Obamacare is heralded for its accomplishment of extending health insurance to millions of Americans. Proponents also tout the fact that no one will lose health insurance due to pre-existing conditions ever again. Regardless of whether you are for it or against it, when I signed up for Obamacare a few weeks ago, I realized that Obamacare and the hidden penalty in it could bankrupt working families. It must be changed.
How Obamacare Works
The intent of the law is to expand coverage using a mix of Medicaid and private health exchanges. Remember that the law was in big danger of not passing, so the President added a bunch of provisions to gain support of key Democrats in Congress that makes the overall law less effective. The combination of Medicaid and private health exchanges together is the key problem with the law, but more on that later.
The approach is to use Medicaid to cover the very poor as they theoretically cannot afford to pay for any medical procedures or deductibles on private insurance plans. I think the President preferred a more government centric approach to health care in the first place but conservative Democrats in his coalition would not allow it. So he needed to use a piece meal approach to get the law through. Before ACA, Medicaid was a loosely administered program done largely through the states. There were many different eligibility requirements, with more conservative states having tighter eligibility rules. In the most restrictive states, you basically had to be pregnant, disabled, or have some other mitigating condition to get Medicaid. The income requirement was typically no more than 85% of the Federal Poverty Line.
Obamacare expanded Medicaid to people that made as much as 138% of the Federal Poverty Line (FPL). The idea was to cover minimum wage workers or working class households with children with government provided health care. This Medicaid expansion only worked if the states agreed to take the money from the Feds to expand the program.
Everyone between 100% and 400% of the federal poverty line gets subsidies to cover their health insurance on private exchanges. Some of the states were enthusiastic about setting up their own, while the conservative states opted out and allowed the Feds to operate their own exchange on their behalf.
So overall, if you’re poor you are supposed to be on Medicaid. If you are lower middle class you are supposed to get help to cover your health insurance purchase on the exchanges. Anyone middle class and above is probably going to get their health coverage through their employer. That’s how Obamacare is supposed to work.
When The Supreme Court Allowed States to Opt Out of Medicaid Expansion, The Law Failed
Remember the goal of the law was to cover everyone up to 138% of the poverty line with Medicaid and give subsidies to everyone else. The problem is when the Supreme Court let conservative states opt out of the Medicaid expansion, the “Medicaid gap” population was born. These folks mostly make between 85% and 100% of the federal poverty line and because of the way the law is written, cannot get subsidies to buy insurance on the private exchanges.
So here’s the danger. Say you are a single mother of 2 and an assistant manager at a McDonald’s working part time. You make $20,000 a year, but because of your part time status, you don’t get health insurance through your employer. The federal poverty line for a family of 3 is $20,090. Say you heard about Obamacare and you do everything right and sign up before the end of the year deadline. Because of your low income relative to your household size, healthcare.gov says you do not need to pay anything for your insurance premiums. If you did, the premium would be about $300 a month for your silver plan.
Come tax time, you take all your information to your local tax preparer. She looks over everything and gets to the part about health insurance. She informs you that because you made less than the federal poverty line, you were not eligible to sign up for Obamacare because you should have been on Medicaid. Due to this oversight, you now owe the entire year’s worth of premiums to the government. That means you have to multiply $300 by 12 and send in a check to the government for $3,600.
Obamacare and the Hidden Penalty Show the Law Needs Amending or Repealing
I noticed this major problem with the ACA when I signed up myself. Because I am living in Florida, a state that did not expand Medicaid, if I make too little in income I will become ineligible for participating on the private health exchange at all. The FPL for a single person is $11,770. If I made less than that, I would owe the government thousands of dollars for signing up for the wrong plan when I should have chose Medicaid. If I make more, then I am safe, but could owe hundreds or even thousands of dollars unexpectedly if I got an income windfall.
Since I retired early, I can control my income much easier than a working class person. I can convert some of my Traditional IRA to a Roth IRA, tutor part time, or even seek out income producing opportunities for this blog. However, if that flexibility to control my income did not exist, I could be totally screwed if my income ended up too low or too high at the end of the year. While I might have a few thousand to pay the government in the event of a mistake I might make signing up for Obamacare, a single mother of 2 with a $20,000 income probably does not have much in the way of accessible savings. The ACA should be changed to allow for broader participation on the health exchanges for people of all income levels. It makes no sense to force people into Medicaid and scare them away from raises and promotions because of the massive change to their family’s benefits that would result from higher income.
How would you address the huge potential penalty for accidentally signing up for Obamacare instead of Medicaid?