New HHS "family penalty" rule leaves spouses, children unprotected

Just how complicated will ObamaCare get for employers, workers, and families? Politico’s analysis of a decision by the Obama administration and HHS may take several readings to understand exactly how a bill that purports to insure children and spouses may end up leaving them in the cold, and how employers may end up footing more of the bill than Congress claimed when it passed the ACA.

At issue is the question of whether to subsidize additional insurance for workers who can afford their employer-based health care coverage for themselves, but not for their families.  Not doing so forces either the worker or employer to pay more of the premium; doing so would explode the subsidy cost for ObamaCare, which has already gone up nearly 40% from original estimates before the first subsidy dollar has been spent.  HHS decided against expanding the subsidy even further, but that has real-world implications that won’t make ObamaCare supporters happy:

The Department of Health and Human Services finalized the so-called family penalty in a rule last week. That means the test of whether insurance is affordable is based on the amount the worker pays for their health insurance — not on the cost of the policy for that worker’s whole family.

More specifically, if a worker can pay for employer-sponsored coverage for less than 9.5 percent of income, then dependents won’t be able to get subsidies on the health insurance exchanges that start next year. The health law uses a measure called the modified adjusted gross income to determine eligibility.

So to the dismay of many advocates of health coverage expansion, spouses and kids could fall through the cracks.

The Government Accountability Office, using 2009 data, estimated that about 7 percent of uninsured children — 460,000 — would remain uninsured because parents wouldn’t be able to afford coverage for the whole family.

Don’t forget, too, that the overall benefit of these plans will decrease in order to meet that 9.5% threshold in the first place.  Not only will families possibly fall through the cracks, but the worker will have a less-beneficial policy, too.

Brett Norman walks us through a scenario with a worker at 200% of the federal poverty level:

Take a family of three in Florida making $40,000 a year — just over twice the federal poverty level. If one parent works part time and makes $10,000, and the other works full time for a large employer for $30,000, that company would have to offer an individual policy that wouldn’t cost the full-time employee more than $3,800 — 9.5 percent of household income.

For the individual — that shouldn’t be a problem. The average employee paid $951 for insurance in 2012, with the employer paying the rest of the premium, according to the Kaiser Family Foundation. That’s well below that $3,800 threshold.

But employers often chip in less toward the family coverage. And while the health law does require them to offer coverage for kids — though not for all adults in the family — there’s no legal requirement that they make it affordable.

The average employee contribution for a family policy is $4,316 — which is steep for a lot of families. And if the employer isn’t subsidizing it, the cost could be $15,745 — in the case of the hypothetical Florida family, more than half of the primary breadwinner’s earnings.

Head spinning yet?  Here’s where it gets interesting.  Some of these children could be covered under the Childrens Health Insurance Program (CHIP), but some states cut off eligibility at 200% of the federal poverty level.  Also, CHIP’s funding runs out in 2015, as ObamaCare was supposed to address the issue of uninsured children.  If CHIP doesn’t get funding extended, then Obama will have pushed families out of the private health insurance they otherwise would have had, while leaving children with no public assistance options — and that will be true immediately for children of households that make 200% or more of the federal poverty level.

What happens when employers start getting pressured by workers to lower family-insurance costs?  First, as Norman writes, they’ll probably get tougher on determining whether the dependents claimed are actually dependents.  However, don’t forget that ObamaCare also mandates that family insurance cover “children” to age 26, which makes the entire exercise even more expensive that it already was.  The other option — to dump insurance altogether and force employees to go onto the ACA-mandated exchanges and pay the penalties instead — will begin to look mighty tempting.  That will create an even bigger explosion in subsidy cost as millions of otherwise-insured workers and their families have to begin looking for insurance on the individual market.

Small wonder that Michael Ramirez portrays ObamaCare as snake oil in today’s IBD editorial cartoon:


Also, be sure to check out Ramirez’ terrific collection of his works: Everyone Has the Right to My Opinion, which covers the entire breadth of Ramirez’ career, and it gives fascinating look at political history.  Read my review here, and watch my interviews with Ramirez here and here.  And don’t forget to check out the entire site, which has now incorporated all of the former IBD Editorials, while individual investors still exist.