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The Self-Employed Shouldn't Bank on Obamacare Subsidies (Bloomberg Businessweek)

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By Patrick Clark

Thanks to federal subsidies created by the Affordable Care Act, as many as 7 million Americans may be eligible to get coverage through health exchanges without paying a dime, according to new research (PDF) from McKinsey. That’s great for the people who qualify, though it’s worth clarifying that zero-premium doesn’t equal zero-cost—patients are responsible for co-payments for services delivered. Subsidies are unlikely to create large savings for one group you might think would benefit from the individual marketplaces: the self-employed.

Let’s start with some numbers: Workers earning 138 percent to 400 percent of the federal poverty guidelines may be eligible for subsidies. At the upper end, that would be an individual making about $45,000, or $94,000 for a family of four. (Individuals are required to carry health insurance beginning next year, though penalties (PDF) for not having coverage will start out modest before increasing in subsequent years.) As many as 19 million Americans could get help paying for insurance in 2014.

How much help? Subsidies are determined by limits on the portion of a person’s income they’re expected to pay for insurance, as well as the cost of buying coverage on a health-care exchange in that person’s geographical area. (The nitty-gritty, according to McKinsey: “The subsidy amount is calculated as the difference in the price of the second-lowest silver plan in that rating area and the ‘maximum premium’ the person is expected to pay.”)

An article in the New York Times on the McKinsey study gives two examples of insurance buyers using subsidies to get affordable coverage: a married couple, both artists in Albuquerque, with income of $24,000 using the subsidy to pay for the entire cost of coverage, and a lighting designer in New York City who was eligible to pay $24 a month for the lowest level of coverage but opted for a more expensive plan.

That sounds good, but it’s worth plugging some numbers into the Kaiser Family Foundation’s subsidy estimator. In New York, an individual earning $22,000 a year would pay about $30 a month for the lowest level of coverage. A freelancer making $40,000—hardly a large amount in one of the world’s most expensive cities—would pay almost $240 a month. (The national average for 30-year-old nonsmokers earning that amount and buying the lowest level of coverage: about $200.)

Meanwhile, insurance companies have begun terminating policies that don’t meet certain ACA requirements, including plans that don’t cover 60 percent of members’ health costs on average. Those types of plans used to be popular with the self-employed, says Katie Vlietstra, director of government affairs at the National Association for the Self-Employed. (High-deductible plans also have their share of critics.)

No one said Obamacare was supposed to make health care free for freelancers. And it’s true that the law will allow Vlietstra’s members to buy plans with better benefits, as well as protect them from being turned down for coverage because of preexisting conditions. But for many self-employed people the law also means they’re being forced to pay more for coverage. Some of the organization’s 150,000 members are thinking about buying catastrophic coverage and paying the penalty for not carrying health insurance, Vlietstra says: “Ultimately, it’s a business decision.”

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