Monday, October 21, 2013

What will ObamaCare do to your taxes?

There was some interesting pushback from my last post (although, weirdly, none of it is in the comments), so in an effort to be more "holistic," I thought I'd show the downsides of ObamaCare. As throughout these posts, I'll try to keep it simple and let the data/info speak for itself. If you want more of a scholarly piece, you might want to try the Journal of Healthcare Quality (my Bible). However, if you do stick it out here, I'll provide links to some awesome IRS docs.

So, people obviously dislike tax increases and this has generally been the one of the major complaints about the ACA that does have some truth do it. (For what it's worth, US healthcare is still not run by the government like it is in Great Britain, your 85 year old grandpa will still get his cancer treatment, and no, illegal immigrants do not get free health care under the ACA).

To the tax increases:

-- For those who make over $200k/yr as an individual (or $250k filing jointly), the ACA will
  • Set a net investment income tax (think capital gains, dividends, interest) at 3.8% for this type of income that pushes a person or couple above the above-mentioned income thresholds.
-- For everyone, the ACA will
  • Lower the amount of medical expenses that are deductible for tax purposes. Next year only expenses above 10% of one's income are deductible versus 7.5% in the past. So if you make $40,000 (gross) and incur medical expenses worth $10k (and you're in the 20% bracket), you'll save $1200 [(10k - (40k*.1))*0.2=1200] instead of $1400 [(10k-(40k*.075))*.2=1400] using the tax break*. For the (almost) average person with large medical expenses, that's a loss of ~$200 in a large emergency. To be "holistic" about this point, however, the odds of one incurring such staggering expenses will go down for the typical American as (hopefully) many more will soon have health insurance.
That's pretty much it in terms of individual tax changes coming due to the ACA (and note how little is asked of the middle class). For those seeking info on the more abstruse, FSA contributions will now be capped at $2500/yr, there will be a 2.3% tax on medical devices sales, and in 2018 an excise tax will be levied on "cadillac" health plans. This article explains why the latter is a good idea.

Recall that these provisions cause the ACA to actually reduce the federal deficit over the next ten years. Do these tax changes seem justified to help bring health insurance to ~25 million people by 2023? You be the judge.

* This tax calculation is an over-simplification, but $200 does provide an upper-bound estimate of the pre- and post-ACA tax differences.

Postscript: For reference, the median household income in the US in 2011 is $50,502. Those households grossing over $200k are above the 95th percentile.

Thursday, October 17, 2013

Does the ACA benefit the middle class?

As a bit of housekeeping, I want to post an example of how the middle class can benefit from the ACA. Much of the vitriol thrown at the new law relates to the fact that the GOP thinks it's a handout to the underserving poor. To test this, I'll use this fabulous tool which calculates how much help a hypothetical family receives to buy health insurance under the ACA.

First, we set the criteria as basically two non-smoking adults with two kids in Utah making a total of $45k/year.

The result?

So, the hypothetical family above would pay $221/mo ($2,650/12) for the Silver plan with the out-of-pocket maximum at $4500 and free preventive care. Here's an example Silver plan looks like with Altius. See for a selection of plans.

$221/mo for solid health insurance for a family of four making $45k/yr? Looks like the ACA is set to benefit a large swath of the middle class. And good for them!

Postscript: To be more clear, this calculation is done assuming the family can't get insurance through an employer. To be even more clear, and for those who aren't aware, without the ACA a private health plan would cost substantially more than ~$221/mo.

Tuesday, October 15, 2013

Can ObamaCare reduce spending?

So, to beat a dead horse (with facts!), I'll briefly respond to those who say ObamaCare costs too much to implement. My response runs like this: the non-partisan Congressional Budget Office (CBO) published a study in July 2012, which evaluated the effect of John Boehner's proposal to repeal ObamaCare. This piece is sourced multiple times in the wikipedia ACA article. So, the CBO found that REPEALING

1. would "increase other direct spending in the next decade by an estimated $711 billion."

2. would "reduce revenues by an estimated $569 billion over the 2013–2022 period."

I'm no math genius, but that looks like repealing the ACA would INCREASE deficits. 

Overall, here's what the CBO finds about Boehner's 2012 plan to REPEAL the ACA:

On balance, the direct spending and revenue effects of enacting that legislation would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period.
This is what the current shutdown is all about. Republicans want to repeal ObamaCare because it....errr....helps poor people....wait, vaguely French....or, errr it costs too much. In fact, not only is the ACA based on conservative principles (RomneyCare, anyone?), but it REDUCES the deficit and helps provide health insurance to millions of the sick and poor. How do any clear-thinking individuals oppose this without providing a superior solution? I would really love to learn what I'm missing here.

Wednesday, October 9, 2013


Playing with the Social Security life expectancy calculator, I'm finally motivated to get super healthy. I think.

Her life expectancy: 85.8
My life expectancy: 82.0

And I'm 4.8 years older than her... better start movin and shakin!

Tuesday, October 8, 2013

Fancy some independence?

Getting back to our roots as a finance/econ blog, I thought I'd throw up some retirement savings rules of thumb for various personal scenarios. I think we'd all like to stop worrying about money one day, and realistically nothing helps us more than salting it away each month.

So, the basic scenario here is that one's not going to retire into a mansion, but also won't live on dog food. To that end, we'll say you'll need $50k/year in retirement, social security will pitch in ~$18k of that (it'll likely still be there), and you'll make 5% after-inflation per year as you're saving, which is not unheard of in a retirement account. A basic rule of finance states that you'll need to have 25X your yearly needs when you start retirement (ie, (50k-18k) * 25 = $800,000). So, $800k is our goal. Now, the monthly savings breakdown, depending on how long you have to save:

There you have it! This not only shows the benefits of starting young, but also how difficult it is to retire early. Remember, one can't claim social security till they're 62 (which age will soon rise), so if you're looking to be free before then, you'll have to save in the ballpark of $1.25 million (~$50k * 25).

Check out calculators here and here to play with your own numbers. Everything above is calculated before tax and with real dollars (i.e. the 5% return is after inflation). Check out and their wiki for basic, honest info on how to invest. Remember, Vanguard and Roth IRAs are your friends. Happy saving!

Monday, October 7, 2013

Who's been compromising on the budget up to this point?

Apropos of the government shutdown and the associated budgetary impasse, I wanted to post this figure (from here). Now, this was the situation pre-shutdown (so, ostensibly, this is what's causing the problem). Notice where we were relative to the goals of the two parties. Recall, Ryan is a Republican (and the red line is where we were going into this latest crisis).

So who's been making the compromises thus far?

Thursday, October 3, 2013

What exactly are the Republicans trying to preserve?

In a continued attempt to explain (and help my own understanding), I'll highlight a few metrics comparing our health system in the US versus those in other countries. Remember, congressional Republicans have shut down the federal government to preserve this system.

The charts come from an International Federation of Health Plans study via the venerable WonkBlog

Recall here that most (if not all) of the other countries here provide health coverage 
for all of their citizens; the US does not.

Sweet. So you're telling me the US pays more overall to cover a smaller portion of our population? Sure looks like it. Martin Wolf of the Financial Times (out of Britain), puts it best:
Is the US a functioning democracy? This week legislators decided to shut down a swath of the federal government rather than allow an enacted health law go into operation at the agreed moment. They may go further; if they do not vote to raise the so-called “debt ceiling”, they risk triggering default…. If the opposition is prepared to inflict such damage on their own country, the restraint that makes democracy work has gone. Why has this happened? What might be the result? What should the president do? The first question is the most perplexing. The Republicans are doing all of this in order to impede a modest improvement in the worst healthcare system of any high-income country. The Patient Protection and Affordable Care Act (known as “Obamacare”) is modelled on one introduced in 2006 in Massachusetts by then governor Mitt Romney. Its apparently criminal aims are to cover 32m uninsured people and ensure coverage of those with pre-existing conditions. True, the programme is complex. But it builds on a defective system.
Can someone please explain what good the government shutdown accomplishes? I really want to learn! Any Republican apologists out there?

Wednesday, October 2, 2013

ObamaCare lowdown

Lots of misinformation out there due to the government shutdown and the opening of the ACA exchanges. Thought I'd see if I can get it straight. Any sensible reform of our healthcare system runs like this (and we're trying to make it so people aren't denied health insurance because of pre-existing conditions):

1. Being denied coverage sucks, so let's make a law to prohibit this.

2. To keep costs from going up, let's require the young and healthy to have insurance (and everyone else, to be fair).

3. Oh, wait, poor people can't really afford insurance, so let's provide some subsidies so they can.

Romney's plan in MA and ObamaCare are both variations of this.

Now, Republicans don't like #1, 2 or 3 above, so America is now closed for business until Obama rescinds (or something).