We, like many, have been hit by extraordinary price hikes under ObamaCare. ObamaCare began in 2014. Since the first year, our premiums have risen 140% culminating in a 56% price hike in 2017. Obviously, ObamaCare’s nongroup market has failed and is collapsing (so say the insurance commissioners in Minnesota, Tennessee, the editors of the Chicago Tribune and others, former proponent Gov. Mark Dayton (D-MN), and former President Bill Clinton.)
There are ways to escape the crushing burden of ObamaCare’s extremely high insurance rates and rates that are increasing on an exponential trend line. Fortunately, there are perhaps 15-20 exemptions written in to the law. This post addresses only a few of those exemptions
The reason ObamaCare’s nongroup market has failed is due to a design and implementation error in the ACA. This is not rocket science.
I am posting this here as a way to get it online, so that it is searchable and accessible to everyone desperate for relief from the crushingly high costs of ObamaCare in 2017.
NOTHING IN THIS POST SHOULD BE CONSIDERED FINANCIAL, HEALTH OR INSURANCE ADVICE. ALL INFORMATION IS SUBJECT TO YOUR OWN VERIFICATION FOR YOUR OWN SITUATION. THERE IS NO WARRANTY THAT ANYTHING HERE IS ACCURATE. THIS COULD BE COMPLETELY WRONG AND YOU HAVE BEEN WARNED. USE AT YOUR OWN RISK. CONSULT PROFESSIONAL ADVISORS.
Update: Eventually I will update this post with more details, links to HHS and IRS information detailing the exemptions, and how to obtain other forms of insurance.
ObamaCare Moved All the High Risk/High Cost Patients into the Small Individual Market
Prior to ObamaCare (“pre-ACA”), 35 states ran “high risk” insurance pools for people with extraordinary medical costs. While the “high risk” group made up only 2% of the non-group market, the top half of claims in this group averaged $225,000 per person per year in 2012. All of this “high risk” was dumped into the individual (a.ka. non-group) market.
Second, those in the “pre-existing exclusion” category in the non-group market are now eligible to buy policies without exclusions. This group, by definition, has higher risks/higher costs. Post ACA, this entire group was dumped into the non-group market.
Thus, the post ACA nongroup market consists of those who previously bought their own insurance, the entire high risk group, and the entire pre-existing excluded group. This is known as a “risk pool”. Everyone in this small risk pool shares the costs.
As of 2017, 100% of the additional risks are paid for solely by those in this group. The direct consequence is the non-group market is now a de facto high risk pool. Every one (all individual policy purchasers) are lumped together and pay high insurance rates to cross subsidize the high risk patients.
No one in the large group (employers), small group (small businesses) or government (employees, Medicare or Medicaid) shares this burden as of 2017.
Third, the size of the non-group risk pool is too small to redistribute risks to enough people to moderate the costs. As of 2016, ObamaCare enrolled only half the number of consumers originally forecast in the models. With the staggering price hikes for 2017, it is likely that 2017 will enroll fewer people than in 2016.
Our own insurer says that adverse selection (aka “death spiral”) began in 2015. As rates rose (average of +24.3% in our state for 2016), people began dropping out of the market, leaving a smaller and sicker risk pool. This in turn translates into even higher rate increases for 2017, which will drive more people from the market, leaving a still smaller and even sicker risk pool. Our insurer’s rate filing said that adverse selection (“death spiral”) accounted for 1/5th of their requested rate hikes for 2017. The overall effect is seen in the 2014-2017 rate hike trend line – it is an exponential curve where each subsequent year sees rate hikes hire than the preceding year.
This unbounded and not sustainable. ObamaCare collapses unless this is urgently fixed.
Our insurance will climb by 56% for 2017. If our premiums were to rise by only 10% per year for the next 7 years, my wife and I will be paying $3,200 per month for a bare bones health insurance policy in 7 years. To the Democratic proponents, this is considered “Affordable”. But it is worse – over the first 4 years, in no year have the rates increased by as little as 10%, but always by more. If we merely average the first 4 years price hikes and extrapolate 7 years, we will be paying $125,000 per year in 7 years.
Obviously, this is not sustainable, but so far, political leadership is missing and nothing is being done to address this – our failed political leaders have had four years to work on this but it only gets worse every year.
I have worked hard to analyze and propose workable solutions. However, 100% of my Federal elected representatives have ignored my efforts to talk to them. The US Department of Health and Human Services responded by saying we just need to shop around for a better policy – as if we are so stupid we have not already done that?
Last spring, I wrote a 13 page paper about the root cause problem and provided a number of potential solutions. Some of these solutions are being used in Alaska, Massachusetts, Washington, DC and elsewhere. There is a great opportunity for an elected representative to step up and show leadership and work towards solving this problem. However, Federal officials do not give a damn; their ideology beats facts and logic. The solution is going to have to come from the states.
Here is a link to my 13 page root cause analysis paper: ACA Individual Market is a defacto High Risk Pool. The paper includes links to all sources.
This paper has been read by my Oregon State Senator, my State Representative, by the Chair of the Oregon House Committee on Health Care, and by staff at the Oregon Insurance Division. I have also met in person with my State Senator. There are many steps that can equitably redistribute the risk and resolve this crisis.
If this is not resolved urgently, ObamaCare collapses. The insurance commissioners of Minnesota and Tennessee have both said that. Several insurance company CEOs have said this.
The only proposed solution floating right now is the so-called “public option”. Per the NY Times, this will not work and is largely a re-hashed version of the failed “health co-ops” strategy (17 of the 23 co-ops have gone bankrupt). It also does nothing to address the root cause risk distribution problem. At best, it means instead of N insurance companies in a market, there are N+1 insurance companies.
How to Get Out of the ObamaCare Penalty
If you do not purchase ObamaCare, you will be assessed a tax penalty that may be substantial.
However, there are exemptions to this penalty.
The 8% Exemption
If the annual cost of the lowest priced Bronze health plan in your community would cost more than 8.05% of your income (for 2015), you are exempt from the penalty. For example, if a Bronze plan costs you $8,000 and you make less than $100,000 per year, you are exempt from paying the penalty. Instructions for this exemption are in IRS Form 8965.
Basically, the ACA recognizes Congress cannot force people to buy insurance at exorbitant prices. In fact, most middle aged, middle income families are probably exempt form the mandate penalty.
If you qualify, however, you still do not have health insurance. You may be able to purchase a “short term health insurance policy” available from many major health insurance companies. These policies are similar to traditional “major medical” “80/20” plans and will exclude coverage for certain pre-existing conditions, and will typically have a cumulative $2 million maximum payout limit. They also do not cover mental health counseling, drug addiction treatment, and certain other medical items that are covered by the much more expensive ACA policies, nor do they cover men getting pregnant (really – the ACA requires all policies, including for men, to cover the cost of maternity care and pregnancy). To learn more, go online and search for “short term health insurance”.
The cost of these traditional plans is similar to what health insurance cost pre-ACA; for us, a quoted price is about half of what the ObamaCare policy costs us.
Religion-based Health Sharing
Pre-ACA, several church-based groups were established were members share each others medical costs.
These are known as “health sharing” programs and operate under names such as Medi-Share and Liberty Healthshare, among others. There are about 50 such groups in the U.S.
They require that the member have a religious faith and certify (sometimes with a form signed by a church official) that the member is affiliated with a church or religious group.
Members contribute a monthly payment to pay the shared costs of other members. Reimbursement for health care expenses comes after an annual minimum expense is reached (similar to a deductible). Some of the programs are administered by insurance firms our policy management firms, acting on behalf of the health share group. Most provide access to a standard network of providers.
Health shares are not, legally, insurance, and are not regulated by state insurance agencies. They are not required to provide the services mandated by the ACA for individual coverage (note – the ACA does not mandate required services for large employers either). Most will not cover abortions or treat sexually transmitted diseases, for example. Smokers are generally excluded from joining. While members are not prohibited from consuming alcohol, if you get drunk and are injured in a car crash while driving drunk, they may not reimburse you for medical costs associated with that. There may be pre-existing condition exclusions or surcharges on policies.
The presumption is that religious members lead a “clean life”.
Because these are non-profit entities and because they do not cover all procedures and tests that ObamaCare mandates, their monthly premiums are considerably less than ObamaCare policies.
To learn more, look online for “health sharing”, or “health sharing ministries” or “Medi-Share” and others.
Consider Moving to Another State
The prices for ObamaCare vary considerably based on geography. First, living in or near a large metro area is generally cheaper than insurance in rural and remote areas. Indeed, as of 2017, an estimated 31% of US counties will have only insurer, and 55% will have only 1 or 2 insurers. Monopoly and duopoly insurance pricing is not conducive to competitive market pricing.
Prices also vary based on the risk pool in each state. Some large population states naturally have a larger risk pool to distribute the existing (and broken) ObamaCare risks across a larger group of individuals.
Some states have cultural and demographic characteristics that result in more people participating in the insurance market, thus enlarging the pool and providing a better distribution across a variety of risks (health status) in the population.
Some states, like the one I live in, Oregon, have a failed non-group market. Oregon’s market failed for at least two reasons. (1) It is a small population state so its risk pools are small, and (2) the State’s Cover Oregon health exchange never enrolled a single individual. After $450 million in spending, the failed exchange was shut down.
Since Cover Oregon failed to launch, fewer people endured the challenges and difficulties of enrolling the first year. I was on the phone, every day, on hold, for 3 weeks, trying to get answers and was finally able to buy an off exchange policy on Dec 21st, just days before the cutoff for enrollment. This put Oregon behind in signups from the beginning. Thus, a small population, with a failed health exchange, led to a broken risk pool.
But – it gets worse. With the collapse of the exchange, Oregon no longer has any meaningful marketing program to encourage consumers to sign up for ObamaCare. Other states, like California, have a functioning exchange, and Covered California runs active marketing programs and outreach programs into communities to market the program. Not Oregon.
Consequently, some of us are looking seriously at moving to other states with a functioning, stable ObamaCare marketplace.
This is a step you may wish to consider as well. However, it is very difficult to find health insurance rates in other states. No one produces a table or chart summarizing policy prices. Instead, you need to go to each state exchange or healthcare.gov, enter a zip code corresponding to where you are interested in moving to, and then enter all of your personal data, to obtain a listing of policy options and prices. This is time consuming. It may be worthwhile to search online for news articles discussing health care pricing (but note this information may be out of date). At one time, for example, New Mexico and Utah had lower prices than many states, but that is subject to change. In particular, most of Utah now has only a single insurer, except for the 2 counties around Salt Lake City.
Grand Junction, Colorado is said to have the highest insurance rates in the nation. It also appears that parts of Montana may have the second highest rates in the nation. Not surprisingly, pre-ACA, Obama flew into Grand Junction, CO to talk up their wonderful health care system (which they had then) and how this would extend nationally. Since then, Grand Junction has become ground zero for the highest prices in the nation. He also flew into Bozeman, MT and promised that ObamaCare would lower their costs of insurance. Today, Bozeman appears to be one of the highest priced areas in the nation.
There are other methods, which may be more complex. For example, if your income comes from investments, you may be able to re-arrange your investments so that your income is lower – by reallocating investments between dividend/interest payments and capital gains.
You may be able to set up a trust to manage your assets, and have the trust pay you an annual income that is below the income cutoff limits. Some relatively wealthy people have done this to the point they receive subsidized health insurance under ObamaCare.
A simple strategy for investment income may be to set aside several years of savings (savings does not count as income), and move your investments into capital gains only investments (or mostly capital gains). Over the next several years, draw down your savings, as needed and take advantage of a lower income to either receive an ObamaCare exemption or qualify for subsidies.
If you are working for an employer, but must purchase your own insurance, you may be able to reduce your gross income by maximizing your contributions to a 401(k) plan. For those over 50, up to $24,000/year can be set aside and simultaneously used to lower your adjusted income so that you are exempt from ObamaCare or qualify for subsidies. A married couple, if both are working, can reduce their income, for subsidy qualification, by up to $48,000 per year. The total income minus the 401(k) contributions is your income for subsidy calculation purposes.
Another step is to move outside the United States. Health care in almost all other countries in the world is cheaper – by a lot – than in the U.S. There is a catch, however. If you spend more than 35 days in the United States in a 12 month period, the ACA requires that you maintain ACA compliant health insurance in the U.S. for the full 12 months. The exemption to this is if obtain 12-month health insurance in the other country which meets ACA requirements.
This ACA rule is also a bit bizarre. If you live outside the U.S., then you do not have a residence in the U.S. What is your city and state residence for purchasing ACA compliant health care? Apparently you can just pick anyone you want and have your mail forwarded. Or something.