IRS ObamaCare Statement on Cheapest Plan Explained
IRS ObamaCare Cheapest Plan; IRS Estimates the Average Family Will Pay no Less than $20,000 for the cheapest plan under ObamaCare. That statement couldn’t be more misleading. Another example of the Media misquoting information. Please read the updates section to get the full story on the IRS: ObamaCare cost.
The Truth on What the IRS Says About the Cost of Insurance for the Average Family
TRUTH: IRS Estimates the Average Family (of 5, making over $120k) is Estimated Pay an average of $20k in 2016 for basic Insurance on the insurance exchanges.
Why is The Way IRS Statement on ObamaCare is Being Represented Misleading?
1) That $120k a year per family of 5, who are uninsured through their jobs, and who choose to buy insurance on the exchange instead of buying private insurance. This is only a fraction of the population. Saying the “average family” is completely inaccurate. UPDATE: Other families earning less, including families of 4 are in some instances paying more than is considered affordable (8%). On a whole single policy holders tend to pay less than 8% and higher earning families tend to pay more.
2) The estimate seems to be rounded (way?) up and is a projection of what will happen in 2016. This information is meant to urge people to buy insurance and not pay the penalty for not having insurance. The IRS directly handles all penalty payments. So they have to review every person in the US to make sure the follow the new rules. The penalty is paid on your tax return. The tax for this family would be around $2.4k a year to not have insurance. In other words it makes buying insurance appealing. UPDATE: There are a number of factors that determine the cost of insurance, it seems like only factors on the high end are taken into account. You can crunch the numbers presented in the IRS doc into this calculator and find fluctuations of almost $10k based on policy holder age and regional cost factor. ObamaCare Cost Calculator
2) An average family of five, making over $120k will pay $333 a month per person for a basic plan. That figure in itself is much less drastic sounding isn’t it. The average family may pay less now, but we are talking a projection of 2 years. ObamaCare aims to curb the ever increasing growth in the price of premiums. They were rising regardless.
3) Remember those making under 400% (over $88k for a family of 5) of the FLP may receive assistance and are projected to pay much less than $20k a year. Those under 133% FLP will most likely get basic plans for free. There are many more families in this tax bracket. If anything these are the “average American families”
4) The cost varies greatly from state to state. This estimate was most likely not taken from low cost states. UPDATE: This was the average regional cost factor, although the numbers don’t match with what we have seen elsewhere and so we can’t confirm how this math was done. Regional cost factor can double the cost of premiums in some cases, meaning in some states a $20k cost would be closer to a $10k cost. This is a drastic scenario, but even the plan discussed in this article could easily cost $5k less in a lower cost region.
The IRS’s Exact Calculations
Here is the actual calculations from the IRS in regards to the ObamaCare study. These are from page 70 (resource link below). There are a number of other case studies in the report.
“(i) In 2016, Taxpayers H and J are married and file a joint return. H and J have three children: K, age 21, L, age 15, and M, age 10. No member of the family has minimum essential coverage for any month in 2016. H and J’s household income is $120,000. H and J’s applicable filing threshold is $24,000. The annual national average bronze plan premium for a family of 5 (2 adults, 3 children) is $20,000.
“(ii) For each month in 2016, under paragraphs (b)(2)(ii) and (b)(2)(iii) of this section, the applicable dollar amount is $2,780 (($695 x 3 adults) + (($695/2) x 2 children)). Under paragraph (b)(2)(i) of this section, the flat dollar amount is $2,085 (the lesser of $2,780 and $2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the excess income amount is $2,400 (($120,000 – $24,000) x 0.025). Therefore, under paragraph (b)(1) of this section, the monthly penalty amount is $200 (the greater of $173.75 ($2,085/12) or $200 ($2,400/12)).
“(iii) The sum of the monthly penalty amounts is $2,400 ($200 x 12). The sum of the monthly national average bronze plan premiums is $20,000 ($20,000/12 x 12). Therefore, under paragraph (a) of this section, the shared responsibility payment imposed on H and J for 2016 is $2,400 (the lesser of $2,400 or $20,000).”
Updates on IRS Cost of Health Insurance
When it comes to the IRS ObamaCare report on the cost of premiums for the average family we have to understand that this is an educated projection. We are looking at a projected average of the cost of insurance in 2016. Insurance prices are far from equal from family to family in the same tax bracket depending on factors from regional cost to the health status of a family.
The truth is no one really knows what insurance will cost, even the IRS is speculating based off of what they know. First an “average” of $20,000 is confusing on it’s own. We’ve seen numbers from the kaiser calculator (Updated: 6/22/2010) from $7,312 to $32,902 for a family of 4 making $120,00 (the IRS report discusses a family of 5 and a number of other ignored case studies). This only accounts for regional cost and age (not health status or things like being a smoker). This is for a “silver” plan, the IRS study is for a “bronze” plan, yet the average of $20,000 is about the same for the “bronze” plan.
You may have seen a 12% as the max you can pay for insurance, this is if you purchase insurance through the exchange and make under the 400% FLP (This is from memory right now, there is a chart in the bill, if you do a find for FLP it’ll pop up).
The IRS report essentially says this, “single filers will pay less than 8% (that number is for everyone not just those under the FLP) while especially higher earning families will pay more”. This includes employer based health insurance, of course you won’t be paying the full cost of insurance here so calling it unaffordable doesn’t seem right since this isn’t the actual cost to the employee (as far as we can tell).
Let’s face it things are confusing, not just for you or us but to everyone, we are still trying to go through the documents and figure out what isn’t being reported. One AP story with a catchy headline breaking a complex document down into a short op-ed does little to help people understand what is actually going on.
Lastly we would point out that the AVG. family who got employee based insurance in 2011 paid a little over $19,000. Based on that study we don’t see a significant rise in cost at all, considering the report is a projection of 2016.
So what can we tell from this report, that remains to be seen. Only time will tell how ObamaCare affects the cost of premiums, but one thing is for sure we are paying for better benefits and better coverage.
The penalty for employee who doesn’t use the exchange is $2,000 while the penalty for those who do is $3,000. The law States that the employer must pay no less than 50% of the employees premium.
Affordable Health Insurance
Currently the average American pays about 20% of their income for health insurance.
ObamaCare’s standard for affordable health insurance is 8%.
The Average cost of insurance for a family of 5 making $120,000 would pay $20,000 for insurance in 2016.
The cost to that family was deemed unaffordable at 16.7% of their income. This is 3.3% less than the current national average.
Updates on the IRS and ObamaCare
We will give you more details and facts on the IRS’s predictions for the cost of insurance as more information becomes available. UPDATE: After reading more on the report, they have taken into account a number of case studies. Some of which fall under the mark of what is considered “affordable” while others fall over the mark. The bottom line is that the media had chosen the most drastic scenario, reported it inaccurately as an “Average” family and left out the rest of the report which involves actual “average” families who will pay less.
We have a long way to go with making the cheapest plan on ObamaCare more affordable, however without taking the whole IRS report into account we learn little to nothing about the true cost of insurance under ObamaCare.
ObamaCare IRS Report Explained