Once upon a time, President Obama told the nation, “If you like your health insurance, you can keep it.” Our insurance company recently sent us a letter informing us that because our policy did not comply with the requirements of the Affordable Care Act, it will no longer be available.
We aren’t the only ones having our policy cancelled. The conservative media is full of outrage over this, exclaiming “President Obama lied!” I was confused when I saw it. This is news? I’m reminded of an old headline from The Onion satirical newspaper, “Politician Accidentally Tells Truth!”
The liberal media counters that policies are being cancelled only because they don’t meet the minimum standards demanded by the ACA, and therefore everybody who has had a policy cancelled will now get better coverage.
But here at Go Curry Cracker, we ignore the media hype, sensationalist headlines, and political ranting and just look at the facts. Let’s do that now
Health Insurance for Permanent Travelers
As permatravelers, we spend little time in the United States, although our home base is in Seattle, WA, and we return there periodically.
We are generally healthy people. We eat a lot of fruit and vegetables, do a lot of walking, and practice good oral hygiene. For the occasional doctor visit or dental cleaning, we just pay cash. We have found health care outside the US to be of high quality and reasonable cost.
So why do we have health insurance at all? There is only one reason: In case we develop an extremely expensive disease. Cancer can cost 100’s of thousands of dollars to treat. In the unlikely event that one of us develops such an illness while roaming the globe, and IF we decided to get treatment in the US, our high deductible health plan would limit our cost of treatment to $17500 per year. For this privilege, we pay the insurance company $2,796 per year, and expect they will not spend a penny of it on our healthcare. We are outside the system, but still need to pay into it
I think of it as protection money, like how you might pay the mafia to prevent them from burning down your home. (I think some people call that extortion.)
Without insurance, previous US laws would have allowed insurance companies to say, “Sorry, that cancer thing you have… that is a pre-existing condition. You will have to pay for that yourself. Or die.” That seems a reasonable, if incompassionate thing for a business to say; and thus we’ve paid our protection money
Affordable Care Act Changes to US Law
Does this change with the ACA? The changes that affect us directly, along with other early retirees and permanent travelers include:
- Minimum Essential Coverage
Certain things that the Department of Health and Human Services (HHS) considers essential must be covered, e.g. maternity care and prescription drugs. Many insurance plans did not cover these “essential services”
- An Individual Mandate
Every person in the US must have health insurance or pay a penalty. This increases the size of the risk pool, lowering average costs for everybody (young & healthy people pay more, older & sick people pay less)
- Tax Subsidies, the Advanced Premium Tax Credit
Individuals and families with Adjusted Gross Incomes below 400% of the Federal Poverty Line will receive direct subsidies to help offset the cost of insurance. These subsidies can be paid monthly by the government directly to the insurance company
- Equal Access to Care
Every US resident can now get insurance, regardless of pre-existing conditions or health history, without penalty. Nobody can be denied coverage or charged more than their healthy peers. Once a person has insurance, full coverage begins immediately without a wait period
How the ACA Changes Impact Permatravelers
How do these 4 main changes affect permanent travelers? Let’s look at each item individually:
- Minimum Essential Coverage
We had health insurance for the sole purpose of protecting our wallets from a major disease, and thus our policy didn’t cover things like childbirth and prescription drugs. The new recommended policy from our insurance company now covers these things, has lower deductibles, and comes with a Health Savings Account option. But it also costs more, increasing in price from $233 a month to $501. This makes sense. I would expect more coverage to cost more (although we don’t need more coverage.)
- Individual Mandate
We already had health insurance, so in theory this doesn’t affect us. If we decided to self-insure, we would have to pay a penalty. In 2014, this is $95 per person or 1% of taxable income, whichever is greater. For the two of us, this would be a total penalty of $190. (Taxable income is Adjusted Gross Income minus standard deduction, personal exemptions, and HSA contributions. This is $26,550 in 2014, meaning we would need to earn more than $45,550 to pay a larger penalty. IRA and 401k contributions would increase this further.) In 2015, the penalty increases to the greater of $325 per person or 2% of income, and in 2016 and beyond it increases to the greater of $695 per person or 2.5% of incomeThere is one very interesting loophole in this whole penalty thing, however. If you pay no federal income tax, then you are not required to pay the penalty. All the more reason to never pay taxes again.
- Tax Subsidies
Subsides vary by state, household size, and income levels. Below 138% of the Federal Poverty Line individuals and families are eligible for Medicaid. Above 400% of the FPL, subsides are eliminated. I used the tool at the Washington State Health Exchange to determine subsidies between those levels, shared in the chart below. (For other states, the Kaiser Family Foundation has a great subsidy calculator.) In our case, for every dollar earned between 138% FPL ($21,404) and 400% FPL ($62,040 for a family of 2), the subsidy is reduced by about $0.13 (effectively a 13% tax.) Unlike the calculations for income tax, Modified Adjusted Gross Income is used to determine the subsidy value, which means all income, including dividends, long-term capital gains, and municipal bond interest are included. In theory, one could tune income levels to maximize total subsidy
- Equal Access to Care
This is the most important change. Everybody has access to coverage, meaning nobody can be denied coverage or charged more for a pre-existing condition, be it cancer or diabetes. But wait, isn’t this the whole reason we have been paying protection money?!Does this mean anybody can have no insurance until they get sick, and then just apply for insurance and start treatment? Wouldn’t that abuse and destroy the system? It would, and to prevent this people are only allowed to enroll during open enrollment periods OR if there is a qualifying life event, which includes getting married, divorced, having a baby, changing jobs, or moving to a new state.In theory, people could still hack the system. Got cancer and need treatment? Get a divorce. Unemployed because you retired early and now you have a brain tumor? Move to a new stateBecause of this option to enroll whenever we return to the system, there is no need for us to continue to pay protection money and carry insurance we have no intention to use
Good-Bye Health Insurance
Effectively immediately, we are cancelling our old health insurance policy and replacing it with NOTHING. Good-bye health insurance
We will continue to pay all of our medical expenses out of pocket as needed. By pursuing this option, we save our $2,796 per year of extortion money and save the US government $3,780 per year in subsidy. It seems like a win win
As an added bonus, we will save an additional $350 in 2013 since we no longer have insurance. If we end up changing our minds, we have until March 31st, 2014 to enroll during the open enrollment period. In fact, everybody in the nation that can purchase from an exchange could decide to not pay for coverage until that date. Just schedule your next doctor appointment for April 1st
Because we pay no taxes, we are also not subject to the penalty due to ignoring the Individual Mandate.
If we were to reside in the US full time, things would be different. Our old insurance company is not participating in the Washington State Health Exchange, and therefore the policy they recommended is not eligible for subsidies. However, the plans on the exchange look similar. Using an estimated income of $30k, which pays for our average $3k a month travel minus a $6,550 contribution to an HSA, the exchange estimates our subsidy at $311.65 per month ($3,780 per year)
The cheapest Bronze plan (no HSA option) costs $48.23 per month after subsidy, or $162.50 for the the cheapest Silver plan (no HSA option.) The plan we like the best is a Bronze HSA plan with a maximum out of pocket of $5250 for $126 per month. A Silver HSA plan with max out of pocket of $1150 costs $235.89. Both options look better than the $233 we pay now
In the end, I guess both the conservative and liberal talking heads were both right. We can’t keep our old plan, but we didn’t like it anyway. And yes, we did find something better :)
Overall, I’m optimistic about the future of healthcare in the US. Bringing 44 million uninsured people into the healthcare system should reduce long term costs, as preventative care is substantially cheaper than dealing with a health problem that has been ignored. And since we already pay for the the health care of the people who can’t afford care (hospitals don’t lose money, after all) this should lower costs
Although the ACA does help address some of the problems with the US health system, there is still a lot to do. I would like to see transparent pricing as in much of the rest of the world, where you know what care costs before you begin. It should be like McDonald’s, the price is on the menu. And US prices are still substantially higher than the rest of the world without providing better care. Perhaps future changes will address this
In the mean time, we will enjoy the lower healthcare costs elsewhere