Consumers Searching for Solutions Outside of Obamacare

Caught between the high premiums of and the threat of the Shared Responsibility (uninsured) Tax, many Americans believe that they must either pay premiums they cannot afford or go without insurance altogether. Consumers may be surprised to discover, however, that even with the Shared Responsibility Tax, a term health plan can offer the health insurance a consumer needs at a price they can afford

Scenario 1: Family of Four2

Taxable Income: $100,000
Silver Plan: $772
Obamacare Subsidy: None
Shared Responsibility Tax: $2,650/year
Term Health Plan: $261.92 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

With a taxable income of $100,000, the family in this scenario is not eligible for a subsidy and will pay $510 more for an Obamacare plan than they would for a term health plan. By selecting a term health plan, the family would save $6,120.96 a year in premiums. If the family does not qualify for an exemption from the Shared Responsibility Tax, the family would still save $3,470.96 a year by choosing term health.

Scenario 2: Family of Four3

Taxable Income: $40,000
Silver Plan $772
Obamacare Subsidy: $552/month
Shared Responsibility Tax: $1,000
Term Health Plan: $261.92 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

The family in this scenario qualifies for a significant subsidy, reducing the monthly premium from $772 to $220. Although there are a number of term health plans available for less than $220, with the addition of the Shared Responsibility Tax of $1,000 ($83.33/month) the term health plans do not provide significant savings.

Scenario 3: Married Couple4

Taxable Income: $100,000
Silver Plan: $435
Obamacare Subsidy: None
Shared Responsibility Tax: $2,650/year
Term Health Plan(s): $176.80 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

A married couple with a taxable income of $100,000 will not be eligible for an Obamacare subsidy. The silver plan premium of $435/month is more than double the term health plan of $176.80. By selecting a term health plan, the couple will save over $3,098 a year in premiums. If they do not have an exemption to the Shared Responsibility Tax, they will still save $448.40.

Scenario 4: Married Couple5

Taxable Income: $40,000
Silver Plan: $435
Obamacare Subsidy: $161
Shared Responsibility Tax: $1,000/year
Term Health Plan(s): $176.80 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

A married couple with a taxable income of $40,000 will receive an Obamacare subsidy of $161, reducing the cost of silver plan to $274. This is still almost $100 more than what a low-deductitble term health plan will cost. Even if the couple must pay the Shared Responsibility Tax, they would still save $166/year with the term health plan. If they select a term plan with a higher deductible and corresponding lower premium, they will save significantly more.

Scenario 5: 30 Year Old Male

Taxable Income: $100,000
Silver Plan: $218
Obamacare Subsidy: None
Shared Responsibility Tax: $2,650/year
Term Health Plan: $176.80 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

A single male with a taxable income of $100,000 will not receive an Obamacare subsidy and will pay $218/month for a silver plan. While a low-deductible term health plan is less expensive, at $176.80 a month, factoring in the Shared Responsibility Tax, he would not save money with term health. The difference between the Obamacare and term health premium is $41.20 a month, less than $500 a year. The Shared Responsibility Tax, however, is $2,650. In this scenario, unless this individual is exempt from the tax or selects a higher-deductible/lower premium term health plan, he will save more money with an Obamacare plan.

Scenario 6: 30 Year Old Male

Taxable Income: $40,000
Silver Plan: $218
Obamacare Subsidy: None
Shared Responsibility Tax: $1,000/year
Term Health Plan(s): $88.25 ($1,000 deductible; 50% coinsurance; max out of pocket $3500; policy max $2million)

Interestingly, a single male with a taxable income of $40,000 would not be eligible for an Obamacare subsidy and will have to pay the full monthly premium of $218. While a term health plan would cost $41.20 less a month (less than $500 a year), the savings on the premium would not balance out the Shared Responsibility Tax. Unless he is exempt from the Obamacare Tax or unless he chooses a high-deductible/lower-premium plan, he will save more money with an Obamacare plan.

Conclusion:

Both families and married couples who do not qualify for a subsidy may enjoy considerable savings by exploring their term health options, even if they must pay the Shared Responsibility Tax. Because health insurance premiums are determined in large part by region, the scenarios provided are specific only to Denver, Co., and the same comparison in a different city or state could yield a different outcome. For example, a recent study found that across the nation, 26-year old females were more likely to save with term health insurance despite the Shared Responsibility Tax.6 Additionally, Consumers should not assume that they will be subject to the tax as millions of Americans actually qualify for an exemption.7 Consumers seeking affordable health insurance are not constricted to the one-size-fits-all of Obamacare. Exploring all of their options, including term health insurance, consumers can find the health insurance they need at a price they can afford.

  1. Methodology: Obamacare quotes and subsidy determination for Denver, CO zip code 80123 were collected using the Henry J Kaiser Family Foundation Health Insurance Marketplace Calculator on 12/13/2015. The calculator did not factor ages; Obamacare premiums may vary according to age and other demographic factors that were not included in the calculator. Term health quotes for Denver, CO zip code 80123 were collected from agilehealthinsurance.com on 12/13/2015 for an effective policy date of 1/1/2016. The calculator factored ages. Tax penalty was calculated at 2.9% of taxable income.
  2. Adult Male, Aged 30; Adult Female, Aged 30; Male Child, Aged 5; Female Child Aged 3.
  3. Id.
  4. Male Aged 30; Female Aged 30
  5. Male Aged 30; Female Aged 30
  6. https://www.agilehealthinsurance.com/health-insurance-learning-center/term-insurance-costs-less-for-26-year-olds-with-penalty-and-subsidies
  7. Emily Bazar, How to Duck Obamacare’s Tax Penalty, Jan. 30, 2015, Orange County Regiser, http://www.ocregister.com/articles/tax-649674-exemptions-exemption.html

AFFORDABLE CARE ACT TAX. Term health insurance is health insurance outside of the Affordable Care Act ("Obamacare"). It does not include all ten of the minimum essential benefits of Obamacare and it does not cover pre-existing conditions. To learn more about the tax, its exemptions, and how to calculate the affordability of term health with the tax, see here. To learn more about the differences between Term health insurance and Obamacare, see here.