Ask Stacy: Isn’t Obamacare Going to Wreck the Economy?

This week I’m taking two questions, both about the Affordable Care Act. The first is about the “ripple effects” of diverting money from consumer spending to health insurance. The second is about the affordability of health insurance under the new law.

Here’s the first one:

Could you comment on the effect of Obamacare on the economy? For example, if I have to buy health insurance (or be fined) I neither need or want, I expect that I will not be able to buy some of the things I do need – food, gas, school clothes and supplies, etc., etc. My insurance money will NOT be put into the economy but given to the insurance company. Companies that rely on my spending (and millions like me) will either close or lay off people (a huge loss of jobs?). There may be many other factors to consider as well. The ripple effect will be — what? – Larry

Why Obamacare made health insurance mandatory

To answer Larry’s question, here’s a simple example of the way the health care system worked prior to passage of the Affordable Care Act, also known as Obamacare.

  1. Larry doesn’t buy health insurance, because he neither needs nor wants it and he’d rather help the economy by spending his money on other things.
  2. One day, Larry wakes up unable to properly breathe. He goes to the emergency room, where he soon discovers he needs triple bypass surgery.
  3. Larry is admitted to the hospital and the $200,000 surgery is performed.
  4. Larry can’t begin to afford this bill, so he declares bankruptcy. The hospital loses $200,000.
  5. To recoup the loss the hospital suffers because of Larry and others like him, it raises all its rates.
  6. Since the hospital is now charging more, the price of insurance goes up.
  7. Because Larry didn’t pay his hospital bill, his fellow citizens indirectly pay it for him.

This is the simple logic behind the Affordable Care Act. The reason this law exists is to make sure as many people as possible have health insurance. Other than letting those without resources die, it’s the only way to prevent your fellow citizens from paying for your health care.

Nobody likes paying big bucks for insurance, Larry, and every premium we pay diverts money from other parts of our economy. Whether it’s car, home or health insurance, we can all think of things we’d rather spend money on. Until, that is, we wreck our car, our house burns down, or we need a triple bypass.

The difference is, your wrecked car and burned house don’t cost me anything. Your triple bypass does. So unless you’re OK with either 1) dying if you can’t afford to get sick or 2) forcing the rest of us to spend our hard-earned money to pay for your health care, get some insurance.

For more on this topic, check out “Americans Don’t Want Health Insurance? Since When?

Falling through the doughnut hole

Now, here’s our second question, also relating to the Affordable Care Act:

I do not understand the affordable part of Obamacare. I am sure you have had other people complaining about this problem. I am currently only making just under $10,000 per year, I am a Florida resident so I do not qualify for Medicaid (single male). When I completed my application on Healthcare.gov, it says I will pay between $500 and $600 a month for insurance. I do not see anywhere that shows any type of reduction. Someone told me you receive the reduction as a tax credit. Duh, at my income I pay little tax. Where do they expect me to get the money in the beginning if this is so? I guess I will take the penalty. – Robert

When I first read Robert’s question, I assumed he was mistaken. After all, thanks to the Affordable Care Act, those who can’t afford health insurance will either qualify for Medicaid or get a subsidy to help pay for insurance on the exchange.

But it was me who was mistaken.

Robert and I both live in Florida, one of 23 states that have refused to expand Medicaid to cover people like him.

Florida’s Republican-led House of Representatives has thus far blocked efforts by both the governor and the state Senate to accept billions in federal funding to expand Medicaid. Had they agreed to accept this free money, people like Robert — single and living below the poverty level (annual income of $11,490) — would be eligible for Medicaid. But since Florida chose to refuse this funding, they’re not eligible.

As for the subsidies provided by the Affordable Care Act, Robert also is not eligible. That’s because subsidies are available only for those earning between 100 percent and 400 percent of the federal poverty level. Those earning less are supposed to qualify for Medicaid. Because Robert earns less than 100 percent of the poverty level, he’s not eligible for subsidies. And because the Florida House would rather stand on principle than accept free federal money to insure its poor citizens, he’s not eligible for Medicaid.

According to this article in the Orlando Sentinel, that makes Robert one of 995,000 Floridians in this position.

This problem arose not because of the Affordable Care Act, but because of the U.S. Supreme Court’s interpretation of it. The Supreme Court upheld the “mandatory coverage” part of the bill, but not the part requiring states to accept federal funding for Medicaid expansion. That left states opposed to the law with the ability to attempt to derail it by refusing to participate.

So now Robert and millions like him are required to buy health insurance, but conservative state legislatures like Florida’s are refusing to accept federal funding that would provide it free. In short, it’s more important for them to oppose Obamacare on principle than insure their poorest citizens.

Nice.

The state of Florida is in talks with the Obama administration about other sources of federal funding to insure its poorest citizens, but for now, that’s the way it is.

If Robert did qualify for subsidies, the tax credit he’d qualify for would go directly to the insurance company he selected, thus reducing his out-of-pocket insurance cost. So it wouldn’t matter that he’s in a low tax bracket.

What does matter, however, is for Robert to remember when election time rolls around who put their personal political agenda ahead of his need for free health care.

Got a money-related question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here. The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer. Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

Sign up for our free newsletter

Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's "205 Ways to Save Money" as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.

Check out our hottest deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,182 more deals!

Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Guest

    Oh dear Lord !!! Does ‘anyone’ really believe the insurance companies are really going to ‘lower’ their prices?? ROTFLMBO…Really?? Come…on !!!!!!

  • Guest 2

    Dear Lord !!! Does ‘anyone’ really believe insurance companies are going to lower their rates?? ROTFLMBO…. Really??……NOT !!!

  • Guest 2

    (Third time’s the charm…fingers crossed I’ll get a comment in…lol)……..Dear Lord !!! Does anyone ‘really’ believe insurance companies are going to ‘lower’ their rates?? Really?? ROTFLMBO……This has really moved into crazy !!

  • alan

    So others will have to subsidize the 200k heart surgery and that’s bad but our subsidizing millions of people’s health coverage is just fine and dandy? Liberal asshole logic

  • Bob

    I had a young Mexican Sgt work for me when I was in the military…when questioned as to why he was in line to receive help on a “Needs Basis Program” when he wasn’t needy…He responded “If they are giving away stuff free, I’m as good a the people in line so I should get it also” The new AMERICAN definition of “Free Money” If we give it away, they will come, take and ask for more!

  • Von Lawton

    She also failed to say that we who pay for insurance year after year, have always paid for the poor, illegals and freeloaders. This law changes nothing except cost you everything you have for inferior coverage with higher deductibles and co-insurance. I believe in the Constitution and by it the way this law was upheld by Judge Roberts he made it unconstitutional when he made the mandate a tax instead of the penalty. This law was created by the Senate which must be created by the House if it is a new tax or revenue income. I will never understand how anyone could still support the law breaker in the White House.

  • White clowns

    Sir you are dishonest. First the Feds will only subsidize Medicaid for a few years. Then the states are on their own. AND they go bankrupt. Second, if someone needs surgery and doesn’t have insurance, isn’t that the beauty of Obamacare? Some insurance company has to pay because all pre existing are covered? Actually the federal govt makes up 80% of the losses. The bottom line is that the more the govt guarantees the cost, the less we will do for ourselves in terms of care and prevention.

  • feit walter

    Larry is on medicaid. He gets a 200,000$ operation. Medicaid pays its government fixed rate of 65,000$. Larry is happy. The hospital is worried that if they get more patients like Larry, they will go broke.

  • Fed Up

    I believe your buddies shut the republicans out of the hearings, and there have been many suggestions such as tort reform but again your buddies won’t allow that to ever occur!!