Monday, February 4, 2013

Obamacare -- It Wasn't For The Children After All

From the department of foreseeable but nevertheless unforeseen  consequences comes a an Obamacare fiasco in the making. The Regulators of Obamacare have determined that employers will only pay a penalty to the IRS if the individual  coverage to its employees is deemed to be not "affordable". (Affordable means the premium is less than 9.5% of W-2 income.)

Sounds reasonable, right? Family coverage -- at $15 to $20K per year per family per year -- is going to be much more than 9.5% of the income of anyone making less than $100K. A regulatory approach like this avoids a perverse incentive for employers to hire only single individuals.

But, in the magical world created by Obamacare, the reasonable actions one set of regulators take can often have a downright insane effect on how the other provisions operate. Health law expert Timothy Jost explains this at length in his post, cited above. But here is the bottom line explanation:
The bottom line seems to be that even though an employer must offer coverage for an employee and the employee’s children, the employer will not be penalized if family coverage is unaffordable as long as self-only coverage is affordable.  If self-only coverage is affordable (defined as costing no more than 9.5 percent of the employee’s income), the employer will have satisfied the employer responsibility requirement, even though family coverage is unaffordable.
On the other hand, if self-only coverage is affordable to the employee (defined now as costing no more than 8 percent of household income) an employee must purchase it to avoid the individual responsibility penalty, but need not purchase family coverage for dependents if family coverage costs more than 8 percent of household income. Spouses of employees, presumably, can get premium tax credits if they are not offered employer coverage, but the premium the employee must pay for self-only coverage will not be taken into account in determining the spouse’s eligibility. Family members eligible for employer coverage will not be eligible for premium tax credits if the employer can purchase self-only coverage for 9.5 percent of household income or less, even if family coverage costs more.
Employers can offer unaffordable family coverage and avoid a penalty. The federal government will pay less for premium tax credits as fewer people will be eligible. And hundreds of thousands, probably millions, of children (and spouses) will remain uninsured.
What does this mean, exactly? Families will not receive a subsidy to pay for their children's health insurance, nor will they pay a penalty for failing to provide it. That results in a large incentive not to insure for the children's health care. Add to that Obamacare's removal of preexisting condition requirements on individual policies and its mandate that policies not be priced to reflect the health of the insured, and you have an even larger incentive for people struggling to play chicken with their children's health coverage.

The bizarre thing is -- a legislative fix for this is unlikely. Requiring that premium credits be granted for family members would cost the US government billions, and requiring employers to provide affordable family coverage will create an incentive to hire people who do not have children (or not hire at all). The likely result is that at least some people will gamble with their children's health, and hurry to go buy an insurance policy for a child if it looks like he or she has a major health condition.

So, the next time Nancy Pelosi reminds us that a big government initiative is really for the children -- remember to laugh.

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