Tuesday, October 01, 2013

ObamaTax Jitters - Part 2

Yesterday, we learned about some of what we can expect policy-wise as the Exchanges open up today. But it's not all fun and games; here's more from our Maryland friend:

I've been thinking about that 100% coverage plan I mentioned before ("BCBS has one plan where you pay nothing for health care, no deductible, no copay, no coinsurance, nada"). It's actually kind of tricky: the plans as designed probably can't fulfill the promise if they're priced anywhere close to what they'll need to be. It's essentially a blow-off to the middle-class; to understand why, you have to understand how the subsidies are supposed to work:

Every person or household will have a new calculation on their 1040: MAGI (modified adjusted gross income). If that number puts you at 400% of the poverty level (PL) or less, you are entitled to a subsidy, limiting your premium payment for the second cheapest silver plan to a percentage of your MAGI (it's a sliding scale, your results may differ). So if you have a MAGI of, say, 10,000, this puts you at PL and your silver insurance plan will cost you $200/year. The difference between that and what it actually costs is paid directly to the insurance company by the federal government. The thing is, you can take that subsidy dollar amount and apply it to any plan.

What that means is this: many middle class people are going to have a MAGI that precludes them from subsidies. I was thinking along traditional lines: "Wow, a 100% plan is going to be hideously expensive" and it probably will be, but because the subsidy dollar amount is portable to any plan, lots of people may be able to get a plan that pays 100% of their medical costs for less than they are paying for insurance now. They may not, it depends on the total premium cost, but middle class folks without subsidies almost surely will find that plan unaffordable, and if a significant number of people are able to get on a 100% plan that is subsidized to the point where they can afford it, the demand side of the supply and demand equation is going to go through the roof. This will collapse the availability of medical treatment rather quickly as demand spirals far beyond the ability of what docs and hospitals can provide.

Thanks for the update, WD!!

Our friend echoes a point that Bob's made about price elasticity:

"Sugar has price elasticity. As the price of sugar rises, demand decreases since there are substitutes for sugar ... Gasoline is inelastic ... At this time, there really is no substitute for gasoline."

And of course, there's really only one substitute for health care.

[Hat Tip: Ace of Spades]
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