To buy or not to buy Obamacare insurance – a handy calculator

The Obamacare exchanges open up on October 1, or at least that’s the plan – technical glitches could always delay the opening for a few days or even weeks, but it seems almost certain they will open in October. Once open, individuals and families will be able to shop for health insurance plans, as well as find out if there are any subsidies available. Although people can sign up for coverage starting in October, the coverage won’t actually begin until January 1, 2014.

While there’s a great deal of controversy surrounding Obamacare and the exchanges, and competing voices are urging people to either enroll or avoid the exchanges, each individual and family is ultimately going to have to decide for themselves what the right course of action is, including many of the tens of millions of currently uninsured Americans who are currently self-pay patients. For many enrolling is probably the best option available, while for others remaining uninsured as a self-pay patient may make more sense.

One factor that some are probably going to want to consider is whether the premiums they have to pay for insurance purchased on the exchange is more or less than the penalty tax that many of the uninsured will have to pay. I’ve done some research in the past on this topic, producing a report addressing the tradeoff between premiums and the penalty tax in Rhode Island

Until recently though, there was no easy way to find out what that tradeoff would be for most individuals and families. Yesterday though, the blog Political Calculations released a calculator that is designed to take into account premiums, household composition, income, subsidies, tax penalty levels, and all the other little details that determine what people will pay (having done a simplified version of this myself, trust me when I say it’s not easy!), and answer the question “Is it cheaper to pay the penalty or buy insurance?”

I can’t reproduce the calculator on my site,* but if you’re interested in making the comparison for yourself you can go here:

          Obamacare: Should you pay the premium or the tax?

Two quick notes to keep in mind regarding the calculator, and the decision of whether or not to buy insurance through an Obamacare exchange.

First, the calculator does not account for the fact that the penalty does not apply to individuals or families for whom the lowest-cost ‘Bronze’ plan is more than 8% of income.* So if the lowest-cost ‘Bronze’ family premium costs $8,000 but the family earns $90,000, then there is no penalty. Other than this little glitch though, which is easy enough to calculate on your own, the calculator will provide valuable information for people to consider.

Second, while the comparison between premiums and the tax penalty is important for many, there are other factors that are just as important. Someone who is generally in poor health and expects to have significant medical expenses definitely needs to keep that in mind when looking at the potential ‘savings’ of remaining uninsured. It may very well be that buying insurance on the Obamacare exchange is the right choice even when paying the penalty is significantly less than premiums.

Likewise, people need to consider the out-of-pocket costs based on the plan’s deductible and co-insurance. For someone in good health, it may not make a lot of sense to pay $2,000 for a policy that has a $6,000 deductible, meaning that they’d have to shell out $8,000 before they’d get much in the way of benefits from their policy.

A while back I read about an official at one of the state exchanges explaining that they’d try to get young people to buy insurance by telling them that it would protect them in the event of a knee injury from playing basketball. I ran the numbers, and it actually turned out that most young people would probably be financially ahead if they simply paid directly for their medical care instead of paying insurance premiums and then paying the $6,000+ deductible before insurance started picking up the tab, especially when considering the savings over a few years (and assuming the person doesn’t injure their knee every year!).

These are just a few of the factors to be considered, and as I said each individual and family is going to have to come to their own decision. So be sure to consider everything when deciding whether or not to buy insurance through an Obamacare exchange, or whether to find an alternate way of covering yourself in the event of a major medical need such as a health sharing ministry or a fixed-benefit policy or some other option.

*UPDATE: I’ve been told by the calculator’s creator can be embedded on this site, and also that it will be revised next week to reflect the exemption from Obamacare’s mandate to purchase insurance if premiums exceed 8% of income. I will publish a new post next week with the revised calculator included.
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4 Responses to To buy or not to buy Obamacare insurance – a handy calculator

  1. I’m fussy about one thing. I tell everyone to call the tax a tax. The SCOTUS told us what you must pay for not buying insurance on the exchange is a tax and that has some importance. The purpose of taxes is to raise revenue, not to be punitive. Fines or penalties, though, by their nature are punitive. It is much more likely that a court would rule a tax excessive and punitive as the basis for its elimination than a fine or a penalty. Thus if not enough young people sign up for insurance the government may be limited on any attempt to raise the tax so high as to tip the balance, making the premium cheaper for just about everyone.

  2. Anonymous says:

    I’m so confused… i recently lost my job which had health insurance so i didn’t quite pay attention to this obamacare crap… can someone please explain this pay or not pay a little better?

    • seandparnell says:

      Well, everybody’s situation is different, depending on your income level and premiums, the IRS may decide you owe them a tax if you don’t purchase health insurance. I’d suggest going directly to the calculator linked to above (which I now see I never did get around to inserting on my site in a fresh post – add that one to the ‘to-do’ list), typing in your specific information, and seeing what the numbers say. The decision to buy or not buy insurance, or find some alternate form of coverage like membership in a sharing ministry or buying short-term insurance, isn’t just a financial one – you’ll probably want to consider your own health needs as well, and your comfort level with either being uninsured or having an alternate form of coverage. My best advice is to do whatever lets you sleep best at night!

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