Sorry Chapmans, the subsidies can't help you
Matthew Martin 12/21/2013 03:55:00 PM
"Experts consider health insurance unaffordable once it exceeds 10 percent of annual income."I'm with Mankiw: WHO ARE THESE EXPERTS? 10 percent of your income is totally arbitrary, and no actual expert would have told them this. Mankiw goes on to note that if we take the New York Times literally, they are claiming that the ACA imposes an effective marginal income tax above 100% on the Champman family. That is, the Chapmans make "around" $100,000 per year, and as a family of four their monthly insurance premium is "about" $1,000 a month, and according to the New York Times--with no citation given--they would be eligible for subsidies equal to exactly half of their monthly premium if they earned only $94,200 per year:
"If they made just a few thousand dollars less a year — below $94,200 — their costs would be cut in half, because a family like theirs could qualify for federal subsidies."So, doing the math, they get a $6,000 subsidy for reducing their income by $5,800, for a marginal tax rate of more than 103%. That is, starting at an income of $94,200 per year, if they increased their pre-tax earnings by $5,800 per year, their after tax income would actually fall by $200.
As Mankiw says, that's pretty hard to believe. The New York Times does not tell us where they got this information, but I assume it's from the same "experts" as the above quote. So, I went over to the actual experts at the Kaiser Foundation and ran the calculations. For a family of four in New Hampshire earning $100,000 a year, their insurance premium costs about $11,296. That's less than the "about $1,000 a month" that the Times reports, but there's variability between plans and Kaiser's number is just an estimate. So, I will give them a pass on that. They earn more than the 400 percent of Federal Poverty Line, which is the threshold at which all subsidies are cut off. The Times got the uncharacteristically precise figure of $94,200 simply because that is exactly the cutoff threshold, the maximum income they could make and still qualify for any subsidies. I plugged in the same data--a family of four from New Hampshire--but with the lower income level, and Kaiser showed their subsidies at $2,347, which is 60 percent less than what the Times reported. The effective marginal tax rate is way less than the 103 percent the Times implied, closer to 40 percent.
Now, if we had the exact premiums they are paying, rather than using Kaiser's estimates, we could actually caculate the maximum subsidy the Chapmans maximum possible subsidies--the law says that if their income is less than $94,200, their premium will be capped at 9.5 percent of their income, or $8,949 per year. But the Times only says that the premium is "about" $12,000 per year. Even so, that's a maximum subsidy of $3,051, barely half of the $6,000 the times reported. And while the subsidy can't be larger than this statutory limit, it could actually be much lower, for a variety of reasons (subsidies are actually caculated based on average premiums in the area, among other things--adjustments that Kaiser's calculator does not account for).
In other words, the New York Times is full of crap. And it would have taken the authors hardly more than a minute to figure out what I just figured out.