The Insurance ‘Death Spiral’ Looks Increasingly Inevitable

This coming year, the penalty for not having health insurance is $95 or $1 percent of your income, whichever is greater. Thus, unless you’re making less than $9,500, it’s going to be one percent of your income — $300 if you’re making $30,000, $400 if you’re making $40,000, and so on.

Almost every health insurance option, even with the subsidy, will cost more than one percent of your income. In most cases, considerably more, even with the much-touted subsidies.

In 2015, the penalty fee jumps to 2 percent of your income (take the figures from 2014 and double them) and by 2016, it’s 2.5 percent of your income.

The good news about buying the insurance is that you get health insurance. The bad news is that insurance may not be all that great, once you calculate the premiums, co-pays, and deductibles.

The census offers us some data on the uninsured: About a quarter of uninsured households make less than $25,000 per year; about 20 percent make between $25,000 and $50,000; about 15 percent make between $50,000 and $75,000, and about 8 percent make more than $75,000.

The Kaiser Family Foundation offers a subsidy calculator; I plugged in a single mom, two kids, non-tobacco user, age 30, making $30,000. A family with not much loose change to spare, right?

The calculator said that s silver plan for that household, after subsidies, would cost that mom $1,250 – 4.7 percent of the family’s household income. The mom could get a bronze plan, which costs only $206 per year, but that plan covers only 60 percent of health care costs. In other words, the cheapest option for this cash-strapped single mom is to buy the cheapest plan and then never use it, since she’ll be on the hook for 40 percent of her health care costs – and we’re not even getting into the issues of co-pays and deductibles.

Now let’s look at a two-earner family, making $50,000 collectively, with two kids, non-tobacco users, both 40 years old. On a silver plan, they pay 6.73 percent of their income, or 3.41 percent for a bronze plan. Or they could pay a $500 fee and buy no insurance.

That same two-earner family in the same circumstances, doing better and making $75,000 per year would pay 9.5 percent of their household income on a silver plan; a bronze plan costs 7.29 percent of their household income.

Or they could pay $750 to not buy anything.

You can see where this is going. The insurance always costs more than the penalty, and the insurance isn’t that great once you account for co-pays and deductibles.

If the reason an uninsured person hasn’t bought insurance is that it’s too expensive, then most of the time they’re going to choose the cheaper option – paying the fine.

If the reason an uninsured person hasn’t bought insurance is that they’re a young invincible who thinks they don’t need insurance… they’re going to choose the cheaper option – paying the fine.

In short, you’re going to see a large swath of the uninsured choose to pay the fine – particularly the youngest and healthiest.

Thus, the death spiral continues

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