Realizing Health Reform’s Potential: Will the Affordable Care Act Make Health Insurance Affordable?

By Jonathan Gruber and Ian Perry
The Commonwealth Fund

April 2011


Using a budget-based approach to measuring affordability, this issue brief explores whether the subsidies available through the Affordable Care Act are enough to make health insurance affordable for low-income families. Drawing from the Consumer Expenditure Survey, the authors assess how much “room” people have in their budget, after paying for other necessities, to pay for health care needs. The results show that an overwhelming majority of households have room in their budgets for the necessities, health insurance premiums, and moderate levels of out-of-pocket costs established by the Affordable Care Act. Fewer than 10 percent of families above the federal poverty level do not have the resources to pay for premiums and typical out-of-pocket costs, even with the subsidies provided by the health reform law. Affordability remains a concern for some families with high out-of-pocket spending, suggesting that this is the major risk to insurance affordability.

What are necessities?

The Family Economic Self-Sufficiency Standard (FESS) considers necessary expenditures as:
• child care
• food
• housing
• taxes
• transportation
• miscellaneous (calculated as 10% of other costs).

Exhibit 3. Percent of Households That Do Not Have Room in Budget for Health Care (after paying for necessities + subsidized premium + subsidized out-of-pocket costs at the 90th percentile)

At each reported income as a percent of poverty level:
<Poverty – 17.3%
101-150 – 10.8%
151-200 – 17.5%
201-250 – 26.2%
251-300 – 24.2%
301-350 – 17.5%
351-400 – 12.5%
401-450 – 15.3%
451-500 – 12.0%
>500 – 2.5%

Affordability generally increases as incomes increase, although affordability is particularly challenging for families at 201 percent to 300 percent of poverty with high out-of-pocket expenses (90th percentile). Because the actuarial value of available plans falls from 100 percent for those below the poverty level to between 70 percent and 73 percent for those in this bracket, about one-quarter of families in this income range with very high out-of-pocket costs cannot afford health care–related costs.


By Don McCanne, MD

News reports on this new Commonwealth Fund study have cheery titles such as, “Health Reform Will Make Insurance Affordable for Nearly All Families.” These titles should be extended to include, “… But Not Health Care.”

Exhibit 3 noted above reveals that up to one-fourth of those with out-of-pocket costs at the 90th percentile level will not have enough money to pay for their necessities plus subsidized premiums plus subsidized out-of-pocket costs for their care. Even 2.5 percent of individuals with high incomes (over 500 percent of the poverty level – $111,750 for a family of four) will face financial hardship should they have greater health care needs.

Also of concern is that the assumption is made that all income beyond the necessities listed would be used for health care if financial hardship were to be avoided. Presumably that would mean no money for savings, for retirement, for higher education expenses, for vacations, for entertainment, nor for thousands of other preferences you might have for your spending. Is that the standard that we want to set? That we pay out what we need merely to exist and then almost everything else goes to pay for health health care if we need it?

Other exhibits in this report show that the outlook is worse for single individuals, for those living in states with a higher cost of living, and in the future it will be worse for everyone since affordability erodes further with the passage of time.

So what accounts for the cheery headlines? It is only subsidized health insurance that is affordable for most, but even there not all. Left out of the headlines is the fact that out-of-pocket expenses are not affordable for far too many.

Because the majority of people are healthy, the report concludes, “Fewer than 10 percent of families above the federal poverty level do not have the resources to pay for premiums and typical out-of-pocket costs, even with the subsidies provided by the health reform law.” The celebration is for the 90 percent who may have some funds left after paying for necessities plus health care. But isn’t the purpose of health insurance to take care of that 10 percent who face financial hardship in the face of health care needs? Or even the 2.5 percent who are wealthy and need health care but can’t afford it?

A properly designed single payer system eliminates for everyone financial hardship due to health care costs. Premiums are not a problem because the entire health care system is funded through equitable tax policies. Out-of-pocket spending is not a problem because first dollar coverage applies to all essential health care services and products.

Let’s all work to expose the deceptive rhetoric that the Patient Protection and Affordable Health Care Act has made health care affordable for almost everyone, when in fact, when you need health care, every last dime is squeezed out of you and that still isn’t enough for up to one-fourth of us with significant health care needs. In the same breath, let’s let the public know that there is a way we can do it – a single payer national health program.

Re-posted with permission from