March 8, 2014:
Dawn and Nick LaPolla of Fair Oaks are solidly middle class, and they aren’t uninsured.
Yet their required switch to a new health insurance plan under federal changes puts them at a financial crossroads.
If they earn less than $94,200 a year, the family of four’s preferred plan through the California health exchange would cost about $750 a month. But if they make even slightly more, they’ll pay about $1,040. That’s because they would exceed the threshold to qualify for federal subsidies. Their current high-deductible plan, which expires in two months, costs $573 a month.
Unlike wealthier state residents who more easily can afford the new, often more comprehensive plans, or lower-income people aided by government subsidies, the LaPollas are part of a sizable segment of Californians slowly coming to grips with dedicating a greater percentage of their income to new policies.
“It’s completely unfair,” said Dawn LaPolla, 40. “Wouldn’t you consider us still part of that struggling group? We’re not buying yachts. We’re not going on trips every year. We’re not putting our kids in private schools. We’re not buying Fendi bags. We’re still unsure whether we will be able to pay our mortgage.”
For the vast majority of residents, the Covered California subsidy isn’t an issue. Low-income residents receive health insurance through Medi-Cal. Millions of others have insurance subsidized by their employer.
Through the exchange, subsidies are available for those making up to four times the federal poverty level. Eighty-six percent of those enrolling are getting some form of financial assistance. That means hundreds of thousands of Californians would be better off financially if they made a little less money because of the sharp income cutoff.
In addition to families like the LaPollas, at least 1 million of the state’s estimated 7 million uninsured residents won’t be eligible for subsidies if they purchase health care through Covered California because they earn too much, according to a Sacramento Bee review of census figures and Affordable Care Act guidelines.
Of those, at least 240,000, or nearly one in four, would qualify for subsidies if they made $10,000 a year less. More than 9,500 people who barely miss out on subsidies live in the Sacramento region.
A study before the new law took hold found that the proportion of income dedicated to health care spending varied widely. Half of non-elderly Californians spent 2.4 percent or less of their income on health care, including out-of-pocket services, while 10 percent spent 18.9 percent, according to researchers at the nonpartisan Urban Institute.
Health policy experts recommend spending no more than 10 percent overall on health care. In the LaPollas’ case, the discrepancy between obtaining a subsidized “silver” plan, the second cheapest and most-chosen alternative, or paying the full cost themselves is considerable. They’ll pay either 9.45 percent or 13.25 percent of their income on premiums alone.
Experts say the problem could be addressed without adding costs by expanding subsidies to those making more than four times the federal poverty level, while paring back premium assistance for lower income levels. But right now, many on the cusp of receiving financial aid, particularly those in their 50s and 60s, stand to pay significantly more than those who are subsidized for even the cheapest plans.
A 58-year-old earning $46,000 a year and living in Bakersfield would pay about $5,075 a year, or 11 percent of his pay, for the most-affordable plan. If he made $45,000 a year, he would pay $2,570, or 5.7 percent of his income, for the same plan.
A household of three, ages 16, 45 and 46, earning $80,000 and living in San Jose would pay $8,928 a year, or more than 11 percent of their income, for one of the cheapest policies. At $75,000 a year, the cost would drop to $4,512, or 6 percent of their income.
The numbers are estimates using the state exchange’s shop-and-compare tool, which is based on the federal poverty level for 2013.
Frank Gallo, an insurance broker in Burbank, said he recently helped a client find a health plan and had to give her some bad news. She earned $52,000 a year, too much to receive subsidies, and her advancing age pushed the quoted premium to more than $8,000 a year, about 15.4 percent of her income.
That’s well beyond what health policy experts consider affordable.
“It’s a little bit upsetting for them,” Gallo said. “They say, ‘I barely make a living and I don’t get any aid?’ They are caught in the middle. They feel they would like to have insurance, and some have had it, but now they see the cost is higher and they don’t have the aid to pay for it.”
While many of the new plans are more robust, they often come with unneeded services. Gallo said his client is in her early 60s, and has no use for maternity and newborn care. The new exchange plans also must cover mental health and substance use disorder services, preventive and wellness assistance as well as certain pediatric care.
Karen Pollitz, a senior fellow at the Kaiser Family Foundation in Washington, said the current subsidy levels are on the mark. The new coverage is more protective and comprehensive than virtually any plans on sale last year, she said.
Pollitz urged customers to take a more holistic view of their health care spending rather than comparing only the premium amounts from this year and last. Some with expiring policies were taking advantage of relatively low first-year rates that would have spiked regardless of whether the overhaul took effect, she said.
A recent analysis by Mountain View-based eHealth, the nation’s largest online health insurance broker, found that the cost of an individual plan in California outside the state exchange rose to an average of $331 a month from $196 a month a year ago.
For those with plans on and off the exchange that trend is unlikely to repeat, Pollitz said.
“I think the only comfort for them – and it might not be much – is they have moved to a new premium glide path,” she said. “Even if they didn’t experience it directly, they need to know that there was tremendous volatility.”
Jamie Court, the president of Consumer Watchdog, said the onus should be on insurers to bring down rates.
“Subsidies mask the fact that the rates are too high and people are paying too much,” said Court, whose organization is sponsoring an initiative on November’s ballot that would require health insurance rate hikes to be approved by the state insurance commissioner.
“We created this law because people had to to choose between paying the mortgage and paying for health insurance so they didn’t go bankrupt from medical bills,” Court said. “Now some of them need to make new choices: Should they work or cut back in the labor force to get the subsidies?”
Anne Gonzales, a spokeswoman for Covered California, said working with financial planners or tax professionals could help customers receive subsidies and save thousands of dollars. Reducing taxable income by increasing retirement savings is one option, she said.
“There is no reason why somebody should have to pay 10 percent of their income for insurance,” Gonzales said. “So we encourage people to use this as an opportunity and to become aware of their options.” She noted that families whose lowest-cost premiums exceed 8 percent of their income have the opportunity to buy less expensive catastrophic coverage.
Seated at her kitchen counter one recent morning, Dawn LaPolla opened a folder full of research on her family’s health insurance options, which she described to friends on Facebook as the “Middle Class Cliff of Doom.”
A trained graphic artist, she designed an image of a family of four standing on the edge of a ravine. The couple had originally narrowed its options to plans from Anthem Blue Cross and Kaiser Permanente that pay 70 percent of the average costs. But all options remain on the table, including buying the less comprehensive catastrophic coverage.
Their company, Red Zebra Media Inc., is geared toward online marketers, and business is unpredictable. Two years ago, the family’s income was slightly less than four times the federal poverty level. Last year, it exceeded the threshold, but they dipped into an IRA to cover expenses.
Nick LaPolla, 44, said the family would almost certainly consider reducing orders at the end of the year if it appeared the extra money would put them over the edge – and they didn’t expect to receive a large windfall.
“It’s such a steep penalty for making more money,” he said. “Basically, the guy that works a little harder is really just giving himself a pay cut.”