Even though the Affordable Care Act (ACA) was passed 2 years ago and there are an army of agencies working its implementation, no one really knows how much health insurance will cost under the new rules. One of my most recent blog post, Healthcare Reform Simplified: Individuals and Families, discussed the federal tax penalties for not having health insurance. That prompted this reply from a friend on Facebook
“So I have a friend that is a real estate agent in his 50s currently without coverage. Do not know income details. Probably up and down. Probably around $36K net currently. How much does he need to pay as self employed to get into the pool?”
And his follow up question of “How much would it cost him to remain uninsured?”
Comparing apples and oranges
Perhaps our best benchmarks are the current premium rates for plans in California. Currently, it looks as if California’s minimum benefits coverage will be fairly close, if not more generous, than the Essential Health Benefits mandated under the ACA. So we are close to comparing apples with apples.
I ran a quote for a non-smoking 55 year old in the Sacramento 95608 zip code with coverage effective August 1, 2012. These are standard rates with no increase for any medical conditions or prescription use. I selected the least expensive plan offered by each carrier (excluding HSAs).
From lowest premium to highest per month
- Health Net PPO Advantage 6500 $144
- Anthem Blue Cross CoreGuard 5000 Plus 1 Member $243
- Aetna Open Access MC Value $288
- Blue Shield Shield Secure 6000 $312
- Kaiser $40/$3000 Deductible $421
- PCIP Pre-Existing Insurance Plan $487
The least expensive Health Net plan has additional copayments for surgery and hospital stays that do not accumulate towards the deductible. All the plans are PPOs except for Kaiser which is an HMO. Western Health Advantage is offering an individual HMO plan in the Sacramento area which would be $582 per month for their Individual Advantage 40.
The PCIP is only open to individuals who have been denied health insurance in the past year and have been without insurance for 6 months.
Again, I am not sure how close these monthly numbers will be to plans developed by the carriers that must meet the ACA Essential Health Benefits. Deductibles, copays and coinsurance will have the largest impact on the ultimate premium rates.
I’ll take my chances
If our 55 year old gentleman decides to forgo health insurance, we know that he will pay at least the following penalties on his federal income tax of $95, $325 and $695 for the years 2014, 15 and 16 respectively. The alternative penalty is a percentage of income 1%, 2% and 2.5%, for years 2014, 15 and 16. With an income of $36,000 annually, he would be looking at a penalty of $360, $720 and $900 for years 2014, 15 and 16. Note, the only collection method the IRS has is withholding the penalty from any refund he might be due.
The worst opportunity cost
The cost of going without health insurance will be any penalty assessed plus the cost of medical services that might be needed. He will pay out-of-pocket for doctor visits, emergency room treatment, hospitalization, surgery and any item that would have been covered by insurance. One of the worst case scenarios is that the medical bills push him into bankruptcy. A truly debilitating disease will force him to liquidate his assets and enter the MediCal system.
I am not one given to illustrative stories, but I did have a client call me 2 weeks ago, who at 49 years old, was diagnosed with cancer. He has already met his $5000 deductible so the rest of the treatment is on the insurer. The good news; the prognosis is extremely favorable and he is actively planning his next career move without the crushing weight of medical debt hanging over his head.