Q-and-A: How the health law penalty takes its bite

Wednesday, March 26, 2014 | 5:11 p.m. CDT

WASHINGTON — The new health care law helps some people, hurts others and confuses almost everyone. Hoping to simplify things a bit, The Associated Press asked its Twitter, Facebook and Google Plus followers for their real-life questions about the program and the problems they're running into as the March 31 deadline approaches to sign up for coverage in new insurance markets.

Two of their questions and AP's answers:

When you lose your plan

Q: "My premium AND my deductible are doubling ... in order to comply with Obamacare — I liked my coverage before, and I was promised repeatedly I could keep it. My husband is self-employed so we don't get the breaks big corporations do. My question is how are self-employed people supposed to afford insurance under the 'Affordable Healthcare Act'?" — Amber Wiser Thompson, St. Clairsville, Ohio.

Her story: When she posed the question, she and her self-employed husband were facing soaring costs for a new health plan starting this month. Their insurer was discontinuing their old plan because it didn't meet standards of the Affordable Care Act. The insurer's replacement plan cost $1,100 a month with a $5,000 deductible — in both respects, twice what they've been paying. More than 4 million Americans similarly found themselves scrambling for new private coverage when their old plans were pulled from the market because they didn't comply with the nation's health care program.

A: Instead of accepting a new and more expensive replacement plan from an insurance company that discontinues your policy, shop for coverage on the exchange, see if terms are better than you have now — and check whether you qualify for a subsidy.

What happened: The Thompsons did just that and found a policy on the Ohio exchange that headed off the big cost increase. It's also from the same insurer. "I have an almost identical policy with the same premium and deductible that I did before," Amber Wiser Thompson said.

There's a catch though. Their costs stayed about the same only because they qualified for a tax credit on the exchange. Because her husband has gone into his own business, the family's income this year is highly unpredictable. If her husband makes too much money, the couple will lose their subsidy and see their costs jump after all. In that case, they may have to pay back thousands of dollars.

"It seemed to be something I just couldn't get around," Thompson said. "I researched and filled out applications and was on the phone for about three days to get to this point."

Once she found the new policy, she learned that she and her husband might have been able to keep the old policy after all because it apparently was being extended at the last minute. But she decided to go with the new coverage, she said, describing her situation in a phone interview and emails. "There was no way I was going through that again, so I left well enough alone."

When the penalty hits

Q: "If I don't sign up, when does the penalty start to affect my wallet? How much is the penalty? How is the penalty collected?" — Shanna Derringer, Manning, S.C.

A: You're likely to feel the penalty in early 2015, when you file your taxes for this year. That's when you're supposed to verify to the IRS that you've got coverage. (If you don't make enough money to have to file a federal tax form, you don't need to buy coverage under the law.)

The penalty for this year is $95 for an individual or 1 percent of income over $10,000, whichever is greater. So someone who makes $30,000 in 2014, let's say, could be charged $200.

The penalty jumps after that. In 2015, it'll be $325 for an individual or 2 percent of income, whichever is more. In 2016, $695 or 2.5 percent.

There are caps involved and different numbers for families making the math even trickier. But why do math when the Tax Policy Center will do it for you? Plug in your income and dependents here and see:

As for how it's collected, if you are due a tax refund, the IRS can deduct the penalty from what it gives back to you. Otherwise, the IRS will tell you what you owe. One more thing: The government considers how many months during the year you've been without insurance. So if you lacked coverage for half the year, you could be subject to half the penalty.

More detail on who needs insurance and how the penalty works:


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Mark Foecking March 26, 2014 | 6:46 p.m.

"The Thompsons did just that and found a policy on the Ohio exchange that headed off the big cost increase. It's also from the same insurer."

I'm suspecting this is not at all uncommon (I can buy a very comparable policy to my MU insurance, from the same insurer, on our exchange for perhaps 10% more than the total cost of my insurance). I think it's going to come out that many insurance companies have played the ACA rollout to get people on more profitable policies (and keep them off the exchanges).

Insurers are heavily regulated because of stuff like this. They're one of the sleazier industries in the US (rescission is one of the more recent pre-ACA abuses, there are many others). It's funny how some portray them as innocent victims in all this.


(Report Comment)
Michael Williams March 26, 2014 | 10:10 p.m.

MarkF: Many insurance companies did exactly that....they allowed small businesses to re-enroll BEFORE their annual re-up dates, essentially at current rates. If the small business waited for their re-up dates, premiums were going through the roof.

I did this. My re-up date was Feb 2014. I re-enrolled back in November 2013 with no change for 2014. Kept me off the exchange.

Today, I had another generic medication double in price from last month........That's twice.

Also, in case you did not see it, one of our personal physicians sent us a letter saying he was going boutique. Can you say "stratification of health care?"

(Report Comment)
Ellis Smith March 26, 2014 | 11:40 p.m.

Before these situationns are resolved there will be ample "epiphanies." What might be learned, provided it hasn't been already, is to put little faith in promises.

I've got a soft rock song from the late 1970s on my mind. I recall it was written by Ken Loggins and Michael McDonald and was performed by McDonald and the Doobie Brothers, and that it was at the top of the charts for at least a week, but I can't remember the TITLE. It won a Grammy. Can anyone help out with that?

(Report Comment)
Mark Foecking March 27, 2014 | 1:59 a.m.

MW, generally speaking, physicians go boutique because they're tired of dealing with insurance companies, not necessarily anything to do with the ACA. I've seen several articles on this from before 2010 to now (some in medical journals) and rarely if ever is the ACA mentioned. It's always the cost of dealing with insurance. I'm also not sure if boutique physicians will be a large part of care.

Medication cost increases, similarly, can happen for all sorts of reasons and we can't conclude that every cost increase is a result of ACA. People had their policies canceled or rewritten all the time before ACA also. Cost increases in health care have been happening for decades.

It has been so difficult to find numbers of people adversely affected vs those not, and everything you read has some sort of political slant, but I'm not sure this law is having that much of an overall effect. The targeted population is perhaps 5% of Americans, and 80% or more are not directly affected at all. I'm willing to give this a year or two of non-judgmental observation before I conclude it's been a success or failure.


(Report Comment)
Ellis Smith March 27, 2014 | 7:06 a.m.

Mark & Michael:

Mark says that medication cost increases can happen for a variety of causes. In my opinion that statement is beyond any argument. I'm going to cite a situation. As new medications for certain ailments come into the marketplace* there's a tendendcy to prescribe them. There may be good reasons for soing so.

I am very fortunate that at age 81 I only require one prescription drug. I've taken this drug for more than 25 years, and it is so relatively inexpensive that I haven't carried Part D Medicare insurance, because the annual premium was pretty much the same as my cost for that medication.

Recently, tests show the medication MAY now be adversely affecting an important organ, so I am on another medication. The daily dose of the new medication is only 50 mg, whereas the previous one required 600 mg daily; the cost of the new drug is about 4 times more.

Would you believe I am now interested in Part D insurance coverage?

I can afford to pay either the old or new situation out of pocket, but there's no question that there are Seniors who can't. I do agree with those who say that drug costs may be bumped up partly as the result of ACA.

Does it bother either of you guys that health costs and higher education costs have risen faster than overall inflation? Stop me if I'm wrong, but we haven't experienced double digit overall inflation in the United States since the final two years of the Carter administration.

The ads on daytime TV are fascinating. It's either advertizing prescription drugs or its trolling by law firms to sign up victims of medications, surgically-used devices, joint replacements, mesothelioma, etc. The latest issue is the drug "Risperdal" and gynacomastia (spelling?).

*- I wonder whether the population at large understands this, but as new drugs become available they are patented and there's a tendency for their manufacturers to spend on public-oriented awareness ads that the drug is available ("Ask your doctor about _____ and how YOU can receive a free (or low cost) trial sample.") If the new drug is under patent protection there's not apt to be a LEGAL generic substitute for awhile.

(Report Comment)
Mark Foecking March 27, 2014 | 7:34 a.m.

Ellis Smith wrote:

"Does it bother either of you guys that health costs and higher education costs have risen faster than overall inflation?"

That is a huge issue, and I think we agree that it's because of abundant funds to pay for them.

A very good argument could be made that the cost of health care would be much lower if there was no health insurance, and people had to pay for everything out of pocket. Would that have an effect on what health care was available? Would a surgeon not do an operation for $10,000 that he'd ordinarily get $50,000 for, or would it evolve to where surgeons would accept the lesser payment because that's what the market will bear? Would medicine return to a simpler delivery system, without as much high tech? Would the boutique model generalize itself to where there are low cost providers and higher cost providers, or even separate levels of practitioners (as in China)?

The law of diminishing returns applies to medicine as well as anything else. Increasing the certainty of a diagnosis from 90% to 99% might increase the cost two or three fold, and going to 99.9% might increase it even more. Same with treatment for various conditions. Because most people have insurance, they don't consider the cost of these diminishing returns - they pay their copay and don't worry about the rest, but this makes health care vastly more expensive for little additional benefit.

I think this is where single payer shines - people who need specialty care may have longer waits and less availability, but people that need more routine care can get it more easily and cheaply, and that's typically a lot more people. Everything is a tradeoff, and the focus should be on what our health care priorities need to be. I'm not sure they're in a sustainable area right now.


(Report Comment)
Michael Williams March 27, 2014 | 8:28 a.m.

Mark and Ellis: You both wrote so many thoughts, I'm unable to keep up with just one post. Besides, the grandkids are coming over. So, I'll just comment that I completely agree with Mark's statement, "I think we agree that it's [education and medical costs] because of abundant funds to pay for them."

The market ALWAYS responds to enhanced availability of money.

MarkF: Our letter from the doctor specifically mentioned the ACA. I have also talked to our pharmacist about recent increases in generic drug costs. He, too, mentioned the chaos of the ACA....the unknowns. 'Tis true, tho...these comments should be considered anecdotal.

My prediction is that the boutique model will gain in strength. However, the main push will be a boutique model involving organizations of MANY specialties, not just individual doctors. For example, you might see a ob/gyns team up with surgeons, endocrinologists, psychiatrists, nurses, breast-feeding educators, chiropractors, and pediatricians to provide boutique services for expectant mothers....even to the point of having a mini-hospital in which to do it all. Such a practice would be patient-limited, closed to anyone unwilling to sign up and pay, and certainly closed to any form of insurance. My daughter is in med school, and she's already talking about such things.

Personally, I see even MORE stratification of medical services. There's gonna be some HUGE fights between the government and doctors that involve refusal of services, legal battles, attempted coercion, and penalties. However, the gov't needs to can make people work, but you can never get their good ideas, and you can never make them work efficiently. Individualistic folks tend to get their backs up and resist....the same ideals that allowed our ancestral migrations still persist in the US.*

Whatever the case, I see chaos as the main difficulty with the ACA. The rollout is one of the finest examples of utter incompetency I have ever witnessed, public or private. We're paying the price right now economically, and that's gonna continue.

*getting weaker, tho.

(Report Comment)
Ellis Smith March 27, 2014 | 9:22 a.m.

Mark & Michael:

Some good discussion, more like what we once saw in both the Missourian and Tribune, and lasting more than one exchange.

Michael is correct that the market responds to availability - or scarcity - of money. It is time certain people acknowledge this and pay more attention to it. Its not difficult to make a case that in order to facilitate some political philosophy while ingoring market realities, things have only been made worse.

Mark, great to bring up the concept of diminishing returns. As with market forces, this is something VERY real and ISN'T going to go away.

From improvement vs. cost required to achieve that improvement, it can reasonable at first, but may not be as additional improvements are attempted. The concept has been presented both graphically and mathematically by Genichi Taguchi (Japan). Verbally it translates into "there's a point on the curve which, when you reach it, says it's not practical cost-wise to go on. What do do? You begin looking at either restructuring or replacing the process.

Like Michael I am pressed for time. My granddaughters are respectively in Chicago and Iowa City, but, having read my Bible and cleaned all my guns, I need to read a book on nanoparticles, nanocomposits and nanomaterials (an introduction for beginners). These particles can have medical applications. We once thought microparticles were small; nanos are three orders of magnitude smaller.

(Report Comment)
Michael Williams March 27, 2014 | 11:40 a.m.

Ellis: Yes, good discussion, but we're missing a lot of bodies. I don't know why, but they've gone AWOL.

The "diminishing returns" argument is familiar to me. I've used it with reluctant deciders who spend 95% of their time trying to get the last 5% of information. It's an "I don't want to be wrong" thingie.

More to the topic at hand, many doctors have been FORCED into this mindset by our lawsuit-happy society.

The sentiment also happens when folks spend 95% of their time griping about 5% of the problem. I believe a good example of this is we spend trillions of dollars trying to turn teachers into the parents of their students.

(Report Comment)

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