Wednesday, July 31, 2013

Look out below! Work more, get less in Obamacare 'cliff'

This is from Dan Mangan writing at CNBC

Be careful you don't fall off the Obamacare "cliff" when the boss asks you to put in some overtime.

Working more could ultimately mean thousands of dollars less for you under a quirk in the new healthcare law going into effect this fall. This could prompt some people to cut back on their hours to avoid losing money.

"Working more can actually leave you worse off," the price-comparison site notes in a new analysis.

"It's sort of an absurd scenario," said Jonathan Wu,'s co-founder. "It's something for people to be aware of."

In that scenario, an individual or family whose annual income surpasses maximums set by the federal government—if only by $1—will totally lose subsidies available to buy health insurance under the Affordable Care Act.

The loss of those subsidies in some cases will mean that people potentially would have been better off financially if they had worked less during the year, Wu said. And they then would have to work significantly more to make up for the lost subsidy.

"I think they'd be surprised to see how drastic it is," said Wu. "I'd be kind of shocked to see if I make $100 less (in total income each year), I get all these benefits, but if I make $100 more, I get nothing."

"You basically don't want to fall in that hole," said Wu, adding that he believed contractors and others with more control over their incomes would be apt to adjust their hours worked to avoid the subsidy cliff.

He also said that because of lower insurance premiums often offered younger people, the effect will more likely be seen by older people. But "you will see it across all age groups" in the seven states including New York and Vermont where insurance premiums are either barred from being affected by age, or restricted from being dramatically affected, he said.

Under the ACA, federal subsidies in the form of tax credits to buy insurance on new state health insurance exchanges will be available to millions of people who can start enrolling on those exchanges Oct. 1. The subsidies are available to people or families whose incomes total 400 percent above the federal poverty level or less, and are designed to cap their insurance premiums at 9.5 percent of their total income.

Doing the math

For a single person, that FPL income maximum is $45,960 per year. The maximums are adjusted upward for couples and families until maxing out at $94,200 for a family of four.

Under a scenario that identified, a couple in Ohio, both age 50, would be eligible for subsidies worth $3,452 to purchase a so-called silver insurance plan—a moderately priced level of benefits under the ACA's scheme—that costs $9,346 annually if they made up to $62,040 per year.

But if they made just $1 more than that, they would lose the subsidy. Wu noted that the couple then would have to earn at least $65,492 to make up for the lost subsidy.

Maximum income levels for Obamacare insurance subsidies, and premium maximums

Household Size400% FPLPremium Cap
1 (Single)$45,960$4,366
2 (Couple)$62,040$5,893

In New York, a family of three whose annual income totals $78,120, would pay $12,784 for the second-lower-priced silver plan on that state's insurance exchange. After getting a $5,363 tax credit, the family's net cost for the insurance would be $7,421.

But if the family earned even slightly more than $78,120, they would have to pay the entire $12,784 for the insurance because they then wouldn't qualify for the subsidy.

To make up for that, the family's annual income would have to reach $83,483, Wu said.

The age effect

The stark effect of peoples' age in determining their risk from the subsidy cliff is seen in two examples from Connecticut.

There, Wu said, a 27-year-old single man would pay $3,636 annually for the second-cheapest silver plan—less than the $4,366 cap on insurance premiums for individuals earning $45,960 or less annually. That person would not be eligible for subsidies, and thus would see no disincentive in working more hours.

But the annual premiums for a 50-year-old Connecticut couple buying that plan would be $12,468. If their combined incomes were $62,040 or less, they would receive $6,575 in subsidies to offset the cost.

However, if their income was more than that, they would lose the subsidies, leaving them out of pocket $6,575. They then would have to earn at least $68,615 to make up for that lost subsidy, Wu said.