Claim Jumping - How to use Obamacare to get more cash
I am writing this to tell you about the individual mandate, which I consider the soft white underbelly of the Affordable Care Act, affectionately known as Obamacare.
An often cited success story for the health insurance mandate and universal healthcare is Massachusetts. Mitt Romney legislated Romneycare in Massachusetts in 2006. Many Massachusetts residents still do not have healthcare or health insurance. A few in Massachusetts (okay 2,659 - 2009) perform what is known as the jump and dump. It's very simple, but will lead to the death spiral (insurers going out of business) due to adverse selection, or insurers paying seriously high claims for very sick people. And in return getting a paltry several months premiums.
In 2009, claims jumping cost Massachusetts $37.3 million. Nationwide, it could cost billions, much more than is generated by the penalty. Assuming the mandate is even enforced and funds are actually collected. Doubtful.
Only billions you say? How did we get to 15 trillion? A billion here and there. Currently we are Fitch's credit negative watch which means they are going to probably lower our rating (like S&P already did).
Good news: You will be happy to pay the relatively low Obamacare mandated penalty (compared to high health insurance premiums), and wait until you actually need an expensive treatment or procedure. You patriotically pay your premiums until your treatment or procedure is done, then cancel your coverage.
Death Spiral
How can the health insurance carriers can survive in this environment? To add insult to injury, the government legislated MLR's or medical loss ratios, where the insurer must pay 80-85% of their gross revenue out of medical claims. If the jump and dumpers are pervasive, the cap on medical loss ratios will not be an issue.
$2+ billion may not sound like much to big government, but to private insurers, it's a huge ANNUAL hit on earnings, They cannot print their own money. They would have to raise the premiums to make up for those losses, and as premiums rose still higher, less people would enroll. A vicious circle.
We know the insurers will be crying for momma, but how you be sure to profit from the coming mandatory penalties?
Adjusted Gross Income
Before we get into the math, the penalty is based on AGI or Adjusted Gross Income which is calculated as your gross income from taxable sources minus allowable deductions, such as non reimbursed business expenses, expenses, alimony and deductible retirement plan contributions.
Also referred to as "net income."
Do the math
If you reduce the decision to be insured medically to a mathematical equation (ethics and patriotism aside) barring an emergency, you will come out way ahead to jump in and out of the Obamacare exchanges.
When doing the math for this presentation, I determined that if you were single and made anywhere from $16,245 to about $275,000, it would behoove you to jump in and out of the health insurance exchanges, since insurers under Obamacare must accept you. That range in income covers about 98.5% of the American population as of the census numbers back in 2005. Under these income limits, you would qualify for Medicaid, which is substandard and has long wait list. But that's another of the many reasons to jump and dump Obamacare.
The estimated average health insurance premium is about $7,000 per person per year.
The math is not overly complicated, which is why I can't understand how the politicians could miss this, c'mon, they think like thieves! The penalty for being uninsured as of 2016, is $695 or 2.5% of your gross income, whichever is greater:
One caveat, the penalty increases incrementally on a dollar basis for each adult in the household up to 3:
1 Adult
2 Adults
3+ Adults
2014
1% AGI/$95
1% AGI/$190
1% AGI/$285
2015
2% AGI/$325
2% AGI/$650
2% AGI/$975
2016 +
2.5% AGI/$695
2.5% AGI/$1390
2.5% AGI/$2085
Source: Bill: PPACA; Page: 317-337
It's much easier if you take your current AGI or adjusted income, multiply by .025 (2.5%) and determine if that number is higher or lower than the $695 penalty in Obamacare.
I used the 2016 numbers because that was the highest penalty for not complying with the Obamacare individual mandate. Lower penalties would encourage even more "noncompliance."
For instance, let's say you earn the median income back in 2003, $45,018. In 2014, the penalty for not having health insurance will be 1% of AGI or $450.18. Now the subsidy or government tax credit you would get at that income level is $1,332. With health insurance at an estimated $7,000, minus the $1,332 you would pay $5,609 or over 1200% more than the penalty. Which would you rather pay a $450 penalty or $5,609 in health insurance?
It's like the Jimmy Fallon commercial I just watched where "99.9% of people like more cash."
2015, the Obamacare individual penalty is 2% of AGI, or 900.16. vs. $5,609 in un-subsidized insurance premiums or savings of $4,708.84 PER YEAR.
2016, the Obamacare individual penalty is 2.5% of AGI, or $1125.45. Still a savings of $4,483.55 or almost 75%. remember, you are only making $45,018 in this example, so you are saving almost 10% of your income by incurring the penalty. Calculate your own health insurance subsidy.
Do you think Americans will be patriotic enough to pay the extra $4000 plus per year? Or they will they wait until they need an expensive treatment or medical procedure, then enroll?
And single-payer will not solve this problem because like private health insurance, government can not afford it, even with much deeper pockets.
And the penalty does not go to bail out the health insurance carrier. It goes towards government expansion. There is a cap or rebate on excess profits (Medical Loss Ratios - MLRs), but no cap on losses. You can even be relieved of the comparative paltry penalty if you are a religious objector, illegal immigrant, prisoner, earning less than federal property limits, are verified member of an Indian tribe, and/or have financial hardship (determined by HHS).
And 4 million Americans are anticipated to pay the penalty on Obamacare the 1st year 2014. That will generate $380,000,000 if they enforce the mandate and can collect from the evil ne'er-do-wells. It is probable that some of those Americans will need an expensive medical treatment or procedure. And those losses will be in the billions. Some will call for Single payer, claiming Obamacare did not go far enough. If they are successful, it will add to our sizeable debt.
Possible (band aide) solutions to the claim jumping problem include a narrow opening enrollment window (Massachusetts has 45 days), or surcharge when people enroll and use services right away. Maybe an enrollment period.
There are many other glaring flaws in Obamacare and reasons a person would jump and dump. Maybe you didn't like the services that your insurance dollars would go for, or the health rationing aspect. Politicians that think they know better than you about you! But while they can litigate price fixing on health insurance, Medicaid and Medicare, they can't legislate quality.
Breaking the law
It's not just a Judas Priest song anymore. Come 2014, nearly 4 million Americans will be criminals. Even though claim jumping smacks of "cheating the system" I read about the sponsors of the Bill Harry Reid and Nancy Pelsoi making millions off insider trading deals involving their legislation. If that isn't cheating the system, I don't know what is. Two wrongs don't make a right, but should politicians expect us to be honest while we are being fleeced with countless new taxes, "penalties," and regulations?
Is it a double standard, to ask Americans to buy an overpriced product from a private company, make them criminals if they don't, while politicians from both parties get sweetheart deals from wall street. One of the few things I agree with OWS on.
But without an impossibly high penalty or health insurance prison, there will still be widespread non compliance. Even then, American's aren't easily bullied, even by big government.
Is it wrong to violate a law where the government criminalized non activity? Obama included the financing on millions of lawbreakers to help pay for the "Affordable Care Act."
Laws are only effective if they are enforced. The individual mandate in Obamacare should be renamed the individual suggestion, since there's no penalty compared to what the insured is "saving" once they enroll and get actual medical care. And it has yet to be determined if the mandate is even constitutional.
A couple final observations. There are many many people in the US that don't believe in insurance. 20% don't even have auto insurance. So the mandate will be an evil penalty because they don't want or need insurance. To each his own. But they won't be ahead from the mandate. Instead they'll have their credit damaged. Anyone think about what ruining the credit of 4 million Americans might do to real estate?
Serious Accidents
Bad accidents or emergencies are all unplanned. There is simply no way to avoid at least one in your lifetime. And they can ruin you financially. Never say never. Horrible things happen in a fraction of a second. For Profit Hospitals may charge up to 700% more for the uninsured. The ER is typically where most uninsured (and many Medicaid participants) get their care.
Medical bills are the cause of over 50% of bankruptcies in the US. You can be sued, have a judgement against you, and have that judgement renewed every 10 years here in California. If you have your own business, it's harder to collect from you. If you are an hourly wage earner, it's fairly easy, unless you move from job to job.
The insuranceless and emergencies aside, it's still over a year until the guaranteed issue portion of Obamacare kicks in. Should you have coverage until then? If you can afford it, yes. Get rates at the top. Be well. And pray the Supreme court keeps the mandate. You can't argue with Christmas quality (for now) at a Hanukkah price!
Recommended Obamacare / PPACA / Affordable Care Act Links:
Craig Casey is an Writer, Coach, Blogger, Husband, and Former Health Insurance Agent helping people on the web since 1999 with their health insurance problems.
