Teetering at the Obamacare ‘subsidy cliff’

Martin Klein says he recently got some unusual advice from his insurance agent: Work less.

A clinical psychologist who lives in Fairfield, Klein buys his own health insurance. For years, he had the same plan from Anthem Blue Cross and Blue Shield. But recently, he got a letter saying the company was discontinuing the plan and he’d need to buy a new policy.

Klein and his wife earn slightly more than the $94,200 that would qualify their family of four for financial assistance to buy coverage as part of the federal health law commonly known as Obamacare.

And the financial implications are significant.

If Klein qualified for an insurance subsidy, his family would pay no more than 9.5 percent of its income in premiums for a midlevel plan sold by the state’s health insurance exchange, Access Health CT.

But because he and his wife earn a little more, they’ll be paying full price for coverage — between 15 and 20 percent of their income on premiums alone, depending on the plan they pick. Compared to their existing coverage, they will also face substantially higher out-of-pocket costs for the care they get.

Klein’s family falls into a sort of subsidy “cliff,” earning too much money to qualify for financial assistance but not so much that their income compensates for the higher costs of insurance. Effectively, all of what they earn above the subsidy limit will go toward their insurance costs.

“Let’s face it, anytime you draw a line, there’s winners and losers above that line,” said John Calkins, an insurance agent and president of the Watertown benefits firm Bozzuto Associates, who has advised clients whose incomes put them near the subsidy limit.

The eligibility for subsidies is the same across the country, so a family of four earning $95,000 makes too much for help buying insurance whether they live in Cincinnati, where the median household income is just over $34,000, or Fairfield, where it’s about $114,000, and where Klein’s income places his family among the lower half of earners.

On his income — Klein asked that the specific figure not be printed — he said, “You could live like a king in Ohio, but not in Fairfield.”

From Cadillac coverage to a $12,600 deductible

To be sure, the number of people in Klein’s situation is relatively small compared to the overall number of uninsured state residents who could gain coverage under Obamacare.

But it’s not insignificant. According to Access Health, 49,000 of Connecticut’s nearly 350,000 uninsured won’t qualify for subsidies. That doesn’t include those who, like Klein, need to buy new coverage because their plans are being discontinued.

Of those who currently buy individual health insurance policies in the state, 72 percent will qualify for subsidies and 28 percent won’t, according to Access Health.

For some of those people, particularly those who are older, the new plan options could cost less than they currently pay, or will come with more comprehensive coverage, like lower deductibles and more benefits. But that’s not the case for everyone.

Experts say it’s difficult to generalize about how insurance prices will change because of Obamacare. But there are many factors that are expected to raise prices, including additional benefits that must be covered and the inclusion of sicker people in the insurance pool because insurers won’t be allowed to deny coverage to people with health problems.

For many people, the federal subsidies — technically, tax credits that can be issued in advance to discount premiums for insurance purchased through the exchanges — will balance out potentially higher prices.

But not for those who fall above the subsidy limit. And in Klein’s case, the new requirements of the health law mean higher costs.

While he and his wife currently pay $1,342 in monthly premiums and pay at most $3,800 a year toward their care, a new plan with a similar level of coverage would mean paying at least $300 more per month in premiums and exposing them to nearly twice the out-of-pocket costs.

Instead, they’re more likely to go with a plan with cheaper monthly premiums ($1,172). But that savings would be wiped out if they use much medical care, because it has a $12,600 deductible. And with that plan, Klein believes he’ll have fewer choices of doctors than he does with his current coverage.

Since learning that his insurance plan was being cancelled, Klein has grown frustrated and angry at politicians, including his congressman and the president, who have said that people who like their insurance plans will be able to keep them under Obamacare. He’s also frustrated that defenders of the law suggest that the only plans being dropped are those that are subpar.

As he sees it, his family will be moving from “Cadillac” coverage to a plan with substantially higher out-of-pocket costs.

Klein said he’s a liberal Democrat who supports universal health care, but the way the health law affects his family, and those in his income group who are self-employed, has left him feeling torn.

“I am so conflicted about this health care issue,” he said. “I feel all Americans have the right to affordable accessible care but I believe my family should also be included in that promise.”

“We vs. me”

Access Health CEO Kevin Counihan understands the frustration of people in Klein’s position.

He likened some of the changes in the health law to a progressive tax code. As people earn more, there’s what he called “a greater contribution for a ‘we vs. me’ type of approach,” because in the long run, it’s in everyone’s interest to have more people insured. He noted that right now, people with insurance pay higher premiums because of the cost of uncompensated care for the uninsured.

“That’s a great big picture message,” he said. But Counihan added that it’s a harder sell to individuals who have been able to get coverage at relatively low rates in the past and will end up paying more in 2014.

Part of the answer, Counihan said, is to explain the changes in terms of value. For some people the new, higher premiums will buy plans that provide more medical coverage or have lower deductibles, and potentially, more financial security.

Counihan said he recently got a call from a 62-year-old couple whose income was slightly too high for a subsidy. They wondered why their new plan would have to cover maternity benefits.

It points to a broader issue, he said, about the value of everyone having comprehensive coverage.

“It’s not any different than living in a community and saying, ‘Well, my kids are all grown, so why do I need good schools?’” he said.

For a family like Klein’s, which falls just above the subsidy limit, he said, “You’re saying, ‘Hey wait a minute, where’s the affordability in my Affordable Care Act?’”

“All of those things are issues that I think we’re still grappling with,” Counihan said.

Challenges close to the line

For people close to the limit for getting a subsidy, there are other issues to consider too, particularly if they have variable income.

Eligibility for subsidies will be based on a person’s projected 2014 income, and verified using 2012 tax returns.

The subsidies will ultimately be reconciled when people file their 2014 taxes. People who received more in financial assistance than their income ultimately justified will have to pay back some or all of the difference, and people who earned less than expected and qualify for more assistance will get a tax credit.

The repayment amount is capped for people earning below 400 percent of the poverty level. But those who get a subsidy but ultimately don’t qualify for one because of their actual 2014 income will have to repay the full amount.

Calkins, the insurance agent, said he’s been warning clients close to the subsidy line with variable income to be conservative in how they handle potential subsidies. People can elect to take all or a portion of the tax credit up front — it would be paid to the insurance company — or pay the full premium themselves and get the tax credit when they file their 2014 taxes. Calkins said he advises clients on the edge of qualifying to be careful about how much they take up-front.

“Those people on the line are saying, ‘I can’t afford [the premiums] now,’” Calkins said. “But I’m saying to them, ‘Can you afford to have to pay this all back?’”

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