If a married couple, both 62, in Hermon need health insurance, the lowest monthly premium is $1,288, or $15,456 per year. The median household income in Hermon for ages 45 to 64 is $67,384. This median or middle class couple would pay 22.9 percent of their income. Is this premium affordable?
This couple likely could not and probably would not buy health insurance. But what about the tax penalty under the federal health care law? Wouldn’t it force the couple to make the purchase?
No, because of a little known and never talked about federal rule. This rule states that if the premium for the lowest cost plan is 8 percent or more of the household income, no penalty tax would be imposed. This couple will not be penalized
But our devious plot thickens. The man gets sick, and he needs to be hospitalized. He has no health insurance.
(This writer had an MRI a few years ago in Bangor. The invoice indicated a “retail” price of $1,450 for the MRI. But I had a Medicare Advantage Plan, so the MRI provider reduced the price by $1,200 to $250, which is the amount Medicare would pay. The “retail” price was 580 percent more than the amount the provider was willing to accept.)
Following his stay in the hospital, our middle class male receives a $50,000 bill for medical services at the retail rate. Most likely, the hospital would negotiate a 15 percent or 20 percent reduction if he pays the balance on the spot. He is screwed. Without insurance, our patient would have to pay about $40,000 for his hospitalization immediately.
Could this middle class couple have purchased other medical insurance? Yes. But this plot only gets worse. The couple could have purchased short-term major medical coverage. This plan is similar to the familiar major medical coverage. The premium would have been about 60 percent of the Affordable Care Act premium. These policies in other states can be written for 11-month terms and renewed two or more times. But Maine only allows two six-month terms.
The Affordable Care Act does not make sense. On one hand, the federal government allows households with a certain income to escape the penalty tax. But on the other hand Maine restricts alternative coverage, and the medical providers make going without coverage a financial disaster by charging grossly inflated retail rates.
The Affordable Care Act is not affordable to the middle class who don’t have access to employer-sponsored health insurance. In this case, insurance is unaffordable to those 62-year-olds whose income is between $63,720 and $134,000, costing between 24.2 percent and 11.5 percent of their income, respectively. But all the middle class is affected. For example, singles with income between $47,080 and $80,000, couples with income between $63,720 and $120,000, and four-member families with income between $97,000 and $190,000 all pay a portion of their income for health insurance that is unaffordable.
Here is salt to the wound. If the married couple’s income was $63,700 per year, a reduction of $3,684, they would get a monthly $989 premium tax credit, or $11,868 annually. In other words, their monthly premium would take a colossal drop to $299 from $1,288.
Finally, another wrinkle in the Affordable Care Act debacle has emerged. The insurance companies don’t like the system either. Aetna has announced it will stop selling insurance through the marketplace in almost all states next year. When supply gets restricted and demand is strong, prices and premiums rise.
Those with insurance who receive discounts and subsidies are charged affordable premiums, some less than $10 per month. Those whose income is high have the money to pay the full premium or are more likely to have an employer-sponsored plan. But members of the middle class pay too much. They can’t afford the premium, and they have no other insurance alternative. They often go uninsured.
Whichever party wins the upcoming election, they must fix this middle class problem. We have the choice to re-elect the creators of Affordable Care Act, also known as Obamacare, or to elect those who will reconstruct our health insurance system to make it fair to people insured under the Affordable Care Act, to the other taxpayers who help fund the system and to the insurance companies that provide the coverage.
David M. Fenderson is the owner of Fenderson Insurance in Brewer and is the vice president of Florida-based Regions Health Group, a large multistate insurance provider with more than 500 agents and 25 offices. He received his original Insurance license 50 years ago. He holds a Bachelor of Arts in economics from the University of Maine.