IRS: Cheapest qualifying family health-insurance plan will be $20K

Starting next year, the IRS will assume responsibility for telling Americans just what kind of health insurance they must buy in order to … well, breathe free air, or something.  Taxpayers will have to submit proof of health-insurance coverage along with their W-2s, and that health insurance has to meet minimum guidelines, which are classified by the IRS as “bronze,” the lowest of four tiers identified for tax purposes.  And the average cost of a bronze plan for a family of four? Such a family will have to fork out twenty thousand dollars in health insurance:

In a final regulation issued Wednesday, the Internal Revenue Service (IRS) assumed that under Obamacare the cheapest health insurance plan available in 2016 for a family will cost $20,000 for the year.

Under Obamacare, Americans will be required to buy health insurance or pay a penalty to the IRS.

The IRS’s assumption that the cheapest plan for a family will cost $20,000 per year is found in examples the IRS gives to help people understand how to calculate the penalty they will need to pay the government if they do not buy a mandated health plan.

The examples point to families of four and families of five, both of which the IRS expects in its assumptions to pay a minimum of $20,000 per year for a bronze plan.

If you’re thinking that a family could buy a good solid family car for that kind of cash and do better, you’d be right.  Let’s assume that a family of four has a wellness check for each adult once a year, and the kids have two.  If a full-scale wellness check costs $500 — and it’s probably considerably less — that’s $3,000.  If little Susie breaks her leg on a jungle gym at school, add in another $1000 for emergency room treatment and ongoing follow-up.  Mom may get a mammogram for another $1000.  That still brings us to $5000, or only a quarter of what they’re paying for coverage every single year under the new regulations.

Of course, one or more of them may end up in the hospital, at which point the coverage costs get a little more rational.  However, I just had outpatient back surgery, which cost in total less than the plan costs assumed by the IRS as a minimum (~$13,000, most of it covered by insurance, including doctors, hospital, anesthesiologist, follow-ups).  Besides, until the passage of ObamaCare, a family could choose to purchase hospitalization coverage (aka “catastrophic” insurance) rather than comprehensive, and choose to treat routine maintenance and non-hospitalization costs through pre-tax health-savings accounts (HSAs).  Most families would save a fortune in doing so, and the elimination of third-party payers in the system would restore real price signals, which would actually bend the cost curve downward.  Families might choose comprehensive insurance anyway to guard against catastrophic risk, but before ObamaCare, they at least had the opportunity to choose a wiser path.

Instead, if you choose financial sanity, this is what happens:

Using the conditions laid out in the regulations, the IRS calculates that a family earning $120,000 per year that did not buy insurance would need to pay a “penalty” (a word the IRS still uses despite the Supreme Court ruling that it is in fact a “tax”) of $2,400 in 2016.

Heck, even that sounds like less of an incentive when you stack it up against the projected retail costs of the care and the premiums.  Unfortunately, that choice will be stripped from most consumers, as the hospitalization-only insurance plans will be dismantled under ObamaCare.  Families will be stuck paying far more in coverage than they’ll spend on care, and taxpayers will be stuck subsidizing those costs for families that earn less than $88,000 a year (400% of poverty line).

Where will all that extra money go?  It’s going to end up subsidizing the high-risk members of the risk pool, who will no longer have to pay a significantly higher premium based on their own risk, and for older members of the risk pool, who utilize medical providers far more often.  It’s a shell game, and it’s the taxpayers who are the marks.

Update: The Wall Street Journal’s Daniel Kessler argues that every claim made to push ObamaCare has been proven false:

• Lower health-care costs. One key talking point for ObamaCare was that it would reduce the cost of insurance, especially for non-group insurance. The president, citing the work of several health-policy experts, claimed that improved care coordination, investments in information technology, and more efficient marketing through exchanges would save the typical family $2,500 per year.

That was then. Now, even advocates for the law acknowledge that premiums are going up. In analyses conducted for the states of Wisconsin, Minnesota and Colorado, Jonathan Gruber of MIT forecasts that premiums in the non-group market will rise by 19% to 30% due to the law. Other estimates are even higher. The actuarial firm Milliman predicts that non-group premiums in Ohio will rise by 55%-85%. Maine, Oregon and Nevada have sponsored their own studies, all of which reach essentially the same conclusion. …

• Smaller deficits. Increases in the estimated impact of the law on private insurance premiums, along with increases in the estimated cost of health care more generally, have led the Congressional Budget Office to increase its estimate of the budget cost of the law’s coverage expansion. In 2010, CBO estimated the cost per year of expanding coverage at $154 billion; by 2012, the estimated cost grew to $186 billion. Yet CBO still scores the law as reducing the deficit.

How can this be? The positive budget score turns on the fact that the estimated revenues to pay for the law have risen along with its costs. The single largest source of these revenues? Money taken from Medicare in the form of lower Medicare payment rates, mostly in the law’s out-years. Since the law’s passage, however, Congress and the president have undone various scheduled Medicare cuts—including some prescribed by the law itself. ….

• Preservation of existing insurance. After the Supreme Court upheld the constitutionality of health reform in June 2012, President Obama said, “If you’re one of the more than 250 million Americans who already have health insurance, you will keep your insurance.” This theme ran throughout the selling of ObamaCare: People who have insurance would not have their current arrangements disrupted.

This claim is obviously false. Indeed, disruption of people’s existing insurance is one of the law’s stated goals. On one hand, the law seeks to increase the generosity of policies that it deems too stingy, by limiting deductibles and mandating coverage that the secretary of Health and Human Services thinks is “essential,” whether or not the policyholder can afford it. On the other hand, the law seeks to reduce the generosity of policies that it deems too extravagant, by imposing the “Cadillac tax” on costly insurance plans.

All this proves is that Congress can’t do math.