The ACA Will Help, Not “Frustrate,” the Middle Class

December 21st, 2013 at 5:14 pm

Look, I’m as ready as the next guy to call out the Obama administration for the shoddy rollout of the ACA.  I’m also confident that at the end of the day, as the exchanges become more accessible and as families with incomes below four times poverty get help paying for the coverage they buy there—coverage that for some will be of higher quality than what they had—the reforms will first become more popular, and later become an appreciated, and probably pretty dull, part of the fabric of life in America.

One of the problems in getting from here to there is articles like this one in today’s NYT.  No question there are people paying more for health care under the ACA, but the examples in here seem awfully cherry-picked to support the headline claim that the new law “Frustrates many in Middle Class.”

–First, let’s talk middle-class.  The median family income in the US right now is about $62,000.  For families of four, like the one featured in the piece, it’s about $80,000.  Income eligibility for the subsidies goes up to four times the poverty threshold, or about $94,000 for a family of four, meaning that a median-income family buying coverage on the exchange would be eligible for a subsidy.  The family featured in the piece was chosen to be above the subsidy level—their income was $100,000.  That’s certainly and fair point and I’m not denying they’re “middle-class.”  But the piece should have mentioned the median, or more to the point, the fact that according to Census data, the ratio of income to the the poverty threshold for families in the middle fifth of the income scale is 3.5, again, below the subsidy cutoff of 4.

–But what of this “cliff” business on which the piece focuses, i.e., that the family takes a huge hit by not being eligible for the subsidy?  As noted, the subsidy cutoff for a family of four is about $94,000 and the family’s contribution is capped at 9.5% of their income, or about $9,000.  The Chapman’s, the family featured in the piece, with income of $100,000, may now pay about $12,000 per year for coverage.

The piece states: “If they made just a few thousand dollars less a year — below $94,200 — their costs would be cut in half, because a family like theirs could qualify for federal subsidies.”  But $9K is not half of $12K, so at least as I read it, they’re exaggerating the cliff effect (h/t, PvDW).

–What did they have before?  The Chapman’s previous plan, for which they paid $665/month, was cancelled, and as noted, the cheapest plan they could find will cost $1,000.  But what did their old plan cover compared to the new plan?  My guess, based on the cost and quality of non-group coverage in states with not a lot of competition, is: not much.  Any piece like this that compares premium costs before and after the ACA must dig into the quality of the plans, otherwise they’re comparing apples and oranges.

–Dean Baker objected to the assertion in the piece that paying more than 10% of your income for health coverage is unaffordable.  As Dean shows, under the widely accepted assumption that employees pay for their employers’ share of their coverage in lower pay, than most people have unaffordable coverage by this benchmark. 

In other words, health coverage is not cheap, because health care is not cheap, especially in America, where costs are often far higher for the same treatment or drug than they are in other countries.  Thus, in the interest of sustainability, we have to implement some version of reform to squeeze inefficiencies out of the system, and as I’ve stressed many times before, whatever form that takes, it will likely involve risk pooling, mandates, and subsidies.  Some will pay more, though they will often get more coverage for their extra bucks.  Many—post subsidy—will pay less (as the piece notes, the largest subsidies are targeted at the uninsured).

It’s not a simple story, and it’s certainly not the case that most of the middle class will end up facing higher costs under ACA than under either the current system or any plausible alternative.  To the extent this piece leaves readers with that impression—and I thought it did—that’s quite misleading.

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28 comments in reply to "The ACA Will Help, Not “Frustrate,” the Middle Class"

  1. jeff says:

    In the end it will come down to what people personally experience. This isn’t a far-off issue, like unemployment insurance is for the vast majority, that will be determined by dogma. Everyone is going to be affected.

    So far, the people on the losing end skew towards swing voters who turn out in off-year elections. The people getting enhanced Medicaid were already Democrats who have weak voting participation rates.

    This is why it looks to be electorally damaging for the Democrats.

    • Peter K. says:

      @ Jeff The election is a long way off so who knows, but I would bet the state of the economy will matter more. The ACA will either be forgotten or a mild plus. I doubt the Republicans will pull another debt ceiling clown show – before they had the fiscal cliff and shutdown to leverage – but who knows?

      Thanks to Mr. Bernstein and Dean Baker and others who help sift through the tsunami of misinformation. The ACA was a product of a number of political compromises so it’s complicated. The fact that the insurance companies are spending millions on advertising bodes well. They want it to work. They’ll get more customers and then it will be up to the government to regulate the industry properly.

  2. The Raven says:

    But they weren’t paying that money before; now law requires them to. An unexpected expense of several thousands of dollars is nothing most middle-class families can bear easily. What they were probably doing was scraping along with the insurance which has now been canceled and praying to avoid a major illness.

    This also makes budgeting difficult at the ragged edge of subsidies. If a family expects income below 4xFPL, there’s a subsidy; if the family has a small windfall, the subsidy is taken away, and multiple thousands of dollars appear in their federal tax bill.

    This would be an awful thing to do to middle-class families under any circumstances; in a depression it is an insane thing to do. People will lose their homes, people will be making hard decisions over what to sell or what plans to cancel.

    This was the plan the Democrats fought for. There’s no way to deny it, or blame the Republicans for it. It follows on the Democratic Party’s failure to in any way reign in the banks, help people caught up in the mortgage crisis keep their homes, or renew unemployment insurance this year. Oh, maybe the Democrats would not have won, if they’d tried to achieve these things. The fact remains that the Democrats, except for the weak House progressives, didn’t even try. They didn’t even make any noise. Some of them even voted with the Republicans.

    I may never vote Democratic in another national election.

    • Pauley says:

      Mr. Raven, As we have now learned the quality of the Congress that we now have, may we discover better Democrats for whom to vote…

      • The Raven says:

        With luck, the Republicans will retire to someplace in the deep south, along with the duck dynasty, and a new party will move in on the left. I really don’t see any other possibility; the R’s would have to dump the Tea Party faction, and I can’t imagine how that could happen.

    • GHayduke says:

      I doubt you ever did.

      • The Raven says:

        You would be wrong. I’ve held my nose and voted plenty of times. Sometimes, even, the smell has been good—I like my current representative. Problem is, he’s 76 years old, and going to retire soon.

        The stench has been getting stronger and stronger. At this point, I don’t think anything will clean away the rot; the Democrats are now a conservative party and likely to remain so for the rest of my life.

  3. smith says:

    It is a rare feat for the Times to so screw up a story that they induce Dean Baker and Greg Mankiw into agreement: (the same link in blog)

    • Candice says:

      Agreed that the NYT article was not very good journalism. But what was most interesting about the NYT article was that it was actually critical of the ACA. That represents quite a shift from the rather sycophantic journalism they generally publish in support of all things Obama.

  4. hm1342 says:

    Says Jared, “Look, I’m as ready as the next guy to call out the Obama administration for the shoddy rollout of the ACA.”

    But Jared will not say the ACA is a bad thing – unless he thinks it’s not doing enough.

    Jared also states, “In other words, health coverage is not cheap, because health care is not cheap, especially in America, where costs are often far higher for the same treatment or drug than they are in other countries.”

    At what point will Jared and others like him acknowledge that government manipulation of health care is what’s driving costs up? A safety net for the truly needy is one thing but even that doesn’t need to be managed at the national level. This government-mandated health coverage for everyone will not reduce premiums $2500 for an average family as President Obama repeatedly promised. We have already seen the failure of the “If you like your health care” pledge.

    As long as government wants to ensure everyone has coverage, they are going to also insure higher costs and a very happy health care industry.

  5. Frank says:

    So if they are paying $12,000 now but would pay $9,000 if they made $6,000 less, by making the 6K more, they are still $3,000 ahead of the game, before taxes, no? I am a single person just on a pension and I pay $6,000 a year on my old employer’s plan, and that’s with them paying 60% of the premium. I also have a $1,000 deductible and 10% in-network co pay. So $12,000 a year for a family of four is not bad.

    • Jared Bernstein says:

      No question. Employer based-coverage would likely cost more than $1K/month but since much of it comes out of the paycheck, the premiums would be lower.

    • larry K says:

      My thoughts exactly Frank. One would expect more logical analysis from the NYT.
      Wishing to pay a little less for hc by making a lot less income sounds like the onset of senility.

  6. Th says:

    I don’t recall where I saw this, but the typical employer provided family plan cost the employee something over $4k and the employer something over $10k with the combined total being slightly over $15k.

    Jeff; where I live the people who would have benefited from the Medicaid expansion are mostly Republican voters. They are lower income self-employed who have to pay taxes quarterly which includes both halves of SS and Medicare. These are Ron Paul voters.

  7. PeonInChief says:

    Let’s look at the median income and then compare it to the actual cost of living. A family making the median income of $62K is solvent, but not rich, and only marginally middle class, if we look at the market basket of goods for a “middle class” household. I think people who claim that this kind of expense is “affordable” make multiples of that $62K and have no idea how little that buys in our economy. For instance, this family should be putting away more than $15K a year for retirement, is probably spending more than $1K a month for rent or mortgage payment etc. etc.

  8. jskdn says:

    Why are you so dismissive of the “cliff” business? Do you think government policies should make people effectively poorer for having earned more money? The cliffs actually will do that to some people, in some cases in a dramatic manner, where earning another dollar could cost people many thousands of dollar in effective income. The actual financial impact is a function of what the unsubsidized reference silver insurance plan costs in your geographic for your family are relative to 9.5% of 400% of the FPL. It shouldn’t be difficult to show such impacts with charts rather than by anecdote, which is the bane of good journalism in my opinion. Furthermore it’s important for people to understand this so that they might take steps to reduce their “MAGI” income, if that is better for their family.

    • run75441 says:

      You are the first to mention MAGI and the 9.5% maximum of MAGI to be paid for healthcare insurance regardless of income and geographical area. The NYT article missed both terms and did utilize a false example; “A 60-year-old living in Polk County, in northwestern Wisconsin, and earning $50,000 a year, for example, would have to spend more than 19 percent of his income, or $9,801 annually, to buy one of the cheapest plans available there.”

  9. Fred Donaldson says:

    Median family income, as you use in your example, overstates the actual earnings, because, for example, it includes all forms of income, like EITC, and forced withdrawals from IRAs for seniors over 70.5, borrowing from 401ks, etc. In addition, family income doesn’t count the huge percentage of couples living together (younger, usually), but not married. Many of these are recorded as households.

    The ACA is a subsidy for health insurers and the health industry in that it allows insurance expenses to rise above what people can afford. The government forces taxes, which insurance companies can’t do, and funnels those taxes to the insurers as partial payments, lowering prices for the end user and making the overpriced, affordable..

    How simple to have single payer, some regulation of prices that would end $10,000 charges for a single drug injection, or $67,000 for a defibrillator. A minimum national health plan for all would save us hundreds of billions, just in drug costs ($300 billion a year), let alone hospital care. At the same time we might have money to devote more funds to general practitioners, who get ridiculously low reimbursements for Medicare and Medicaid patients.

    • John Doe says:

      A public option (not mandate) that competes with private insurance would do much more to decrease insurance and treatment costs than a single-payer system without the deleterious effects of rationing care via systems like the VA.

  10. Fred Brack says:

    I’m continually frustrated by media reports, including in the blogosphere, that write as if all Americans are having to buy health insurance through Obamacare. The NYT article is an example. The truth is that the vast majority of Americans – and that includes the middle-class – already have health insurance and don’t have to purchase new policies.

  11. Randy says:

    The “cliff” is certainly present for those of us who live in regions with expensive health care. I just priced the premiums for my wife and me after I retire in my early 60’s, and up here in Alaska they are about $1800 per month or $21600 per year. Four times the poverty level comes to $77000 for a couple, so if our retirement income is $76995 our premiums are capped at 9.5% or $7300, but if we earn $10 more we will have to pay the full $21600. I’m all for the ACA, but this is a new type of donut hole.

    • jskdn says:

      Obviously some people couldn’t care less what happens to you in this regard, like the owner of this blog who is dismissive of subsidy cliffs. Most of the news media didn’t seem to care either as I have pushed this issue for years. The Kaiser Family Foundation created a subsidy calculator soon after the ACA passed. Anyone interested could have taken a little time to explore the issue of cliffs if they had cared to do so. I did, even though I knew I wasn’t going to be personally affected by such cliffs. I think other people’s lives are important too. I have been advising that some people will need to be cognizant of the possible implications and consequences to their finances of this policy and to explore possible strategies to avoid falling off the cliff, including working less.

      I’m thankful it’s getting some coverage now. Hopefully some people will be able to lower their MAGI incomes to make themselves better-off financially. I think it’s perverse that people should become poorer for having earned more, but apparently it doesn’t bother some people. Unfortunately I suspect that many of those subject to cliffs likely won’t understand it till it’s too late.

  12. save_the_rustbelt says:

    The biggest pain and surprises are yet to come.

    The provider sector and the private insurance markets are hurtling toward chaos or something near.

    One of the following is true:

    The Obama administration knew ACA would be massively disruptive but did not want to tell the truth, or

    The Obama administration did not understand the potential disruptive force of ACA.

    Either case, bad news. Providers should be bracing for billing office chaos and potential cash shortfalls during the first quarter of 2014.

  13. Daniel Neilson says:

    Jared writes, “But what did their old plan cover compared to the new plan? My much.”

    Don’t guess. Look at the numbers. Here is a side-by-side comparison of my old and new plans, both from my longterm carrier, Premera Blue Cross. Deductible: old plan $2,500; new plan $5,000. Up front benefits: old plan – 4 office visits and $200 of outpatient lab work; new plan – no upfront benefits of any kind. Old premium $405; new premium $690. Can you see why millions of us in the individual market are so outraged, and so tired of hearing our old plans dismissed as “bare bones” or “bad”, when in fact the old plan is clearly superior to the new? Oh, to be fair, I guess I have to concede that now I have maternity, pediatric dental, and chemical dependency coverage. I may actually need the chemical dependency benefits before this is over, but the other two? I had a choice before. I am a single, childless, old man. I need pediatric dental and maternity coverage about as much as a homeowner in a mountain cabin needs flood plain insurance. Maybe that will be the next mandatory policy improvement the government will force on us.

    There was a glimmer of hope when Obama said I could keep my old plan one more year, but my state’s insurance commissioner said no…without even consulting a single insurance company! I guess he is more important than the president. So I’m stuck with a 70% premium increase. This is predatory pricing. Germany figured this out a long time ago…get for-profit insurance out of health care. Amazingly, they still have over 200 insurance companies who are eager to participate in the health care sector, even with strict government price controls. But this is America, so we’ll do it our way. We don’t need any European socialists telling us how to run our system. We have our own billionaire insurance executives for that. The President won’t even stand up to them when they make him a liar. It’s going to be a rough ride.

    • Jared Bernstein says:

      That’s a very compelling comment–FWIW, I hear you. I take it your income is above the subsidy level. Also, one challenge here is figuring out what part of this is decisions my by insurers–ie, to change plans that could have been grandfathered, or just to change plans because they can–and what part is the ACA.

      • PeonInChief says:

        And why bother to distinguish between the insurance companies and the ACA? After all, the insurers got what they wanted, and have no reason other than politics to admit that they’ll make a whole lot more money under the new system. That’s what the ACA was designed to do, ferhevensake. The insurers were writing the law, while the single-payer advocates were shown the door.

      • The Raven says:

        I’ve been telling people this for four damn years.: “The health insurance companies have every incentive to raise their rates to soak up the cash that their policyholders would otherwise save. With a mandate, an oligopoly, and poor regulation, there is nothing to stop them from doing so.”—

        The ACA need only be implemented as written to be hated by millions.

        And then there’s the Medicaid “estate recovery” feature:

  14. Dj says:

    The problem with the ACA is that the middle class are positioned as the worker bees of this whole law. I am in this catagory and I just cancelled my insurance all together and will receive the penalty because I cannot afford the premium or the deductibles. I had a plan I paid $128.00/mth with a $2500.00 deductible. Now the lowest bronze level of insurance I can get is $225.00/mth with a $6300.00 deductible. Im not doing it, I want to keep the insurance I have like Obama promised I could keep but has renigged on his promise. The increased costs is just the first problem that is arising. The second problem that is going to arise is that the quality of healthcare is going to decrease and choice of doctors is going to decrease. Top hospitals have already said no. Then the third problem will be waiting times for people to get in to see the doctor or have surgery. The fourth problem is that companies are not going to hire as many full time employees. This law is just basically a shift of wealth and will only help those that already dont want to help themselves. I believe we needed reform but implementing a system this large on a whim is going to crush us. We needed reform on the food manufacturing level first because that is where the poison and obesity enters the population making everyone sick.