Massachusetts Health Penalty And HMO Insurance Cost
The penalty for individuals not buying into an HMO in Massachusetts goes into its third year this week. For the 2007 tax year, the penalty was loss of the personal exemption, a couple hundred dollars. Starting with the 2008 tax year, the penalty was set at 50% of the lowest priced Commonwealth Choice Bronze premium, ie, a worthless HMO policy that would make the individual compliant with the law. Note that major medical insurance is unavailable by law in Massachusetts. When the Massachusetts legislature decided to move towards "universal coverage" back in the 1990's, their first step was ban insurance companies from selling major medical and catastrophic health insurance policies in the state. This move mushroomed the rolls of the uninsured, and gave the progressive politicians their excuse to push through a plan by which the most responsible individuals (the self employed) could be tapped to subsidize the medical industry.
For 2009, the penalty for noncompliance has been announce at $89 per month, or $1,068 per year, for individuals above 27 years old and earning 300% of the Federal Poverty level, which comes to a little over $31,000, or about half the median income in Massachusetts. Since the health penalty goes up in steps, it is a highly regressive tax, meaning that it adds around 3.3% to the income tax burden of an individual earning just above the $31,000, yet only 0.5% to the income taxes of somebody earning $200,000. It also makes Massachusetts about the most expensive place in the country to be self employed, depending on your exact income level. The graph below shows the total tax liability for the self employed in Massachusetts as a percentage of adjusted gross income:
There isn't really any debate around the Massachusetts health care mandate, the media has chosen to report it as a noble experiment rather than as a fundamental violation of individual rights. The reporters and editors who write these stories for the major newspapers apparently have employer provided health insurance and buy into the argument that anybody without health insurance is by default free riding on the system. Of course, all of the statistics you see about people seeking care at emergency rooms and not paying their bills are stories about people without incomes or assets who don't pay any of their bills. Self employed people earning over 300% of the poverty level are the most fiscally responsible members of society, living within their means, saving for retirement, and understanding the importance of contingency planning for the ups and downs of business.
Of course, the HMO plans made available in lieu of real health insurance eliminate the possibility of a self employed person in Massachusetts starting a tax advantaged health savings account and purchasing high deductible health insurance, the only approach that makes fiscal sense for a responsible individual. The HMO plans offered through the Health Connector program are all low deductible or no deductible plans, the highest deductible available is $2,000 for an individual, meaning these plans are all set up for people with no savings and no credit. Including the $2,000 deductible and a $500 co-pay, you can get hospital care, for a minimum annual cost of $5,788 per year. That's the least expensive plan I found, and that doesn't include co-pays for doctors, drugs, etc. Of course, if you're a fool, you can choose a plan like Blue Cross with a $250 deductible, but at $3660 per year, plus the $250 deductible, there's a 35% co-pay for hospital stays. In other words, a middle-of-the-road hospital stay costing $30,000 or so will cost you $14,410 that year ($10,500 co-pay, $3660 annual pay, $250 deductible). The idea that there's a large body of folks walking around that can pay $14,400 a year and not pay the whole ticket is ridiculous. But who reads the small print? The "good" plans start around $6,000 a year for an individual and go up to $9,884 a year (Harvard Pilgrim), with the primary difference I can see having to do with doctor and hospital choice.
So the basic choice for self employed individuals in Massachusetts is to pay the $1,068 penalty, or to pony up $6,000 for an HMO plan that actually covers hospitalization. I don't believe any of the plans cover long term care (bad accident, coma) because I know that long term care policies are marketed to older people on the basis that other coverage all runs out. I don't think many self employed individuals will be so silly as to purchase the less expensive HMO plans that don't actually pay the bills if you end up in the hospital. But the really sick thing about the Massachusetts health care mandate is that it's an attempt to rob the self employed of their retirement savings.
There aren't any defined pension plans, matching 401K contributions, or any other benefits for the self employed. We take care of ourselves and plan for our own futures. The primary choice for retirement savings for the self employed is a combination of a traditional IRA and a SEP IRA. The $6,000 a year it costs to obtain an HMO that actually protects your assets, in case of a serious illness or accident requiring hospitalization, accumulates quickly in retirement accounts, even with no interest, five years savings get you to $30,000. In an emergency, that money can be accessed to pay for health care (sometimes without a tax penalty), but for most individuals, it will earn some tax deferred income and continue growing. Most importantly, retirement savings are an asset that can be transferred to heirs, rather than subsidy to the for-profit health industry.
For 2009, the penalty for noncompliance has been announce at $89 per month, or $1,068 per year, for individuals above 27 years old and earning 300% of the Federal Poverty level, which comes to a little over $31,000, or about half the median income in Massachusetts. Since the health penalty goes up in steps, it is a highly regressive tax, meaning that it adds around 3.3% to the income tax burden of an individual earning just above the $31,000, yet only 0.5% to the income taxes of somebody earning $200,000. It also makes Massachusetts about the most expensive place in the country to be self employed, depending on your exact income level. The graph below shows the total tax liability for the self employed in Massachusetts as a percentage of adjusted gross income:
There isn't really any debate around the Massachusetts health care mandate, the media has chosen to report it as a noble experiment rather than as a fundamental violation of individual rights. The reporters and editors who write these stories for the major newspapers apparently have employer provided health insurance and buy into the argument that anybody without health insurance is by default free riding on the system. Of course, all of the statistics you see about people seeking care at emergency rooms and not paying their bills are stories about people without incomes or assets who don't pay any of their bills. Self employed people earning over 300% of the poverty level are the most fiscally responsible members of society, living within their means, saving for retirement, and understanding the importance of contingency planning for the ups and downs of business.
Of course, the HMO plans made available in lieu of real health insurance eliminate the possibility of a self employed person in Massachusetts starting a tax advantaged health savings account and purchasing high deductible health insurance, the only approach that makes fiscal sense for a responsible individual. The HMO plans offered through the Health Connector program are all low deductible or no deductible plans, the highest deductible available is $2,000 for an individual, meaning these plans are all set up for people with no savings and no credit. Including the $2,000 deductible and a $500 co-pay, you can get hospital care, for a minimum annual cost of $5,788 per year. That's the least expensive plan I found, and that doesn't include co-pays for doctors, drugs, etc. Of course, if you're a fool, you can choose a plan like Blue Cross with a $250 deductible, but at $3660 per year, plus the $250 deductible, there's a 35% co-pay for hospital stays. In other words, a middle-of-the-road hospital stay costing $30,000 or so will cost you $14,410 that year ($10,500 co-pay, $3660 annual pay, $250 deductible). The idea that there's a large body of folks walking around that can pay $14,400 a year and not pay the whole ticket is ridiculous. But who reads the small print? The "good" plans start around $6,000 a year for an individual and go up to $9,884 a year (Harvard Pilgrim), with the primary difference I can see having to do with doctor and hospital choice.
So the basic choice for self employed individuals in Massachusetts is to pay the $1,068 penalty, or to pony up $6,000 for an HMO plan that actually covers hospitalization. I don't believe any of the plans cover long term care (bad accident, coma) because I know that long term care policies are marketed to older people on the basis that other coverage all runs out. I don't think many self employed individuals will be so silly as to purchase the less expensive HMO plans that don't actually pay the bills if you end up in the hospital. But the really sick thing about the Massachusetts health care mandate is that it's an attempt to rob the self employed of their retirement savings.
There aren't any defined pension plans, matching 401K contributions, or any other benefits for the self employed. We take care of ourselves and plan for our own futures. The primary choice for retirement savings for the self employed is a combination of a traditional IRA and a SEP IRA. The $6,000 a year it costs to obtain an HMO that actually protects your assets, in case of a serious illness or accident requiring hospitalization, accumulates quickly in retirement accounts, even with no interest, five years savings get you to $30,000. In an emergency, that money can be accessed to pay for health care (sometimes without a tax penalty), but for most individuals, it will earn some tax deferred income and continue growing. Most importantly, retirement savings are an asset that can be transferred to heirs, rather than subsidy to the for-profit health industry.
posted by Morris Rosenthal at
7:13 AM
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