Obamacare and the Early Retiree

The new healthcare law creates subsidies for employer-provided insurance for retirees, but these new subsidies phase out in 2014.[1] Moreover, the subsidies go not to individuals but to employers. Indeed, one of the ironies of the new health law is that the first subsidies are going not to low-income, uninsured families, but to General Motors, General Electric, Procter & Gamble, PepsiCo, Alcoa, Intel, Pfizer, and other large companies. And because higher income employees are more likely to have an employer promise of postretirement care, the subsidies will help those early retirees who least need help.

When these subsidies end in 2014, insurers—selling in a newly created health insurance exchange—will have to accept all applicants regardless of health condition. Since the difference in premiums an insurer charges in the exchange cannot exceed three to one (rather than the more normal cost ratio of six to one), the likely impact will be that young people will be overcharged so that 50 and 60 year olds can be undercharged.

One problem: it appears the mandate may be weakly enforced. If people wait until they get sick to insure, the average premium in the exchange will have to be quite high to cover the costs. As a result, retirees could face higher premiums in the exchange than they would have faced with no reform at all. As noted, millions of seniors also will pay higher premiums for their Medicare (Part D) drug plan because of the cost of closing the donut hole. Expect your premiums to rise in future years.[2]

For more on how the Affordable Care Act may affect you, please see my Independent Institute book, Priceless: Curing the Healthcare.

Notes:

1. “White House Unveils Subsidies to Preserve Early-Retiree Coverage,” Kaiser Health News, May 5, 2010, http://www.kaiserhealthnews.org/Daily-Reports/2010/May/05/early-retirees-wednes.aspx.

2. “Comparison of Projected Medicare Part D Premiums Under Current Law and Under Reconciliation Legislation Combined with HR 3590 as Passed by the Senate,” Congressional Budget Office, Congress of the United States, March 19, 2010, http://www.cbo.gov/ftpdocs/113xx/doc11355/Comparison.pdf.

[Cross-posted at Psychology Today]