appears set to expand its Medicaid program to some degree.
  • Updated 7 November 2015: Montana is now listed among the states expanding their Medicaid programs. We should also note that seven of the now 30 states that have adopted the Medicaid expansion are also imposing measures that will limit costs to the states, such as Montana's decision to require Medicaid beneficiaries earning above 100% of the federal poverty level to pay premiums equal to up to 2% of their annual income. Other states that have adopted cost control measures that have been approved by the federal government include Arkansas, Indiana, Iowa, Michigan, New Hampshire, and Pennsylvania.
  • Updated 16 October 2016: Louisiana has expanded their Medicaid coverage under the federal plan, and both Indiana and New Hampshire have expanded their Medicaid coverage under an alternative plan with the adoption of cost control measures that have been approved by the federal government. We've also updated this version of the tool with 2016's poverty thresholds that hold for the 48 contiguous states, Alaska and Hawaii.

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.

Things That Last and Where to Buy Them

Have you ever bought something that you thought would last, then had to replace it far sooner than you believe you ever should have had to?

Sure, maybe you deliberately bought something that was cheap just because it was cheap, and because you figured you would replace it with a higher quality, more durable version once you became a grown up and could afford to pay more to get something better. But what if you had to deal with that better item falling apart or wearing out long before it ought to have?

Core77's Rain Noe vents his frustration before finding a solution:

I am so sick of the fact that we must constantly buy things, throw them out and buy new ones. I can't stand the appliance that breaks, the cheaply-made tool that fails, the object that's suddenly rendered entirely useless because one small plastic irreplaceable hinge has failed.

Tara Button is sick of it, too, and resolved to do something about it. Button ditched her career in advertising to start Buy Me Once, an online retailer that searches far and wide to find manufacturers who actually build things that were made to last.

In the following video, Button explains what the site is about:

We think it's a cool idea, and also long overdue. And we have to say that we didn't think that we would ever have seen socks with a lifetime guarantee!

The Personal Finance of Treating Sleep Apnea

CPAP Machine in Use - Source: Alabama Board of Home Medicine - http://www.homemed.alabama.gov/

People who suffer from sleep apnea don't have very many good options to cope with the condition.

The Mayo Clinic describes sleep apnea as "a potentially serious sleep disorder in which breathing repeatedly stops and starts." Aside from preventing people with the disorder from obtaining a good night's sleep, which leads to daytime fatigue, more severe forms of the condition can lead to host of more severe medical problems that result from having their body's consumption of oxygen interrupted, including high blood pressure, heart problems, an increased risk of stroke, Type 2 diabetes, metabolic syndrome and liver disease.

Treating more severe cases of the condition often involve the patient being prescribed to use a Continuous Positive Airway Pressure (CPAP) machine. Here, the patient straps a bulky mask and its connecting air hoses over their nose and mouth while sleeping, which if you can tell from the picture, doesn't appear to offer much in the way of comfort, even though they are effective in promoting uninterrupted breathing.

Via Core77, we learned of a new alternative device invented by Stephen Marsh that does away with much of the CPAP's bulky apparatus, reducing it to a relatively simple nosepiece that doesn't need to be hooked up with hoses to an air pump: the Airing:


But there's a catch. The Airing nose fitting device is only good for a one-time use, while a traditional CPAP machine is good for a number of years. If an individual with sleep apnea wanted to use the Airing as they slept each night, they would have to buy a supply that they would consume at a rate of one per day, at an estimated retail cost of $3.00 per device, which compares to the average expense of $850 for a CPAP machine, which typically last for 7 to 8 years before needing to be replaced.

We wondered which option would make more financial sense. It occurred to us that the choice is really the same as the choice of buying versus renting, which is a kind of math that we're very familiar with doing.

In the tool below, we've set the annual cost of "renting" as the choice to go with the Airing device, at it's estimated retail price of $3.00 per unit, times 365 days per year. The cost of buying then would be the $850 for the traditional CPAP machine.

We then set the inflation rate to 2.03%, which agrees with the OECD's long term projections for 7-8 years from the present, which covers the expected life of the CPAP unit.

Meanwhile, we set the cost of money to be equal to the current 13.1% that Bankrate.com indicates to be the average for a fixed-rate credit card.

All that said, let's do the math. If you're accessing this article on a site that republishes our RSS news feed, please click here to access a working version of the tool on our site.

Rent or Buy Information
Input Data Values
Cost to Rent "Uninterrupted Breathing"
Cost to Buy "Uninterrupted Breathing"
Net Rate of Inflation [%]
Cost of Money (Credit Card Interest Rate) [%]

Should You Buy or Rent "Uninterrupted Breathing"?
Calculated Results Values
"Profitability" of Buying "Uninterrupted Breathing"
The Bottom Line

With our default numbers, we find that it would be more financially advantageous for a sleep apnea sufferer to choose the CPAP over the Airing device.

Playing with the numbers, we found that the cost of the CPAP machine would have to exceed $9,900 in order for the Airing to become more advantageous from a cost perspective. Alternatively, the price of the Airing would have to drop to $0.25 per unit in order for it surpass the value of a CPAP.

That assumes that the nose fitting device would have to be disposed of daily. If the effective life of the Airing unit could be extended to last for 2 weeks, at an increased cost of $3.60 per unit, it would outmatch the average CPAP unit from a pure cost perspective.

But cost is not the only perspective to consider. If sleep apnea-afflicted consumers find that the greater comfort of the Airing nose fitting device is superior enough with respect to that of a CPAP machine while providing similar improved breathing as they sleep, then we can put a value on how much a night of uninterrupted breathing in greater comfort is really worth to someone with sleep apnea. It would be the difference between the estimated $3.00 retail cost of the Airing and its competitive-to-CPAP cost of $0.25 per unit, which works out to be $2.75 per night, or a little over 34 cents per hour (assuming 8 hours of sleep per night).

And to think - people without sleep apnea have no idea how much their uninterrupted breathing is actually worth!