While many presidential candidates are kicking around the concept of a federally guaranteed monthly income for U. S. citizens, it is already happening now at Covered California. That’s correct, when and individual or household enrolls in health insurance through Covered California, and is determined eligible for the Advanced Premium Tax Credit subsidy, a cash payment is sent to the health insurance plan on their behalf every month, guaranteed.
You might counter that the Affordable Care Act (ACA) subsidy to reduce a household’s health insurance cost is not the same as the concept of the monthly cash payment as described by presidential candidate Andrew Yang. Yang calls his universal basic income proposal the Freedom Dividend. From the Yang website:
What is the Freedom Dividend?
The Freedom Dividend is a form of universal basic income (UBI), a type of social security that guarantees a certain amount of money to every citizen within a given governed population, without having to pass a test or fulfill a work requirement. Every UBI plan can be different in terms of amount or design.
Andrew Yang is running for President as Democrat in 2020 to implement the Freedom Dividend. This form of UBI that he is proposing for the United States is a set of guaranteed payments of $1,000 per month, or $12,000 per year, to all U.S. citizens over the age of 18. Yes, that means you and everyone you know would get another $1,000/month every month from the U.S. government, no questions asked.
https://www.yang2020.com/what-is-freedom-dividend-faq/
Kamala Harris has a similar proposal attached to her presidential campaign. It would translate into $500 per month. However, as a tax credit, it would be taken when a taxpayer files their federal income tax return. From the Harris website:
Under her plan, she’ll reverse President Trump’s trillion-dollar tax cut for big corporations and the top 1% and use that money to give a tax credit of up to $6,000 to working families each year.
https://kamalaharris.org/issue/economic-justice/
Stockton, California started experimenting with a basic universal income in 2019 known as Stockton Economic Empowerment Demonstration. In this demonstration project, 125 Stockton residents are receiving $500 per month for 18 months. From the SEED Discussion Paper:
These three principles helped define our eligibility criteria, which is the following: to qualify or be considered, a recipient must occupy a residence within the City of Stockton, be at least 18 years of age, and be located in a neighborhood where the median income is at or below $46,033.
https://www.stocktondemonstration.org/wp-content/uploads/2019/05/SEED-Discussion-Paper.pdf
Covered California Basic Monthly Income
Covered California has approximately 1.3 million enrolled consumers with between 80% and 95% of them receiving a monthly subsidy. (Consumers electing to receive the monthly subsidy varies by region). Based on a Covered California analysis for 2019 premiums statewide and their enrolled members subsidized billing; the average Covered California consumer will receive a monthly subsidy of $424 per month ($597 full rate average – $123 average subsidized billing). The $424 is just an average. Some households will receive more and some will receive less. It can also vary widely based on the geographic region an individual or household resides in. Northern California health insurance rates can be 20% more than Southern California.
The basics of the formula for determining the ACA Premium Tax Credit (PTC) subsidy are household size, age, region, income, and the lowest cost Silver plan in the region. The focus of the PTC subsidy is to make the second lowest cost Silver plan affordable. That can range from 2% up to 9.5% of the household income. The lower the income, the smaller the percentage of the household income should be allocated to a monthly health insurance premium.
For example, a person earning $18,000 per year is only expected to dedicate no more than 2% of their household income (aka Modified Adjusted Gross Income) toward health insurance premiums. 2% of 18,000 per year is $360 annually or $30 per month. If the annual cost of the second lowest cost Silver plan is $3,600, or $300 per month, then Covered California makes up the difference between the $300 monthly rate and the expected contribution of $30 for the individual. The monthly subsidy would be $270 per month or $3,240 annually.
Covered California Subsidy Is Federal Tax Credit
You may be wondering why I keep referring to the annual cost of the health insurance. We talk about the annual cost and the annual subsidy because this is technically a federal government tax credit. A consumer can forego accepting the monthly subsidy and claim the entire amount when they file their federal income tax return. However, receiving a tax credit at the end of the year doesn’t help most people who have a monthly budgeting cycle.
One of the sole purposes of Covered California is to take the estimated annual Premium Tax Credit for a consumer – based on the household size, income, and rate of the second lowest cost Silver plan – and chop it up into 12 equal increments so it can be forwarded to the consumers selected health plan every month. Thereby reducing the consumer portion of the monthly health insurance premium.
The consumer then reconciles the total annual subsidy they are entitled to, based on their final Modified Adjusted Gross Income, on their federal income tax return with the monthly subsidy amount advanced by Covered California. Hence, that is why it is called the Advance Premium Tax Credit (APTC). Some tax payers may be entitled to more Premium Tax Credit than they received, and some people will have to repay part or all of the subsidy if their final Modified Adjusted Gross Income is higher than what they originally estimated on their Covered California application.
Some will say that the average PTC illustrated by Covered California, or my example, is less than generous than the Stockton demonstration project or proposals from the presidential candidates. But let’s look at real world examples. These are actual monthly APTC amounts from some of my clients throughout California.
- Alameda County, household of 3: $1,708
- Los Angeles County, household of 1: $469
- Los Angeles County, household of 2: $793
- Nevada County, household of 2: $2,094
- Orange County, household of 4: $1,872
- Placer County, household of 3: $938
- Sacramento County, household of 1: $777
- Sacramento County, household of 2: $1,165
- San Diego County, household of 2: $519
- San Francisco County, household of 2: $542
- Shasta County, household of 2: $374
- Sonoma County, household of 2: $1,071
These monthly subsidies for 2019 do not necessarily reflect the full amount that the consumer may have been entitled to. For instance, if the subsidy was greater than the actual health insurance premium for the plan they select, only a portion of the subsidy is applied. In other words, you can’t receive more subsidy than the cost of the health plan. This most often occurs when individuals or families select a Bronze plan over a higher price Silver, Gold, or Platinum plan.
In another example, only one household member in the Shasta County case is receiving the subsidy because the other household member became pregnant and shifted over to the Medi-Cal program for pregnant women. Plus, many of these families have children who are eligible for Medi-Cal and they pay no monthly premiums for those dependents.
Federal Tax Credit vs. Monthly Installment
My simple analogy of how Covered California works, relates to the federal child tax credit. The Child Tax Credit may be worth as much as $1,000 per qualifying child depending upon your income. With the Child Tax Credit, you are able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17. But you only get the tax credit when you file your taxes. The ACA Advance Premium Tax Credit is like the federal government taking the $1,000 child tax credit, chopping it up into 12 increments, and sending you a check for $83.33 per month.
But in the case of Covered California, they send the estimated APTC directly to the health plan you are enrolled in. In the example of the Nevada County subsidy of $2,094 per month, where both people are retired, but not yet eligible for Medicare, that monthly subsidy from Covered California represents real dollars. If they received a check directly from the federal government or Covered California, they would be sending it to the health plan to pay their premiums. In essence, that $2,094 monthly subsidy is a basic income that keeps this couple paying their bills every month.
There are differences between the candidate proposals, the Stockton project and Covered California. I don’t know all the conditions that Stockton residents must meet in order to qualify for the basic $500 per month income beyond what they outlined on their website. Similar to Covered California, the Stockton resident’s income must be below a certain threshold. Federal ACA subsidies from Covered California are only awarded to households who have incomes below 400% of the federal poverty level, down to 138% of the federal poverty level.
With Covered California, individuals eligible for the subsidy must be U.S. citizens, lawful permanent residents (green card holder) or have designated asylum status, and plan to file a federal income tax return. Yang’s proposal would only apply to U.S. citizens. Harris’ proposal is closer to Covered California because it captures all residents who file taxes which includes lawful permanent residents. But like the child tax credit, it is paid out when you file your taxes, which does nothing to help families struggling month to month during the year. Harris’ proposal didn’t cite income limits, but would target low- and middle-income households. Yang’s proposal sends a check to every 18-year-old citizen regardless of income.
The serious downside to Covered California as guaranteed basic monthly income is the repayment condition. If an individual’s or household’s Modified Adjusted Gross Income exceeds 400% of the federal poverty level, they must repay all the subsidies they received in the previous year. However, if the Modified Adjusted Gross Income for the tax year is below the minimum level of income needed to qualify for the subsidy, 138% of the federal poverty level in California, then there is no mechanism to claw back that subsidy amount. Incomes below 138% of the federal poverty level in California would make the household eligible for Medi-Cal and not the ACA tax credit subsidy.
From my perspective, universal basic monthly income is already happening. Covered California gets money from the federal government and then sends it to the health plans. Whether the average amount is $424 or the real-world case of $2,094 per month, the Covered California subsidy is a real dollar amount that helps thousands of families in California. Perhaps Yang and Harris should study how the ACA and Covered California work and not tout their proposals has new or groundbreaking. The federal government is already paying out money on behalf of millions of health insurance consumers to make the monthly premiums affordable, which frees up money to pay all the other bills.