The $83,000 question: how affordable is health insurance?

One of the alleged facts that President Bush loves to point at when he's trying to justify his veto of the State Children's Health Insurance Program (S-CHIP) expansion is that the new bill would have allowed New York to enroll children from families making up to 400% of the federal poverty level. For a family of four, that works out to an annual income of about $83,000. The President and his staff appear to find $83,000 to be a very impressive number. It's certainly one that they talk about a heck of a lot - as far as I can tell, everyone from the White House who has said anything about the veto on the record has mentioned "$83,000" at least once.

The White House obviously hopes that if they say "$83,000" enough times with a shocked look on their face, they can get everyone to agree that it's entirely unreasonable to expect the government to help pay for health insurance coverage for families making that much money. They hope that if they keep saying $83,000, they can convince people that any family that makes $83,000 a year and doesn't have health insurance deserves to be left on their own.

They also hope, of course, that nobody actually takes a good look at $83,000, and what it can actually buy in New York. So let's do just that.

The $83,000 figure that the White House keeps throwing around comes from New York State's efforts to expand S-Chip coverage to families making 4 times the federal poverty cut-off. Let's see just how reasonable it is to expect a family of four making $83,000 and living in Queens, New York to pay out of pocket for health insurance. Let's look at just how far $83,000 goes in NY.

We'll start with taxes, since the NY version of SCHIP bases eligibility on gross income. Assuming that all of the family income comes from salary, and that it's not produced through self-employment, the family will pay $6,225 in payroll taxes. If we assume that they've got a lot of deductions, and can get their taxable income down to $20,000, they'll pay another $3,650 in federal, state, and city income tax.

That takes us down to $73,125. Now, let's take housing.

Let's assume that the family is living in a $300,000 house - that's well below the median for Queens, which was $469,000 last quarter. We'll further assume that they paid 20% down, and got a nice 5.5% fixed rate mortgage. The monthly payment for that works out to $1,362, which makes the annual cost $16,344. We'll assume that they're considered to be a very good risk for an insurance company, and got a homeowners insurance policy for only $1250/month. (This chart shows 2002 rates in Queens for $150,000 of coverage, so I think my estimate is pretty reasonable.) That's another $15,000 per year.

We're now down to $41,781. Let's look at transportation next.

We'll assume that they've got one not-terribly-expensive car ($20,000) financed at a reasonable 6%. Assuming a 36 month loan, that's going to be $7,313 per year. We'll assume that they're a good insurance risk here, too, and put down a probably unreasonably low $750 for the annual insurance. We'll further assume that it's not driven much (10,000 miles/year), gets really good gas mileage (40mpg), and that they've got a source of really cheap gas ($2.75). That gives an annual total of $688 in gas.

Down to $33,030 now. This brings us to utilities.

Lets assume that the annual oil heating usage is 600 gallons - that's almost 50 gallons under the regional average. We'll also assume that they're really good comparison shoppers, and can get heating oil at $2.80/gal. That's under the $2.84 statewide average, and way under the $3.02 citywide average. The annual cost there is $1,680. We'll assume that the rest of the utilities (electric, water, sewer, phone, etc) are also cheap, and come in at only $150/month ($1800/year).

We've got $29,550 left. Now, let's take something off for basic expenses.

Let's assume that food, clothing, subway fare to work, and everything else come to only $1,000 per month. Given the cost of living in Queens (1.5 times the national average), I think that's pretty reasonable (if not insanely optimistic). That's another $12,000 per year.

After all of that, the family of four has $17,550 left for insurance - assuming no unforeseen expenses, no savings, no college fund, etc.

The absolute, rock-bottom, cheapest HMO rate that NY State lists for Queens comes in at a bit over $17,640 per year. The average comes in at over $28,000 per year. Even the cheapest plan puts our family of four making an "unreasonably high" $83,000/year in the hole, and that's before they cough up a single copay.

If, after looking at all that, you still think it's unreasonable for the government to help New York families making $83,000 pay for insurance, I'd love to know why.

Updated: OK, I've got some egg to clean off my face. As several of you have pointed out, the homeowners insurance premiums were an annual figure, not a monthly. Sorry. We've either rented or lived in government quarters, so I had no idea what was high or low, and it seemed logical to me that homeowners coverage on a 150K house would be more than auto coverage for a 20K car. (And, yes, now I've figured out the whole different risk levels thing.

After the recalculation, that frees up another 13,750, which puts the family back into the black - by 13,000 if they take the basic HMO, and by a whopping $3,000 if they take the average HMO.

Given the conservative nature of the other estimates, that's still not a hell of a lot of a safety margin - especially if you want to do things like send the kids to college, retire someday, etc.

26 responses so far

  • KeithB says:

    Uh Oh, did you include property tax?
    Also, as far as I can tell, the 400% requirement was scaled back in the final version of the bill.

  • David X says:

    "insurance policy for only $1250/month. (This chart shows 2002 rates in Queens for $150,000 of coverage, so I think my estimate is pretty reasonable.) That's another $15,000 per year."
    That chart is for annual premiums.
    It might be nice to start with the recommended cheap 28K insurance policy, and then add taxes, food, shelter, transportation...

  • chezjake says:

    You also neglected to include anything for daycare or any charitable giving, including the $8,300 that Bushco would probably assume they'd tithe to their church.
    Even so, a very nice analysis.

  • hibob says:

    More numbers I would like to see:
    Health care is tax deductable; the deduction for $28K worth of health care at the 28% bracket could be up to $7K. This is basically a ~$7K subsidy to the HMO. On the other hand, the estimate for the cost to the federal government per child for S-CHIP in the plan that was just vetoed is just $1K.
    Is it just me, or does it look like in many cases it would cost the federal government less to pay the entire bill for the healthcare of middle class children via S-CHIP than it would cost for them to pay just the tax subsidy for care via HMO? What's more, the richer the family and the more "gold plated" the health plan, the bigger the difference.
    Shouldn't fiscally conservative republicans be demanding S-CHIP for families making over 100K/yr in order to cut down on our national deficit?

  • Mike says:

    Are you certain about the property insurance. I went to that link you provided. Annual premiums topped out at $1500 per year, not the $15,000 that you quoted. That frees up a lot of extra money. Similarly, many of your others estimates seem inflated.
    I am also curious why you went with an HMO. HSA with high deductibles are the most affordable health insurance products.

  • KeithB says:

    Isn't the health care deduction only for expenses *above* 7.5% of AGI?

  • gpshead says:

    $1250/month for homeowners insurance!?! get real, thats an annual price.

  • Gee. That's interesting; now let's look at Woodford County Illinois where I reside (believe it or not, most of the country resides outside of N.Y. state).
    We live in a $200,000 house. We make around $80,000. We pay $4,200 in property taxes per year. My homeowner's/auto insurance (2 cars) is $1,200 a year. Our health coverage is $2,000 per year (catasrophic coverge).
    As for the last question - where in the U.S. constitution does it say anything about "giving" the citizens money to help out with their budgets? Besides, the money doesn't go to the taxpayer. It goes to the State coffers. Here in Illinois our state is in a budget crisis with no visible way out. At least 1/3 of our State's health coverage is going to non-state residents and Illegal aliens. Any more questions?

  • Mike Dunford says:

    gpshead said:

    $1250/month for homeowners insurance!?! get real, thats an annual price.

    Mike (not me) wrote:

    Are you certain about the property insurance. I went to that link you provided. Annual premiums topped out at $1500 per year, not the $15,000 that you quoted. That frees up a lot of extra money. Similarly, many of your others estimates seem inflated.

    Guilty as charged on the homeowners insurance. That was a screw-up on my part, and I've added an update to the post to reflect that.
    On the other estimates, please point out the ones you think are inflated, and tell me by how much. If anything, I think I erred (by a large margin) on the low end.

  • Mike Dunford says:

    Gee. That's interesting; now let's look at Woodford County Illinois where I reside (believe it or not, most of the country resides outside of N.Y. state).

    The cutoffs for S-CHIP vary from state to state, and only NY has applied to make families eligible who make up to 400% of the federal poverty guidelines. Unless Illinois wants to jack up their eligibility to the same level, looking at Illinois data would be entirely irrelevant and would serve only to confuse the issue.

    As for the last question - where in the U.S. constitution does it say anything about "giving" the citizens money to help out with their budgets?

    This response is marginally less relevant than using your personal finances in Illinois to figure out whether or not a set of income guidelines specific to NY are reasonable. And that's saying something.
    To the best of my knowledge, nobody has claimed (or is claiming, or, for that matter, intends to claim) that CHIP is mandated by the Constitution. The argument is essentially that it's good to make sure that kids have health insurance, and that it's good for the government to make that possible for families who can't afford it.

  • Eamon Knight says:

    Gosh, the nerve of us Canadians, getting free basic health coverage (note: dental, meds and some miscellaneous lab tests not included) whatever our income. (Of course US$83k doesn't go as far as it used to, up here 😉

  • Mike says:

    The argument is essentially that it's good to make sure that kids have health insurance, and that it's good for the government to make that possible for families who can't afford it.
    Your hypothetical family that can not afford health care but can afford luxuries, seems to have some odd priorities.
    1. $20,000 is way too much car for a family that has access to public transportation. $10,000 can buy a reliable used car with good gas mileage (I know because that is what I did).
    2. A family that can not afford health care can not afford a house. Renting would be more economical.
    3. Again, HSA's with high deductible plans are more economical, even than HMO's.

  • KeithB says:

    Wow, free! That sure is nice of all those Doctors, Nurses, hospitals and pharmacies.
    I know what you mean, but healthcare is not *free*.

  • Mike Dunford says:

    Your hypothetical family that can not afford health care but can afford luxuries

    Your definition of "luxuries" is interesting.

    1. $20,000 is way too much car for a family that has access to public transportation. $10,000 can buy a reliable used car with good gas mileage (I know because that is what I did).

    Yes, we know everyone should be more like you.

    A family that can not afford health care can not afford a house. Renting would be more economical.

    You clearly haven't been in the rental market in NY anytime in the last several decades. The median rental in Queens is around $900/month. That figure includes the rates for studios and one-bedroom apartments. A two- or three-bedroom apartment in a decent neighborhood can easily run more than the mortgage payment I quoted. Very easily, in fact.
    The higher rent can be offset a bit by lower expenses - property taxes, etc - but that can be offset, in turn, by the fact that renters aren't accumulating equity that can be borrowed against down the road to pay for things like college tuition.
    More affordable? Maybe. More economical? Probably not in the long term.

    Again, HSA's with high deductible plans are more economical, even than HMO's.

    No, HSA's with high deductibles have lower premiums than HMO's. Whether they are more economical or not depends on circumstances, and is often as much a matter of luck as anything else.

  • Jim Thomerson says:

    There was an article in the local paper saying the $83,000 figure was not in the bill which the president vetoed. If that is correct then the president was misinformed in his statement(s). Anyone know the facts?

  • Dave X says:

    "Anyone know the facts?" Not Bush. He may or may not have been misinformed, but his statements were definitely misinformation, as usual.
    Grassley : Bush dead wrong

  • JohnnieCanuck, FCD says:

    For reference, British Columbia spends 39% of its Provincial budget on heath and 27% on education. That's about $3200 and $2200 per person, respectively. Supposedly the provinces are solely responsible for spending, so my calculations using these figures should be appropriate.
    These, if you consider it, are both open ended sinks for funds. It will always be possible to think of some additional expense that might improve the outcomes for the consumers of these services.
    Given that our health care system is a government bureaucracy, it will have those inevitable public service inefficiencies. Also, the CMA, like the AMA is very active and successful in keeping the supply of doctors lower than the demand.
    It's clear that the tough love approach used in the US to motivate people to get better jobs and lifestyles has not resulted in the elimination of the working poor category, let alone welfare users, like single mothers.
    There are trade-offs, regardless of the social model chosen. Our most noticeable ones are waiting times for elective surgery and bed shortages.
    Medical bankruptcy and treatments refused to the uninsured are what I perceive to be US problems.
    Maybe tough love is turning out to be a cover for hard hearts.

  • Dave X says:

    This article 250-300% of poverty level might help. Bush's plan is to for a family of four making 250% poverty+$1 ($51,601) shouldn't be eligible, so that would be the right baseline for Mike to start with:
    $51601 - 3650 -17640 -16344 - 1250 -1680 - 1800 -12000 = -2763
    Income -tax - health - mort. - ins - fuel - util - pub.trans = a big hole
    And that's even without the car. Dropping this president's recommended private health insurance is the only discretionary choice this Queens family can make.

  • Troublesome Frog says:

    Wow, free! That sure is nice of all those Doctors, Nurses, hospitals and pharmacies.
    I know what you mean, but healthcare is not *free*.

    I can only wonder what a poster must think of the average intelligence of people in a discussion when they post obvious shit like this.

  • SLC says:

    Relative to the automobile costs, an automobile lasts a lot longer then the 3 years Mr. Dunford assumed as the payoff time. At 10,000 miles per year, a properly maintained car should last 15 years (a former colleague of mine put 250,000 miles on a 1991 Honda Accord purchased new). Thus, Mr. Dunfords' assumption of $7300+/year is only for the first three years. After the car is paid off, the tab is $0/year.

  • KeithB says:

    "I can only wonder what a poster must think of the average intelligence of people in a discussion when they post obvious shit like this."
    I was not the one who said that Canadian Healthcare is "free" - which is also an insult to our intelligence. And just to let you know I am very much in favor of universal healthcare in the US.

  • Troublesome Frog says:

    I was not the one who said that Canadian Healthcare is "free" - which is also an insult to our intelligence. And just to let you know I am very much in favor of universal healthcare in the US.

    Thanks. We'll call you when we need somebody to point out that shooting stars aren't actually stars, that universal health care isn't actually universal, and that non-toxic crayons will kill you if you eat enough of them.
    Seriously. Do you think that anybody here actually believes that schools, roads and libraries just grow magically from seeds? Nothing is free. If the fact that somebody, somewhere has to pay for something makes it not free at the point of consumption at zero cost, we should ask that the word be stricken from the dictionaries. Until then, it's reasonably useful to describe a good or service that is provided during a transaction when no payment is rendered.

  • In your analysis, you could include medical expenses, because most private insurance does NOT cover all medical expenses. My last private policy did not cover exams, prescriptions, dental, glasses, or the first few thousand of a hospital stay.
    You won't hear the administration talking about any income numbers besides New York. To the rest of the country, $83,000 is a phenomenal amount of money. After reading your stats, what we really need to work on is the insane cost of living in New York. Is it worth it?

  • $83,000 is a phenomenal amount of money.

    Really? For a two-income family?
    I'm single, and I earn significantly more than half that amount. Of course, I also pay half of my income in taxes (but do have access to free, or pre-paid if you prefer, health care and education).

  • slpage says:

    SLC wrote:
    "Thus, Mr. Dunfords' assumption of $7300+/year is only for the first three years. After the car is paid off, the tab is $0/year."
    True, insofar as car payments are concerned. But warranties tend to run out, and don't cover basic maintenence anyway (in most cases). We just paid off our Toyota truck, and we've had to put in over 1,000 dollars in maintenence (above routine stuff) in the last couple of months - and that is in a Toyota (which has stellar quality). If you have a Ford, what happens then(that is actually why we have a Toyota now - our Ford was costing us too much in non-warrantied maintence costs)?
    It is all well and good to plot out how Mike's hypothetical family could do without 'luxuries' and how they should be on a budget and all this, but this is unrealistic. It is EXPENSIVE to have health care unless you are part of a huge cooperative plan. For individuals or small businesses, it is quite nearly cost-prohibitive. I know many people who work and simply cannot afford health insurance, and they are not living lives of luxury.
    Whatever happened to 'compassionate' conservatism? Does that compassion only apply to fetuses and billionaires?

  • slpage says:

    Miss Cellania wrote:
    "To the rest of the country, $83,000 is a phenomenal amount of money."
    I used to think that, too. I used to live in Detroit, and got a job in Vermont. I looked on the Net, and I discovered that the cost of living was much lower in Vermont than in Detroit. Great, I thought. After living here for 8 years, earning over 100,000 (two incomes), I have found that the only thing cheaper here than in Detroit is coffee, and that 100,000+ is barely enough to get by on for family of 4. We have a high-deductible HSA/HMO plan, which is generally pretty good, but it still takes a chunk out of my paycheck (my employer makes a 2-to-1 contribution), then I have student loans, 2 kids to feed and cloth and take care of, 2 vehicles (my wife works in another town and there is no public transportation here), etc., etc.,
    83,000 might allow for a Kingly living in some areas of country, but I don't know where such places are. I can only imagine how people making less than half of what we do get by. Its funny - here I am 'complaining' about living on a 'tight' budget, yet I have no problem with the notion of my taxes helping to pay for healthcare for everyone. I guess I am less concerned about my personal wealth and more compassionate than the typical family values conservative type.