Health Insurance Report™ helps you track and analyze legal, legislative, and regulatory developments affecting the health-insurance industry throughout implementation of the Affordable Care Act...
By Sara Hansard
The health insurance subsidy system set up under the health care reform law will lead to a decline in employer-sponsored health insurance and will provide a disincentive for marriage as well, according to testimony at an Oct. 27 hearing of a House Committee on Oversight and Government Reform panel.
“What we have is [an] opportunity for workers [who] currently have [employer-sponsored insurance] to get much cheaper coverage on the exchanges,” said Richard Burkhauser, an economics professor at Cornell University. He testified at a hearing held by the Subcommittee on Health Care, District of Columbia, Census and the National Archives on unintended consequences of PPACA. “We're going to see dramatic changes in the way health insurance is provided because of the perverse rules,” he said.
Health insurance subsidies available in the state-based insurance exchanges that are to start in 2014 under the Patient Protection and Affordable Care Act are based on whether people can get qualifying coverage from employers at prices that fall within set percentages of employees' income, without regard to household income, Burkhauser said.
“People who are employed by firms who are providing them with affordable single coverage are going to beg their employers to increase the costs of their single coverage, so that they can get their families on the exchange,” Burkhauser told the subcommittee.
“Right now if you have affordable single coverage, but unaffordable family coverage, you are in no-man's land,” he said. “You [do not] have affordable coverage from [employer-sponsored insurance], and you're barred from the exchanges.”
The recent announcement by Wal-Mart Stores Inc. to drop health insurance coverage for part-time workers “is the beginning of a re-evaluation by all large employers [of] exactly how they're going to respond to the new incentives,” Burkhauser said (see related item in this issue). “Wal-Mart now realizes that there's no reason to provide affordable health care to their part-time workers. Part-time workers can go and get large subsidies on the exchanges.”
The company is likely to increase the share of premiums that most of its employees must pay, he predicted. “Those workers will also, therefore, not have affordable coverage and go to the exchange.” But Wal-Mart would still be able to maintain health care insurance coverage for higher-income workers, he said.
Rep. Trey Gowdy (R-S.C.), chairman of the subcommittee, cited a Joint Committee on Taxation estimate that fewer than 20 percent of the beneficiaries of the premium tax subsidy will be married couples and their families. “This is partly due to a recent [Department of Health and Human Services] rule that prevents families from accessing the tax subsidy if either parent has an offer of coverage at work,” he said.
“If a husband is offered health insurance at work for just himself, and his wife and children must go purchase health care in the open market, the cost of covering the wife and children will not be eligible for a subsidy,” Gowdy said. The rule is meant to minimize the cost of the subsidy, he said. “But the collateral damage will be that the Affordable Care Act will exacerbate the marriage tax penalty already in the tax code.”
Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute for Policy Research, testified that PPACA provides incentives for lower-income people to forgo marriage. People currently can buy low-cost, high-deductible plans with health savings accounts, “so this hasn't arisen right now,” she said. “But it will if the government mandates expensive health insurance, requires people to have it, and gives people subsidies depending on where they are on the poverty line.”
PPACA provides health insurance premium tax credits starting in 2014 for people with income between 133 percent to 400 percent of the federal poverty level. The credits are “refundable,” meaning that people could receive subsidies greater than their tax liability.
The law creates incentives so that “Americans will find it more advantageous to stay single than to marry,” Furchtgott-Roth testified. Linking the credits to the poverty line rather than directly to income “results in a particularly steep marriage penalty for low-income Americans,” she said.
With $10,890 as the poverty line for one person and an additional $3,820 for a spouse, being married will result in lower subsidies for buying health insurance, she said. The new qualified benefit plans offered in the exchanges will be generous and expensive, she said. “It's going to be especially important for low-income individuals to have help with their health insurance premiums.”
For people who get the premium tax credit subsidies, the law sets a sliding scale of 2 percent to 9.5 percent of household income that must be paid for premiums. Two single people earning $43,000 a year could get help from the federal government with health insurance premiums, Furchtgott-Roth said. But if they married, their combined earnings of $86,000 would put them above 400 percent of the federal poverty line and make them ineligible for the tax credits.
As a married couple, the most they could earn and still get government help with health insurance premiums is $58,000, she said. “This is a substantial disincentive to get married,” she said.
In addition, the law provides a disincentive for the lower-earning spouse, which is usually the woman, to work, she said.
A study released Oct. 25 by the Republican staff of the Committee on Oversight and Government Reform, Uncovering the True Impact of the Obamacare Tax Credits: Increases the Deficit, Expands Welfare through the Tax Code, and Implements a New Marriage Tax Penalty, said that in addition to creating a “substantial new marriage penalty into the tax code,” the law will result in removing as many as 8.1 million filers from the tax roles by 2020. “As a result, these households will have a disincentive to care about the growth of government,” it said.
Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office, testified that, despite CBO and Joint Committee on Taxation estimates that PPACA will reduce the deficit by $143 billion over 10 years, the law is likely to increase the deficit.
“There are billions of dollars of cuts to Medicare which will not be sustainable in the future,” he said. “The future Congress will be faced with a choice between denying seniors access to care or restoring those cuts. My expectation is those cuts will be restored. The cost to the program will become larger and larger.”
In addition, “There's a serious outside risk of the insurance subsidies offered in the exchanges being far more expensive than the Congressional Budget Office originally estimated,” he said. CBO estimated that the tax credits would increase the deficit by $130 billion in 2010, according to the committee's Republican staff report.
“There's simply too much subsidy money on the table for employers and employees not to take advantage of it,” Holtz-Eakin said. Employers are likely to drop coverage so employees can get insurance subsidies through the exchanges, he said.
But Sara Collins, vice president for affordable health insurance at the Commonwealth Fund, testified that the increase in the number of uninsured to nearly 50 million in 2010 demonstrates “how critical these premium tax credits and the law's related insurance portability programs and the reforms will be to ensure both the health and financial security of working families.”
In addition to the number of uninsured, 29 million working-age adults had such high out-of-pocket costs that they were underinsured, Collins said. “With its array of affordable health insurance programs and new consumer protections, the Affordable Care Act will substantially reverse these trends, ensuring that all Americans will have access to affordable and comprehensive health insurance coverage,” she said.
Uncovering the True Impact of the Obamacare Tax Credits: Increases the Deficit, Expands Welfare through the Tax Code, and Implements a New Marriage Tax Penalty is available at http://oversight.house.gov/images/stories/Reports/10-27-11_Obamacares_Subsidies_and_Tax_Distribution_Final.pdf .
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