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Why the Subsidy Gap Isn’t Actually a Gap

A 26-year-old man who makes $36,000 a year in Philadelphia finds out that he is not eligible for a health insurance subsidy, and must pay his $205 monthly premium without any help.

This, despite the ACA’s subsidies for people earning up to 400% of poverty (about $46,000).

Has he fallen into the subsidy gap?

The latest talk about a subsidy gap into which some millennials are falling is mystifying to me. It seems to be a product of a misunderstanding about how the subsidies are calculated.

Let’s remember that the goal of the subsidies is to ensure that people earning between 100% and 400% of the federal poverty level (FPL) pay no more than a certain percentage of income on health insurance premiums.

This cap is set on a sliding scale, so that people on the higher end of the FPL scale are expected to pay a higher percentage.

The caps range from 2% for someone at poverty level up to 9.5% for someone earning between 300-400% of poverty level.  That’s how the Affordable Care Act defines “affordable.”

The amount of subsidy is based on the difference between that cap and the premiums for the second-cheapest silver plan on the market. The subsidies are not an entitlement for all people earning 100%-400% of FPL, nor should they be.

They kick in only when the premium for that silver plan exceeds the stated percentage of income.

Below that cap, the premiums are considered affordable and people are not eligible for subsidies. That’s not a gap; that’s the way the law is designed.

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What Do Millennials Want from the Healthcare System?

The 18-34 year old segment of our population is large, growing and important in our society. They are 80 million strong. Their attitudes, beliefs, values and actions are re-shaping the way every organization, business and institution thinks about its future.

According to a Pew Research report released last week, Millennials are independents and skeptics: 50% have no political affiliation, 29% no religious affiliation, and 19% say they do not trust established institutions to do the right things (versus 40% for Baby Boomers).

Millennials worry about money. A study by the Investor Education Foundation of the Financial Industry Regulatory Authority concluded that their concerns about their auto, credit card and school debt trump other issues.

Most think economic stability should come before marriage and family life. Half who went to college have a student loan to repay, and one third moved into the homes of their parents at some point to make ends meet.

And they worry about the future. Paul Taylor’s The Next America: Boomers, Millennials, and the Looming Generational Showdown predicts economic battle between Millennials and Baby Boomers:

“Every family, on some level, is a barter between the generations…If I care for you when you’re young so you’ll care for me when I’m old…But many Millennials won’t be able to afford that…The young today are paying taxes to support a level of benefits for the old that they themselves have no prospect of receiving when they become old.”

Pew survey data supports his contention:

  • 51% of Millennials do not think there will be any money for them in the Social Security system by the time they retire.
  • 39% believe they’ll get reduced benefits

So what do Millennials want from the health system? Their view is likely to disrupt how industry leaders operate their businesses and how policymakers make laws that govern its commerce.

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