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You are here: Home / Anderson On Health Insurance / Check out those curves

Check out those curves

by David Anderson|  May 21, 20158:27 am| 3 Comments

This post is in: Anderson On Health Insurance, Meth Laboratories of Democracy

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Means tested social insurance programs have a tricky task to pull off.  They need to be able to give help to the people who need the help at that moment in time without creating strong incentives that trap people in a bad situation.  The easiest way to do this from a mechanical point of view is to make a program universal so there are no inflection points where earning an extra dollar makes someone far worse off than not earning an extra dollar.  This is not always plausible politically as a universal program tends to be more expensive as it is deliberately aiding people who could have found the resources to solve a particular problem on their own.  We decided that Medicare should be a near universal program for people over age 65 even if Warren Buffet does not need Medicare although he qualifies for it.

PPACA subsidizeation is not a universal program.  It is a means tested program with more subsidies flowing to people who make less money.  The premium assistance subsidies have a fairly slow and steady decline curve so there are no gaps where earning an extra dollar costs the individual several thousand dollars in real or expected value until 400% Federal Poverty Level (FPL).  Someone who qualifies for a $1,200/year family subsidy at 399.99% FPL and then makes an extra dollar to bump their family income to 400.00001% FPL loses the entire $1,200/year subsidy due to that marginal additional dollar.  On a practical basis, I am not too worried about this cliff as the number of people who qualify for a subsidy at 399% FPL and have to shop on Exchange for their insurance is fairly small.  If this is a major concern, the policy solution to advocate for is to make the premium assistance subsidy formula unlimited where the government will kick in money for the difference between 2nd Silver price and 9.5% of your family income.  It smooths the curve without creating a massive marginal tax rate inflection point.

The other part of PPACA that is means tested is the cost sharing reduction (CSR) credits.  These credits reduce out of pocket amounts for people who make under 250% FPL.  CurvesThere are three buckets of varying richness.  The first bucket is for people who make between 100% and 150% FPL and they pay 6% Acturial Value in cost sharing for their Silver Plans, while people who make under 200% FPL pay 13% acturial value for their benchmark Silver.  Finally people who make under 250% FPL pay 27% Acturial Value in cost sharing for their Silver plans.  People who earn over 250% FPL pay 30% acturial value in cost sharing for their benchmark Silver plans.  These are fairly significant thresholds as a family of two making 199% FPL are looking at a maximum exposure of 8% family income in a worse case scenario, while that same family at 200% FPL is looking at an exposure of 14% family income in a worse case scenario.  There is a strong incentive for people to game their incomes to stay under 200% FPL if their income “naturally” would be between 200% FPL and 220% FPL.  Above that, the maximum exposure increase would have been covered by the net increase in family income.

The chart to the left is the individual responsibility for cost sharing in Medicaid Expansion states for either Medicaid or the variety Silvers depending on income.  The most notable thing here is that it is a dual step function at 200% FPL.  Below 200 FPL, it is a step function but the steps are fairly small jumps between levels.  200% FPL sees a large jump in individual exposure to cost sharing.  And then after 250% FPL, it is flat to infinite income while the percentage of income that maximum cost sharing represents declines as income goes up.

This is a problem.

How can it be fixed?

A state that wants to tweak the work incentives in PPACA could use a Wyden Waiver to smooth the CSR subsidy function so there may be a little more cost sharing at 199% FPL but slightly less cost sharing exposure at 201% FPL.  Additionally, since a Wyden Waiver basically block grants money on a challenge basis (ie meet or beat PPACA outcomes at same or less cost using whatever method you want) ambitious states could use Basic Health Plans to contain costs for most current enrollees by lowering provider reimbursement to Medicare/Medicare minus something instead of Commercial or Medicare plus something rates, and use that additional money to enrich benefits for people right above the current notch.

 

 

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3Comments

  1. 1.

    MomSense

    May 21, 2015 at 9:52 am

    I really bumped into the CSR credits last year. The problem is that too many states don’t want to tweak this problem because the governors and/or legislatures are assholes.

    My governor is currently pushing to dump low income adults w/out kids even though DHS has said no. He wants to fight this all the way. Oh and he wants to drug test TANF recipients and deny food assistance benefits to anyone who has ever had a drug problem.

  2. 2.

    Fair Economist

    May 21, 2015 at 10:54 am

    Someone who qualifies for a $1,200/year family subsidy at 399.99% FPL and then makes an extra dollar to bump their family income to 400.00001% FPL loses the entire $1,200/year subsidy due to that marginal additional dollar.

    I actually consider this the weakest link in the whole subsidy system. It’s obviously unfair and counterproductive, and hits people around 60-65% percentiles, which is wealthy enough that those with political power might notice. I’m honestly surprised, and a little relieved, that the right-wing didn’t pull up any of these people for an example of somebody hurt by the ACA. Fortunately their echo chamber seems to have gotten them so detached from reality they didn’t know what to look for.

    Just like Medicare covers everybody, I really think there should be a guarantee that *nobody* has to pay more that 9.5% of income for basic insurance. It is pretty fair. The fact that relatively few people are affected just means the cost is low.

  3. 3.

    David Koch

    May 21, 2015 at 4:57 pm

    “Kill the Bill!”

    “Ten Reason to Kill the Bill”

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