Wednesday, January 22, 2014

Student Loans or Health Insurance?

The logic of the new healthcare law is that "young invincibles" have a patriotic duty to pay for older or sicker Americans.  The idea is that people with lower risks should pay higher premiums as long as we offer subsidies (or Medicaid) for people who really can't afford insurance. There may be more of a problem with this reasoning than we recognize--due to the new dynamics of student debt.

Here's the bottom line: the new law computes subsidies based on income, not discretionary income. For a lot of young graduates, that turns out to be a big problem. If you like math, read on. 

Professor Glenn Reynolds of Instapundit has been writing about the "higher education bubble" for some time now. This somewhat-controversial hypothesis claims that the value of a college degree is going down even as the cost of a degree is going up, and that the entire system of higher education in the United States is due for a "correction," much like the housing market bubble that popped in 2007.

Whether the "bubble" is sound economic theory or not, it focuses attention on how school debt burdens young people in an underperforming economy. A recent graduate who borrowed $50,000 for her BA in sociology may find nothing better than Starbucks--unless she's willing to borrow even more to get a masters degree.

Student debt is different from mortgage debt--and every difference disadvantages younger people. Student loans are paid out of after-tax dollars; home loans are paid from pre-tax dollars. Home loans vanish after bankruptcy, student loans stay with you until you die.

So let's put these facts together and see how they apply to the "young invincibles" who are supposed to sign up on the exchanges. A 26-year-old who makes 29,000 in Frederick, Maryland pays $168.00 per month for a "silver" plan, which has a $1,300 deductible and a $6,350 out-of-pocket maximum. A ten year loan for $50,000 at 6.8% costs $575 per month. Rent for a single person in Frederick is over $600 a month. Federal income tax on a person with no dependents or deductions is over $200 per month. Adding it up, we get:
  • Income: $29,000
  • Fixed Expenses: $21,600
    • Federal taxes: $2,400
    • Rent: $7,200
    • Student loan: $6,900
    • Insurance: $2000
    • Car loan (4 years on $5000): $1500
    • Cell phone (basic plan): $600
  • Living Expenses: $2800
    • Food ($100 a month for basics): $1200
    • Gas (40 miles per day at 22 mpg): $1600
  • Discretionary income: $5600
That is less than $500 per month--and doesn't include little items like state taxes, car repairs, clothes, and the like.

What if this particular graduate is one of those "young invincibles" that the law depends upon?  We have to add a few items:
  • Young invincible expenses:
    • Fast food
    • Beer
    • Sports
    • Cable television
    • A real car
    • Etc.
 Of course, not all young men need fast cars or six six-packs to get through the week. I go to church with some remarkable young men who are saving up to get married and start a family. After paying their tithe (which gets them no tax advantages, since it falls within the "standard deduction"), these men have a total of $2700 they can save each year for an engagement ring and honeymoon--assuming they can find a girl who will say "yes" when their date budget only covers sandwiches on a park bench.

All that is for a student loan of $50,000 for a graduate with a pretty good job. What about the graduate in the next cubicle with the same salary and a $75,000 loan? His interest payment is just about $3600 more each year, leaving him with less than $200 a month after basic food and gas.

Bottom line? The new law wasn't written by a recent graduate, and things may get worse before they get better. The kind of job you need to pay off the kind of debt you need to get the kind of job you need is too high for subsidies but too low to get ahead in life. And don't forget--this lifestyle of "unsubsidized subsistence" is considered success for the recent graduate.

Is it any wonder that "millenials" aren't excited about the new healthcare law?

Tuesday, January 14, 2014

A HealthShare Pilgrimage

I am on the road today, visiting Samaritan Ministries in Peoria, IL, and the Alliance of Healthcare Sharing Ministries in Washington, IL. Tomorrow I will be meeting with Christian Healthcare Ministries in Barberton, OH. I hope to visit Medi-Share in Melbourne, FL in March.

I feel a little like the Apostle Paul, who submitted his message of a Gospel to the Gentiles to the church leaders in Jerusalem in Acts 15. I believe that "bearing one anothers' burdens" is a beautifully biblical way to pay for modern health care. I want to do what I can to persuade my brothers and sisters to explore the healthshare model. But I also know that the people who actually serve Christ by running healthshare ministries have been doing this humble, faithful work for decades--and they don't need me to come in and disrupt things.

So I'm on the road to find out how to combine enthusiasm with humility; energy with wisdom. Pray for me today!

Monday, January 6, 2014

Puzzling Over Medicaid

I have proposed a 50% federal tax credit for paying for someone else's health insurance. Payments to an insurance company or 501(c)(3) charity would be reported to the IRS, and the IRS would apply half the amount reported to federal income taxes owed. This tax credit would:
  1. double what some people now pay in taxes,
  2. reduce the burden on doctors who accept Medicaid, and
  3. extend the solvency of the Medicaid fund, which is expected to go into the red by 2024 at the latest.
 Who might be interested in such a proposal? Here are a few examples:
  1. Parents of low-income children over 26 who live in "Medicaid gap" states. 
  2. Children of low-income parents over 55 who do not want the Medicaid estate recovery program (MERP) to take the family assets after death.
  3. Church members who want to help the poor people in their congregation.
  4. Women's rights activists who want to give low-income women access to all reproductive choices despite Medicaid restrictions.
  5. Immigrant groups that want to help Medicaid-eligible individuals get coverage without disclosing the immigration status of their family members.
In my online discussions about this idea, I have encountered a handful of objections. These include:
  1. "You just want to privilege church-goers." (Rebuttal: I think many church-goers would be willing to pay twice what they now pay in taxes. Maybe I'm trying to exploit church-goers!)
  2. "Why shouldn't the state claim all the assets from a person who goes on Medicaid?" (Rebuttal: the so-called "Death Tax" only takes 40% of the assets from billionaires. Why take 100% from the working class?)
  3. "This doesn't help the people who don't have wealthy family and friends." (Rebuttal: overloading the Medicaid system hurts the people who need it most. This frees it up as a true safety net for the truly destitute.)
  4. "It's a tax break for the rich." (Rebuttal: no, it's a tax break for the working class. Tax deductions are fairly valuable to people in the top tax brackets, because they can save about 39 cents on the dollar by giving money away. People in the lowest bracket are just as generous, but they get 10 cents of the dollar for their donations. A tax credit levels the playing field for altruism.)
  5. "Medicaid may be cheaper than insurance." (Rebuttal: yes, and you get what you pay for. Why not help people get better medical care at lower overall cost to the taxpayer?)
The only objection I haven't encountered yet is the only one I can't get around--"your system might actually work, which would keep Medicaid from crashing, after which the federal government would have to create a single-payer system."

Friday, January 3, 2014

Elder Law Opportunity

Approximately one million Americans are now at risk of losing their homes, farms, and small businesses to Medicaid's estate recovery program ("MERP"), but as of today there have been less than 20 news stories about the problem--and most of those have been published in the "local news" section. That is a problem for older, poorer Americans but a terrific opportunity for elder law attorneys.

Attention, attorneys: would you like more business? Here's your recipe for free advertising:
  • Find a person who is:
    • over 55 
    • with an income below 138% of the federal poverty line
    • who owns a home, farm, small business, substantial savings, or other assets.
  • Research MERP in your state (if you don't already know the law).
  • Find the webpage where your state explains MERP.
  • Find the newspaper(s) that serve your area and look for their "submit a story" button. (If they don't have a "submit a story" button, search for "health" and find the reporter who covers health issues.) Explain the problem, the solution, and offer to put them in touch with your client. Make sure they include the name of your firm in the story!
To make this work, you have to be able to explain the solution. As I have explained in previous posts, any person with enough assets to worry about can sell just enough of their property each year to generate the income they need to qualify for subsidies. For some, one big yard sale might boost their income over the Medicaid line. Other clients may need more specialized help--which is why this is such an opportunity for specialists in elder law.