Obamacare and Trader Joe's: The Rest of the Story

We said that there was more to the story of Trader Joe's decision to dump its part-time employees into ObamaCare, and there is. What follows is our analysis of the statement that Trader Joe's provided to the Washington Post's Wonkblog over a week and a half ago, for which we're apparently the first media organization to produce any sort of serious analysis. We'll start at the top:

Thank you for writing to us. It's possible you have been misled, at least to some degree, by the headlines in some articles regarding our reasons for implementing the [Affordable Care Act] in January. We'd like to take this opportunity to clarify some facts.

For over 77% of our Crew Members there is absolutely no change to their healthcare coverage provided by Trader Joe's.

In January 2012, Trader Joe's was estimated to have approximately 5,500 employees nationwide, working at 365 stores, with half of these situated in the state of California. Today, we would estimate that figure is over 5,700, as the privately-held grocery store chain now has at least 380 locations.

According to the company's statement, of those estimated 5,700 employees, 23% are part-time employees that Trader Joe's will drop from their employer-provided health insurance program, which works out to be over 1,300 employees that will be affected by the change.

The ACA brings a new potential player into the arena for the acquisition of health care. Stated quite simply, the law is centered on providing low cost options to people who do not make a lot of money. Somewhat by definition, the law provides those people a pretty good deal for insurance ... a deal that can't be matched by us -- or any company. However, an individual employee (we call them Crew Member) is only able to receive the tax credit from the exchanges under the act if we do not offer them insurance under our company plan.

Since half of the company's employees are based in California, we can see just how "affordable" their insurance coverage will be after they are forced out of Trader Joe's employer-provided health insurance plans into the plans that will typically be available in that state. The table below reveals what we found when we used UC-Berkeley's "How Much Will a Family Save Under the New Federal Health Law? California Calculator" application to approximately determine what a single adult or a single adult parent with one child will have to pay for health insurance on the state's exchange:

Estimated Full Cost of Monthly Premium for Second-Least Expensive "Silver" Health Insurance Plan in California in 2014
Household Description	Age 21	Age 25	Age 30	Age 35
Single Adult	$230	$231	$261	$281
One Adult, One Child (Under Age 21)	$376	$377	$407	$427
Source: University of California at Berkeley Labor Center

California's "Silver" plans are intended to cover roughly 70% of the health care expenses for the individual or family covered by the plan will have, with the remaining 30% of the costs being paid for by the insured. But that's after paying the premiums for the plan, the full cost of which would run anywhere from a minimum of $2,760 per year for a single, 21-year-old individual with no children to $5,124 per year for a 35-year-old single parent with just one child.

We know from a previous example that we considered that Trader Joe's employer-provided health insurance policies are much closer to what would qualify as being a "Gold"-level plan on the new exchanges being established under the Patient Protection and Affordable Care Act, which would cover roughly 80% of the costs for health care incurred by the insured. The costs associated with the "Silver" plans that we've listed above would therefore represent a downgrade in the quality of coverage, even though they would be considered to be more affordable because they cost less than what a "Gold"-level plan would cost. Basically, the savings result because you pay less to get less.

These numbers don't consider the role that the new ObamaCare subsidy tax credits might play in reducing the out-of-pocket costs that would be paid by Trader Joe's employees, but we'll need to know how much they earn to be able to approximate what their actual out-of-pocket costs for insurance will be after being kicked out of Trader Joe's employee plan into California's ObamaCare health insurance marketplaces.

Fortunately for us, Trader Joe's provided just such an example.

Perhaps an example will help. A Crew Member called in the other day and was quite unhappy that she was being dropped from our coverage unless she worked more hours. She is a single mom with one child who makes $18 per hour and works about 25 hours per week. We ran the numbers for her. She currently pays $166.50 per month for her coverage with Trader Joe's. Because of the tax credits under the ACA she can go to an exchange and purchase insurance that is almost identical to our plan for $69.59 per month. Accordingly, by going to the exchange she will save $1,175 each year ... and that is before counting the $500 we will give her in January.

Let's do some relevant math to get some insight into what's going on here:

• Assuming the single mother, parent of one child, works 52 weeks per year, at a wage of $18 per hour and working 25 hours per week, she will earn $23,400 in a year.


• Trader Joe's claims she has been paying $166.50 per month, or $1,998 per year, for health insurance through the company's health insurance program, which covers both herself and her child.


• If she buys insurance on California's ObamaCare exchange, Trader Joe's claims she will only pay $69.59 out of pocket each month, which works out to be $835.08 per year.


• The difference between $1,998 per year and $835.08 per year is $1,162.92, which would be the actual annual "savings" that she would have if Trader Joe's accurately represented these figures.

Trader Joe's states that the savings would be $1,175 per year, which is off by $12.08. That doesn't sound like much, but it was enough to get us to dig deeper into their numbers.

Using the tool we originally developed to determine whether it would be better to buy health insurance on your state's ObamaCare exchange or to pay the ObamaCare income tax instead, we reverse-engineered Trader Joe's numbers. Here's the adapted version of the tool with the relevant numbers so you can see what we found:

Your Household Data
Input Data	Values
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)	United States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming District of Columbia
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results	Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Cost
For Health Insurance (Premium Only, No Co-Pays or Deductibles)

Since the $377 figure in our tool represents the estimated second-lowest cost for a "Silver" plan for a 25-year year old single mother with one child, it appears that Trader Joe's would have their employee enroll in what the price for the monthly premium for the health insurance plan being considered suggests is the lowest-cost "Silver" plan for health insurance, which appears to run $367.81 per month.

Once again, since we've already established that the coverage of Trader Joe's employer-provided plan is more akin to a "Gold"-level plan in the new ObamaCare exchanges, this represents a downgrade in the quality of the single mother's health insurance coverage.

If the employee were willing to continue paying the same $166.50 per month, or $1,998 per year, for health insurance that she is today for a "Gold" or perhaps even a "Platinum"-level plan on California's ObamaCare exchange, she could afford a plan with a premium of $464.72 per month, or $5,576.64 per year, which would be more equivalent to the level of coverage she had through the plan that Trader Joe's previously provided to her family.

As such, we can work out how much Trader Joe's stands to gain from dumping their single mother employee onto the ObamaCare health insurance marketplaces. Here, assuming that our estimated ObamaCare "Gold" or "Platinum" health insurance cost is close in value to the full cost of the policy that Trader Joe's provides today for this particular employee, we find that since the employee is contributing $1,998 toward the cost of their health insurance premium, Trader Joe's must be paying about 64.2% of the full cost of the health insurance toward her family's coverage, or $3,578.64. Multiply a number like that by 1,300 part-time employees being dropped from good health insurance coverage into ObamaCare, and suddenly, we're talking about millions of dollars worth of reduced costs and savings for the company.

This is why Trader Joe's is able to provide the part-time employees that it's ousting from its employer-provided health insurance plans with $500 each. In reality, they would be reducing their costs and increasing the company's annual profit by $3,078.64, and that's just from dumping this single employee onto the ObamaCare exchange in California.

Let's resume going through Trader Joe's statement to the media:

While we understand her fear of change, at her income level this is a big benefit that we will help her achieve.

Hopefully, she won't recognize that in gaining this "big benefit" as Trader Joe's would have her do, she's putting herself into a situation where she has health insurance coverage of lesser quality than she did before, putting her at risk of higher out-of-pocket expenses.

Clearly, there are others who will go to the exchanges and will be required to pay more. That is usually because they have other income and typically a spouse who had a job with no benefits and they do not qualify for the subsidies under the ACA.

One example of that we had yesterday was the male Crew Member who worked an average of 20 hours per week but had a spouse who is a contract consultant who makes more than $200,000 per year. The Crew Member worked for the medical benefits and unfortunately for them they are likely to have to pay more because of their real income. We understand how important healthcare coverage is to our Crew Members and we are pleased to be able to provide and support this program.

Does this means that in addition to greedily profiting from pushing their part-time employees into lower quality health insurance by selling them on the phony "big benefits" they'll get if they do, they also oppose the idea of any of their employees being married to people who also work in jobs that don't provide the generous benefits that Trader Joe's has previously sought to provide, but would now appear to believe are too generous?

We do hope this information helps, and we appreciate your interest in Trader Joe's.

It helped quite a bit actually. It tells us exactly what Trader Joe's principles and priorities were and will be with respect to their employees, given the perverse incentives created for the company by the Obamacare law.

We must remember that before the law's provisions kicked in, the company was very willing to provide very generous benefits to all of its employees. We're just starting to find out how the law has changed their perspective on the value of their crew members so much that they're now willing to kick 23% of them to the curb. The company is being compelled by President Obama's Patient Protection and Affordable Care Act to break the trust they worked hard to build with their crew members.

And that's perhaps the biggest problem with Obamacare. ObamaCare breaks trust.

References

University of California at Berkeley Labor Center. How Much Will a Family Save Under the New Federal Health Law? California Calculator. [Online Application]. May 2013. Accessed 23 September 2013.

Oakner, Larry. Trader Joe's: The Chicken or the Egg? [Online Article]. CoreBrand. 10 January 2012. Accessed 23 September 2013.

Kliff, Sarah. Trader Joe's cut health benefits last week. Here's its side of the story. [Online Article]. Washington Post. 16 September 2013. Accessed 23 September 2013.

Obamacare and Trader Joe's: An Economic Detective Story

Last week, we introduced our tool that can help you choose which option is financially better for you: buying an Obamacare insurance plan in your state or paying the Obamacare income tax. When we did, we hinted that there was more to the story regarding the default values that we entered into our tool, and today we're following up that story: they are the numbers that apply to a young woman who just found out that her employer, Trader Joe's, is going to drop her and a large number of other part time employees from the company's health insurance program for employees.

Owned by Germany's Albrecht family, who also own the German-based Aldi international grocery store corporation, Trader Joe's previously had the reputation of providing above-market compensation and benefits for its employees, where it traded higher labor costs for higher productivity and lower employee turnover-related expenses for the firm.

Here are a number of key excerpts from the anonymous woman's story, which came out in response to a memo that the company issued to its staff on 30 August 2013:

A current Trader Joe's worker described the coverage she'll likely lose as "one of the best parts about the job." (The employee requested anonymity since she isn't authorized to speak to the media.) She said she pays only $35 per paycheck, or $70 per month, for a plan that generally covers 80 percent of her medical costs, carries a reasonable $500 deductible and includes prescription drug coverage.

"There are several folks I work with who are there for the insurance as much as anything, mostly folks with young families," she said. "I can say that when I opened and read the letter yesterday my reaction was pure panic, followed quickly by anger."

The employee said she averages about 28 hours per week and worries she won't make the cutoff for company-based coverage. Whether workers hit the 30-hour threshold and become eligible for the company plan will be determined by their work schedules over the course of the next three months, the memo explains. For those who may be on the cusp, the memo left little hope that they can pack in extra hours to meet the requirement.

"It is important to note ... we do not create our weekly schedules with healthcare eligibility in mind," Bane wrote. "Rather, we will continue to create weekly schedules that are solely focused on supporting the customer experience."

The worker, who took home less than $20,000 last year, might be able to find a similar plan at a comparable cost under Obamacare, judging from a subsidy calculator. But there's no guarantee, other than uncertainty.

Here's what we can work out from the information presented in the article with some straightforward economic detective work. The employee is relatively young and single, which we can determine from the relatively low values she provide for what she pays for her current health insurance coverage.

That employee benefit was very generous. Her health insurance plan was roughly equivalent to what would be considered to be the "Gold" level plans that are now being marketed through the new state health insurance marketplaces, which we can deduce from the fact that she indicates that it covers approximately 80% of her health care costs. While those plans would typically not have a deductible, she indicates that her deductible is $500, which is about one-fourth what would be typical for the next-lower tier "Silver" plan available through the state health insurance exchanges.

At $35 per paycheck, her annual out-of-pocket cost for her portion of the premiums that she pays for near-equivalent Gold plan is $910, assuming that she is paid on a biweekly basis. The article does not provide enough information to determine the full actual cost of her health insurance premiums.

The article also provides critical information about her income. It indicates she earns "under $20,000" per year, working an average of 28 hours per week. Assuming that she works 52 weeks per year, that would put her hourly wage at less than $13.74 per hour. For our purposes, we'll assume she actually earns $13.70 per hour, which would give her an annual income of $19,947.20, which is just "under $20,000".

Next, we'll consider what her health insurance costs might be if she chooses to buy a health insurance plan through her state's ObamaCare exchange. Since nearly half of all of Trader Joe's stores are located in California, we'll use that state's exchange information. That's where our assumption that she is relatively young comes into play, as the data we'll use in our tool is take from Covered California's average statewide rates that will apply for a 21-year old in that state in 2014.

In the chart above, the top value listed for each income level represents the "typical" out-of-pocket potion of the average monthly premium for each plan, while the lower green value that's listed represents the average subsidy that a single individual might receive, which is based upon the cost of the second-least expensive "Silver" plan. Adding the two values together gives us the full actual cost of an average health insurance premium for a 21-year old in California.

We'll use the cost differences between the "Bronze" plans listed in the chart above, where approximately 60% of the insured's health insurance costs are covered under the plan and the "Silver" plans, which cover around 70% of the insured's health care expenses, to estimate what the near-equivalent "Gold" plan would cost her. Taking the average of the second-least and third-least expensive plans listed, we estimate the typical average monthly cost of a "Gold" plan in California would be $283.

With all that data then, we can now establish what the real financial choice that will soon be faced by Trader Joe's part-time employee in the tool below. We'll find out how much she'll have to pay for health insurance plan that's nearly equivalent to the one that Trader Joe's is taking away from her, and whether she would simply be better off paying the tax, and only buying the insurance if and when she actually needs it.

Your Household Data
Input Data	Values
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)	United States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming District of Columbia
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Lowest-Cost "Bronze" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results	Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Costs
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

For the default values we've entered in the tool above, which doesn't factor in Trader Joe's $500 "go-away" payment, we find that if our heroine can reasonably expect to be healthy, it will be much less costly for her to hold off on buying any health insurance until she might actually need it and pay the additional tax on her income instead, as she will come out ahead by $1,551.01 per year. [Update: There was a small glitch in our original calculation - now fixed (HT: Sean Parnell)!]

We also find that she comes out behind if she chooses to buy into a health insurance plan in California that's nearly equivalent to what her previous employer-provided health insurance coverage was. At her $19,947.20 annual income, she could expect to pay $1,650.48 per year out of her own pocket for the "Gold" level plan that is most nearly equivalent to the coverage that Trader Joe's was previously providing her with an out-of-pocket cost to her of $910, which leaves her some $740.48 in the hole, even after she collects ObamaCare's subsidy tax credit.

Even with Trader Joe's promised extra check for $500, she would still find herself at least $240.48 in the hole compared to today, unless she accepts lesser health insurance coverage that requires her to pay a much larger percentage of her health care costs. And it only gets worse if we account for that extra $500 payment to our heroine's income, because it reduces her ObamaCare subsidy, but we'll leave that for you discover for yourself in our tool above.

The bottom line is that this is a clear example of a case where an individual is both not going to be able to keep the plan they have today where they also come out worse off than they were before, whether through being forced into lesser insurance coverage or through having less disposable income after taxes and health insurance costs.

Looking at Trader Joe's motives in dropping the health insurance it was providing to its part-time crew members, if our estimated full annual cost of $3,396 for a "Gold" plan in California's ObamaCare health insurance exchanges is a good indication of what the company was spending per employee to provide that coverage, reducing that figure by the $910 that the part-time employee was paying per year means that the company stands to reduce its costs for health insurance by $2,496 per previously-covered part-time employee before its $500 "don't bother us" payment, and $1,996 per previously-covered employee after it.

There's still more to the story, as Trader Joe's has both taken heat in the media and responded to the criticism that it has received for dumping its part-time employees out of its health insurance coverage program, but we'll cover that in an upcoming post.

References

Covered California. Health Plans & Rates for 2014: Making the Individual Market in California Affordable. [PDF Document]. 23 May 2013. Accessed 21 September 2013.

HealthPocket. Obamacare Metal Plans. [Online article]. 1 June 2013. Accessed 21 September 2013.

ObamaCare: Will Making a Little More Income Cost You Thousands?

Yesterday, in launching the first tool that's specifically designed to help you determine if it is better to pay the ObamaCare income tax rather than health insurance using cost information that you obtain directly from your state's health insurance marketplaces, we made an offhand comment about some of the validation testing we did:

Our tool turns out to be surprisingly accurate - although it's not designed to do so, we've validated the "loss-of-subsidy" effect on the out-of-pocket cost of health insurance for making one penny more than ObamaCare's subsidy eligibility level that CNBC described here...

What is the "loss-of-subsidy" effect? It's really a marginal tax rate effect. For people who choose to buy health insurance in the age of ObamaCare, it is the unexpectedly large price they would pay for losing the tax credit subsidy that might make health insurance more affordable if they should find themselves making just a little extra income in a given year than they expected, crossing a critical threshold where they stop being eligible to benefit from the subsidy tax credit.

The really perverse thing is that it doesn't matter where the extra income might come from. You or someone else in your household might get a raise, or a bonus, or a new job, et cetera. Normally, these things would be considered to be good things. Or at least they would be in a sane world.

But in the new age of ObamaCare, perhaps not so much. You might come to believe that little extra money you might otherwise choose to make to make your household better off is really radioactive.

And while our previous tool was designed to answer a different question, we've adapted the math to specifically answer the question of whether you might pay a very large price if you make the mistake of bringing home just a little more bacon.

Our new tool lets you take factors into account so you can find out just how at risk your household might be. Just enter the indicated information in the tool below (if you're reading this article on a site that republishes our RSS news feed, please click here to access a working version of the tool) - we'll work out how what you might have to pay to have health insurance might change....

Your Household Data
Input Data	Values
Your Current Total Household Income, or Modified Adjusted Gross Income (If Known)
Percentage by Which Your Household Income Might Increase (Such as if you earned a raise.)
Fixed Amount by Which Your Household Income Might Increase (Such as if you get a bonus.)
Number of Household Members
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)	United States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming District of Columbia
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Are You Negatively Affected by ObamaCare's Subsidy Limits?
Calculated Results	At Current Income	At a Higher Income	Change from Current Income
Household Income
Health Insurance Premium
Tax Credit Subsidy
Your Out of Pocket Cost

In doing this analysis, we find that there are two key thresholds where things go haywire for the American households that will be affected by this perverse phenomenon written into the Patient Protection and Affordable Care Act. The first comes for low income earning households who might find themselves no longer eligible for health insurance coverage through their state's Medicaid welfare program.

The second is for those households that whose income might exceed the threshold set for middle-class income earners with household incomes greater than 400% of the federal poverty limit. The default data in our tool above applies to this second case.

The big driver in this however is the size of the household. For 2014, for the lower 48 states, the income thresholds are either the 100% or 133% level indicated in the table we've excerpted from the Tucson Citizen, and also the 400% level for middle-class households. (And because of how the law is set up, the 133% level is actually the 138% level, so if your state has acted to expand its Medicaid welfare program under the PPACA, multiply the 100% values in the table by 1.38. If not, use the 100% figures.)

Regardless, households who find themselves just below these margins will be faced with some really perverse incentives to avoid doing anything to earn any extra income, unless they can earn a lot of extra income to more than compensate for the tax credit subsidy that they will lose.

It's the same perverse incentive that works to trap people into welfare programs for life. Only now, in the new age of ObamaCare, the politicians behind the law are out to trap the middle class in their snare.

ObamaCare: Should You Pay the Premium or the Tax?

When it comes to ObamaCare, should you pay the premium for buying health insurance on your state's exchange, or would you be better off skipping it and paying the "penalty" tax instead?

In two weeks time from this writing, you may find yourself having to answer that question, and the answer may not be what you think. In setting up the its system for mandating that all Americans have health insurance, the Patient Protection and Affordable Care Act (PPACA) actually creates some really perverse incentives that may make it more desirable for people to dump their health insurance coverage instead. At least, until they might actually need to have it.

You see, ObamaCare actually mandates that Americans who aren't covered by their employer's health insurance either choose to buy costly policies on their state's newly established health insurance exchanges and perhaps benefit from a tax credit subsidy to do so, or choose to "self-insure" and pay a potentially much less costly tax instead.

Here's how the self-insurance part of that works. Because the PPACA prohibits health insurance providers from denying coverage to people with pre-existing conditions, healthy people can choose to go without any coverage and only buy it if they actually need to during the next enrollment period. If the amount of any penalty tax they have is considerably less than the cost of the health insurance they might otherwise choose to buy, they might have a powerful incentive to do just that.

For healthy Americans, the self-insurance aspect of their choice would mean that they would simply pay out of pocket for the health care they actually consume - just the same as those covered by health insurance will do through the co-pays and deductibles for the coverage they have available to them. And while you might be surprised at how inexpensive medical care can be if health insurance is not involved, even for major surgical procedures, the real challenge would come if they suddenly find themselves faced with health care costs that are considerably higher than what they might be able to pay out of pocket using their income, savings and credit accounts.

In the worst case scenario, they might have to get their health care provider to delay billing them for up to the maximum 90-day limit that the law mandates health insurers to provide coverage after they enroll, or perhaps just pay their health care costs out of pocket during that short period of time. But they will still be able to get insurance coverage, and if the incentive to drop it remains after they no longer need it, they are free to choose to do so, because the law permits it and because they are honest taxpayers who cannot be denied their rights.

Some might say that these Americans are wasting money on taxes that they could be using to buy insurance instead. But then, those people are ignoring that healthy people can go many years without needing any more than basic, low-cost health care, and that in the year where might might first need health insurance coverage, any tax they might have to pay would be pro-rated for the portion of the year they went without any coverage, reducing any potential waste to a minimum.

Our tool below is the first that's designed to help Americans find out which option under the ObamaCare law, paying a premium or the penalty tax, specifically is better for them. Beginning on 1 October 2013, you will be able to start here to find out how much the plans that will be available on your region's health insurance exchange may cost you.

In doing that, we'll need you to identify the monthly premiums associated with three of the plans that will be available to you: the second-lowest cost "Silver" plan, which is used to find out how much of a tax credit subsidy you might receive, the monthly premium of the lowest cost "Bronze" plan, which sets a limit for how much you might have to pay in ObamaCare taxes, and the monthly premium for the plan you would actually consider purchasing.

Until the exchanges officially open for business, you might consider getting the information for your state from the Commonwealth Fund's links to each state's exchange or scanning news reports for your state to find out what these values might be as they become public. The default values we've entered in our tool below apply for a 21-year old who lives in California. There's more to the default values that we've entered, but we'll cover that in a separate post in the future....

Also, if you're accessing this tool on a site that republishes our RSS news feed, you'll want to click here to access a working version of our tool.

Your Household Data
Input Data	Values
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)	United States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming District of Columbia
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Lowest-Cost "Bronze" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

Your Annual Health Insurance Results
Calculated Results	Values
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Costs
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

If the checking we've done with other sources is any indication, our tool turns out to be surprisingly accurate. And although it's not designed to do this particular math, we've validated the "loss-of-subsidy" effect on the out-of-pocket cost of health insurance for making one penny more than ObamaCare's subsidy eligibility level that CNBC described here.

In running the numbers from CNBC's example, we see our hypothetical household would get a subsidy of $5,362.56, which would lower their out of pocket cost for their annual premium from $12,783.96 to $7,421.40.

We then ran the numbers again, this time increasing the total household income by one penny to $78120.01. We find that this hypothetical household would lose out on that $5,362.56 subsidy and have to pay the full cost of $12,783.96. That's one heck of an out-of-pocket cost jump for the mistake of earning just one penny more....

But what CNBC missed in its analysis is that in both cases, if the potential health insurance buyers don't expect to have any significant health care expenses in the near term, it makes far more sense for them to choose to self-insure themselves and pay the ObamaCare income tax than it does for them to pay their state's ObamaCare exchange's health care insurance premiums!

After all, for healthy people, having an extra $7,421.40 or $12,783.96 can buy an awful lot of health care if and when they actually might need it, not to mention whatever else they would rather do with that kind of money if they don't.

Elsewhere on the Interwebs

We suggest that you take advantage of the Manhattan Institute's "Know Your Rates" site so you can compare how your state's average insurance premiums compare to what identical health insurance plans would have cost before the implementation of the Patient Protection and Affordable Care Act's provisions, paying close attention to the rates that apply for the age nearest your own.

Meanwhile, Chris Conover demonstrates that ObamaCare is a deal that never gets better as you get older!...

About This Tool

In building this tool, we've made a handful of assumptions. Here they are, along with links to our references for data:

• The federal government's poverty income thresholds for 2013 will initially apply in 2014.


• The Kaiser Family Foundation's description of how ObamaCare's subsides will be calculated is accurate.


• The map of states we used to identify which are expanding their eligibility for their Medicaid programs up to 138% of the federal poverty income threshold and which are not is largely accurate. For states that had not made their determination as 1 September 2013, we've assumed that they are not expanding their Medicaid program's eligibility. We will update this periodically as new information becomes available.


• CNNMoney's description of how the penalty tax will work is accurate. Update 20 September 2013: Our thanks to Sean Parnell of The Self-Pay Patient blog, who identifies an exemption from the tax that we originally missed - it turns out that people who live in regions where the lowest-cost Bronze plan is more than 8% of their household income even after the subsidy will be fully exempt from the tax! (Of course, you realize that means that skipping out on not paying health insurance too until they might actually need it just became an even more attractive option for those who will be fully exempt from the tax!)


• The default values associated with selecting the "United States" are those that will apply for a majority of the nation's population.


• People will mostly act rationally where their financial incentives and the assessment of their health care needs are involved.

Beyond this, we've assumed that for some people there may be a "gray area", who would only have a small incentive to not purchase health insurance, where any benefit in doing so is not very large with respect to their household income, and where the decision to buy or not buy should instead be based upon an assessment of what the buyer's actual health care needs for their household will be in the near term, rather than purely upon its cost with respect to the ObamaCare income tax.

Mathematically, we've defined that gray area as being equal to the difference between the penalty tax they might choose to pay or an amount equal to 3.1% of their income before taxes, which closely corresponds to the average expenditure of U.S. households for health insurance, according to the just-released Consumer Expenditure Survey report for 2012.

As it happens, that percentage is close to the maximum tax penalty of 2.5% of income that will be fully phased in for 2016, so our tool will indirectly communicate that potential future tax exposure.

Updates

Here at Political Calculations, our policy is for our tools to always improve over time. This section of this indicates all the significant changes we have made to the text of this article and the code for this tool.

• 20 September 2013: Modified programming to consider the tax exemption that might apply if the out-of-pocket cost of the least-expensive "Bronze" plan, even after the subsidy tax credit is considered, is still greater than 8% of their household income. Modified text in Assumptions section to indicate change was incorporated.


• 25 September 2013: Modified text in fourth paragraph to better clarify when an individual opting to pay the tax instead of a premium could acquire insurance if they determine they will need it. Added the Updates section to communicate all significant changes in this post and tool.

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