A quick look at healthcare from the other side

The New Senate Republican Bill Will Transform American Health Care

I thought this was a good read to get the perspective of someone fully supports (well, based on the last paragraph, it appears the author has some pre-disposed biases) the Senate Healthcare Bill. We should see a vote this week (most likely Friday regardless of the potential outcome).

I must say, I find it hard to believe that anyone can look at the chart below and conclude the new bill is better.

healthcare chart 1

It is obvious that the new Healthcare bill (AHCA) will increase premiums significantly for the vast majority of Americans with the least amount of disposable income.

That said, as you can see below, it’s not that bad, as there is a provision that lowers the cost significantly. Still, premiums will increase by double-digit percentages for the group of Americans with the least disposable income. If the government captures the very little surplus this group has, this could have meaningful economic and social ramifications. And the problem with this provision is such that while it lowers the premiums for those making less money, it increases the premium for those who earn more. So, as the first chart showed, Obamacare was more costly for those earning over $50k. But, after including this policy provision, AHCA is now more expensive for consumers across the board. And simply lowering taxes on the wealthy will not balance the economic activity out as the propensity to save for the wealthy is higher than the propensity to consume.

healthcare chart 2

The key takeaway here is that premiums are going up no matter how you try to pretty it up. The space between the dashed lime green line and solid blue line is the amount that premiums will increase. During the election cycle voters were told under ACA (Obamacare) their premiums will go up. There is not and was not evidence of this, but there is evidence that under the new bill, premiums will be higher for those with the least disposable income. While I can appreciate the will (and need) to cut entitlement programs and government spending, there are dozens of better ways to do it than telling someone living pay to paycheck on $40k/year that they must pay 10%-15% more per month for their health insurance (well, on the bright side, they could just cancel it and hope to stay healthy without paying a fine…). As mentioned here (and below), this problem is not only for 60 year olds, it will affect most age cohorts.

To see the problem, consider Brian’s situation. He’s a single adult, age 45, earning $35,000 a year. BCRA (section 102(b)(2)) expects Brian to contribute a little more than 8.3% of that income to purchase a health insurance policy. That’s about $2,911. The federal government would chip in the amount needed to let Brian buy a “median benchmark” policy in his region. That policy won’t be lavish: on average it will pay for 58% of covered expenses, but it might well let Brian avoid bankruptcy if he gets extremely sick. It will also get Brian low, pre-negotiated rates for a lot of medical treatment instead of being subject to astronomical “Chargemaster” prices that hospitals often charge the uninsured. So, if that Bronze policy costs $4,500, Brian would pay $2,911 and the federal government would pay $1,089.

Suppose Brian succeeds at work and gets a $5,000 raise; or suppose Brian gets a part time job to help supplement his income and earns $5,000 more. Now, because his income is $40,000, section 102(b)(2) of BCRA expects Brian to contribute 11.3% of his income to healthcare. Since that’s $4,558, Brian in fact pays for the whole $4,500 policy; the federal government pays nothing. So, although Brian’s raise is $5,000, he pays an extra $1,589 in premiums. His effective marginal tax is almost 32% just from the BCRA alone. When one combines his loss of a subsidy with increased income taxes of $1,488 and an increased payroll tax of $382.50 (double that if Brian’s new job is deemed self-employment), Brian’s gets to keep at most $1,541 of his new $5,000. His effective marginal tax rate is at least 69%. It’s probably even higher if Brian faces state income tax or suffers a phase out of other government income-based benefits.

As I mentioned last week, the irony is that those who voted for Trump are those who will be disproportionately affected by the new bill, and this is what I was referring too.

I am still personally waiting for the CBO score to come out. But it is worthwhile to draw conclusions on how this bill might stall the economic recovery as more consumers are worried about paying for their health insurance.

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