Pres­i­dent Oba­ma promised change.  Oba­macare will bring it.  But one of its most far-reach­ing changes has noth­ing to do with health care. 

For the pro­gram to suc­ceed, young peo­ple will have to pay unfair­ly high pre­mi­ums for ben­e­fits they like­ly won’t use and low-income peo­ple will have to spend a good deal of their mea­ger earn­ings on health insurance.

That marks a big depar­ture in the government’s approach to social wel­fare. 

Con­sid­er the fed­er­al income tax sys­tem.  Repub­li­cans and Democ­rats argue a good deal over the system’s fair­ness.  Democ­rats say that high­er income peo­ple aren’t pay­ing their fair share; Repub­li­cans want to cut everyone’s rates, includ­ing those for top earn­ers.  Whether you think that high­er income peo­ple pay too much or too lit­tle, one point is inar­guable: the bur­dens of financ­ing the fed­er­al gov­ern­ment fall large­ly on the top 50 per­cent of taxpayers. 

The IRS ear­li­er this year report­ed that the gov­ern­ment col­lect­ed near­ly $949 bil­lion in income tax­es in 2010 (Table 5, p. 57).  Those pay­ments were not dis­trib­uted even­ly among the 135 mil­lion fil­ers (Table 5, p. 56).  The bulk of the col­lec­tions — $927 bil­lion – came from just half of the fil­ers (Table 5, p. 57).  The bot­tom half – over 67.5 mil­lion house­holds – pro­duced just over $22 bil­lion in tax­es, an aver­age of $331 per house­hold, com­pared with the aver­age of $13,727 paid on aver­age by house­holds in the top half. 

The OECD has observed that the US has the most pro­gres­sive direct tax sys­tem (includ­ing income and pay­roll tax­es) among devel­oped coun­tries.  Its bur­dens are dis­pro­por­tion­ate­ly shared.  We don’t expect peo­ple with below-aver­age incomes to bear much of the cost of gov­ern­ment or of the pro­grams from which they benefit.

Oba­macare will devi­ate from this famil­iar pat­tern by requir­ing house­holds that pay lit­tle or noth­ing in income tax­es to pay a sig­nif­i­cant share of their income for health cov­er­age.  These costs are often over­looked and sel­dom under­stood.  I’ll ignore Med­ic­aid, since a num­ber of states have cho­sen not to expand Med­ic­aid cov­er­age.  Instead, I’ll focus on sub­si­dized health cov­er­age avail­able through the exchanges. 

Peo­ple with incomes between 100 per­cent and 400 per­cent of the fed­er­al pover­ty line will pay no more than a fixed per­cent­age of their incomes for health insur­ance cov­er­age.  The Pres­i­dent often cites these sub­si­dies as mak­ing cov­er­age afford­able.  They do reduce pre­mi­ums.  They also require peo­ple of mod­est means to spend sig­nif­i­cant shares of their own income on health insur­ance.  The table below sum­ma­rizes what Oba­macare will require house­holds at var­i­ous income lev­els to pay for health cov­er­age [1401(a) of PPACA, which cre­at­ed IRC 36B(b)(3)]:

Indi­vid­ual				Fam­i­ly of 3
Income	Pre­mi­um	Pct Income		Income	Pre­mi­um	Pct Income
$11,490	$230	2.0%		$19,530	$391	2.0%
$15,282	$458	3.0%		$25,975	$779	3.0%
$17,235	$689	4.0%		$29,295	$1,172	4.0%
$22,980	$1,448	6.3%		$39,060	$2,461	6.3%
$28,725	$2,312	8.1%		$48,825	$3,930	8.1%
$34,470	$3,275	9.5%		$58,590	$5,566	9.5%
$45,960	$4,366	9.5%		$78,120	$7,421	9.5%

Oba­macare is a pret­ty good deal for peo­ple clos­est to the fed­er­al pover­ty line ($11,490 for indi­vid­u­als, $19,530 for a fam­i­ly of 3), par­tic­u­lar­ly if they reside in states that have refused to extend Med­ic­aid cov­er­age to peo­ple in this income group.  Accord­ing to the Bureau of Labor Sta­tis­tics (BLS), house­holds with incomes of between $10,000 and $15,000 cur­rent­ly spend, on aver­age, 4.9 per­cent of their income on health insur­ance (2010 Expen­di­tures Shares Data, Income Before Tax­es).  Sub­si­dies will lim­it this to 2–3 per­cent, depend­ing on house­hold size. 

The deal starts to sour as we move up the income scale.  At $22,980 for an indi­vid­ual ($39,060 for a fam­i­ly of 3), peo­ple are required to pay 6.3 per­cent of their income for health insur­ance pre­mi­ums.  Cur­rent­ly, peo­ple in those income ranges only pay 4.9 to 5.4 per­cent.  These are not glam­orous salaries.  And though peo­ple in this brack­et like­ly receive at least some forms of gov­ern­ment assis­tance, they are liv­ing close to the edge, with things like food, hous­ing and oth­er neces­si­ties crowd­ing out most dis­cre­tionary spend­ing.  Many will strug­gle to squeeze $100 or $200 out of their month­ly bud­gets to pay their sub­si­dized premiums.

While in the cur­rent sys­tem, health insur­ance pre­mi­ums tend to lev­el off at around 5 per­cent as incomes rise, Oba­macare will require peo­ple with incomes as low as $34,470 to pay 9.5 per­cent of their earn­ings for health insur­ance cov­er­age.  That’s near­ly twice the 4.9 per­cent aver­age that peo­ple in the $30,000-$40,000 income brack­et cur­rent­ly pay. 

And should they get rais­es – a pro­mo­tion, a bet­ter job, more hours – they will have to pay more for cov­er­age.  Ris­ing health insur­ance pre­mi­ums will func­tion much like a tax, eat­ing away sub­stan­tial por­tions of their increased wages.  The table below shows how pre­mi­ums rise along with income.  For an indi­vid­ual, for exam­ple, a $5,745 increase in income from $28,725 to $34,470 would result in addi­tion­al pre­mi­ums of $962.  Thus, 16.8 per­cent of that increase in income would have to be paid in health insur­ance pre­mi­ums (what the table calls the “pre­mi­um tax”).  Since pay­roll and oth­er tax­es also rise with income, the work­er is left with less and less of that raise to spend as she pleases.

Indi­vid­ual					Fam­i­ly of 3
Income	Income Inc	Pre­mi­um Inc	Pre­mi­um Tax		Income	Income Inc	Pre­mi­um Inc	Pre­mi­um Tax
$11,490					$19,530
$15,282	$3,792	$229	6.0%		$25,975	$6,445	$389	6.0%
$17,235	$1,953	$231	11.8%		$29,295	$3,320	$393	11.8%
$22,980	$5,745	$758	13.2%		$39,060	$9,765	$1,289	13.2%
$28,725	$5,745	$865	15.1%		$48,825	$9,765	$1,470	15.1%
$34,470	$5,745	$962	16.8%		$58,590	$9,765	$1,636	16.8%
$45,960	$11,490	$1,092	9.5%		$78,120	$19,530	$1,855	9.5%

There’s one more catch for these house­holds: the high­er their pre­mi­ums, the less insur­ance will pay for their care.  Oba­macare gets them com­ing and going, as the table below shows [PPACA, 1402©(2)]. The low­est income indi­vid­u­als will pay $230 annu­al­ly for cov­er­age that will finance, on aver­age, 94 per­cent of the cost of cov­ered ser­vices.  Those who pay $4,366 per year will get insur­ance that picks up, on aver­age, 70 per­cent of the cost of cov­ered ser­vices.  They will pay 19 times more for insur­ance that will stick them with 5 times as much in copays and deductibles (6 per­cent vs. 30 percent).

Indi­vid­ual				Fam­i­ly of 3
Income	Plan Cov­ers	Insured Pays		Income	Plan Cov­ers	Insured Pays
$11,490	94%	6%		$19,530	94%	6%
$15,282	94%	6%		$25,975	94%	6%
$17,235	87%	13%		$29,295	87%	13%
$22,980	73%	27%		$39,060	73%	27%
$28,725	70%	30%		$48,825	70%	30%
$34,470	70%	30%		$58,590	70%	30%
$45,960	70%	30%		$78,120	70%	30%

Had Repub­li­cans writ­ten this law, it might have been called a war on the poor.

And on the young.  Accord­ing to the BLS, the aver­age house­hold head­ed by some­one aged 25–34 in 2010 con­sist­ed of 3 per­sons and had income of $59,613 (2010 Expen­di­ture Sur­vey, Age of Ref­er­ence Per­son).   Under Oba­macare, fami­ly cov­er­age for such a house­hold would cost $5663 (9.5 per­cent of $59,613).  They cur­rent­ly devote just 2.3 per­cent of expen­di­tures to health insur­ance.  It’s true that the unin­sur­ance rate among peo­ple this age is high.  Those with cov­er­age prob­a­bly spend more than 2.3 per­cent on their pre­mi­ums.  But those who lack cov­er­age cur­rent­ly spend noth­ing, which only makes the price tag for cov­er­age – even sub­si­dized cov­er­age – the more daunt­ing.  To go from spend­ing noth­ing on health insur­ance to spend­ing 9.5 per­cent of their income on it is quite a jump.  Under Oba­macare, health insur­ance would be the fourth high­est house­hold expen­di­ture for peo­ple in this age group, behind only hous­ing (36.1 per­cent), trans­porta­tion (17.7 per­cent) and food (13.1 percent).

The end­less back-and-forth between the law’s back­ers and detrac­tors over “stick­er shock” miss­es this point.  Whether Oba­macare will increase or decrease a par­tic­u­lar person’s pre­mi­um is depen­dent on spe­cif­ic facts and cir­cum­stances.  The issue isn’t just price; it’s what peo­ple are will­ing to pay.  And that’s espe­cial­ly true of healthy peo­ple who are young, who earn mod­est incomes, or both.

Which is why the Pres­i­dent has tak­en such a curi­ous posi­tion on man­dates.  He delayed until 2015 the tax penal­ty on employ­ers who refuse to pro­vide health cov­er­age to their work­ers.  But he con­tin­ues to insist that the tax penal­ty on indi­vid­u­als for not buy­ing cov­er­age take effect on Jan­u­ary 1.  Why give cor­po­ra­tions a pass but insist on threat­en­ing work­ing peo­ple with tax penal­ties?  Because work­ing peo­ple might just decide that Oba­macare isn’t quite the deal they’d hoped for.

The Wash­ing­ton Post recent­ly chron­i­cled efforts by the White House to per­suade young peo­ple to buy cov­er­age.  David Simas, who head­ed the Oba­ma campaign’s youth out­reach, is now look­ing for ways to get those young vot­ers to spend their mon­ey on insur­ance cov­er­age.  Accord­ing to the arti­cle, Simas knows:

“which tele­vi­sion chan­nels they like to watch (Spike TV, among oth­ers), which social-media plat­forms they use (Twit­ter, Face­book) and who they lis­ten to (‘No sur­prise. It’s mom.’). ‘We can fig­ure out the mes­sage that works best for this group,’ Simas says.”

Simas also knows that Oba­macare will be a hard sell with young people.

“When they asked in a recent sur­vey whether a $210 pre­mi­um was afford­able, only 29 per­cent of like­ly mar­ket­place enrollees said yes. Then, [the poll­sters] phrased the ques­tion a bit dif­fer­ent­ly. They told the focus group par­tic­i­pants that, with their tax cred­its, they would save ‘$1,908 a year com­pared to what you would pay on your own.‘All of a sud­den, 48 per­cent of the par­tic­i­pants thought that insur­ance was afford­able. But 48 per­cent is still less than half.”

I under­es­ti­mat­ed Simas’s abil­i­ties to turn out the youth vote in last year’s elec­tion.  I’ll not make that mis­take again.  His ana­lyt­ics made polit­i­cal his­to­ry last fall; he may well suc­ceed again this fall when peo­ple begin to sign up for cov­er­age through the exchanges.  This time, he will have not only sub­si­dies and appeals to social respon­si­bil­i­ty in his arse­nal; he’ll also have the threat of penal­ties.  Hence, the President’s insis­tence that tax penal­ties on the unin­sured not be delayed. 

The House vot­ed to delay those tax penal­ties this past week.  In one of those bizarre days that can only hap­pen in Wash­ing­ton, the Pres­i­dent threat­ened to veto a bill offered by House Repub­li­cans to cod­i­fy the one-year delay in the employ­er man­date that his own Admin­is­tra­tion had imple­ment­ed.  He also threat­ened to veto a bill to delay the indi­vid­ual man­date for a year.  Both bills passed with a sur­pris­ing lev­el of sup­port from House Democ­rats.  The Sen­ate may well vote on these bills in one form or anoth­er lat­er this year.

Dur­ing one of the House votes on these mea­sures, a caller to C‑SPAN com­plained about how she had to pay at the pre­scrip­tion counter for her blood pres­sure med­i­cine now that she had been shift­ed from Med­ic­aid to some oth­er form of pub­lic med­ical assis­tance.  She no longer gets the med­i­cine for free.  She found the notion of hav­ing to con­tribute to the cost of her own med­i­cine high­ly objectionable. 

I won­der how she will feel when she finds out that Oba­macare may require her to pay some­thing for her health cov­er­age as well.