Will the Poor Be Able to Afford Obamacare?

WASHINGTON--The Supreme Court has decided to hear arguments by March about the constitutionality of the 2010 Patient Protection and Affordable Care Act, with a decision likely by June.

The Court signaled on Monday that it will address several questions. Paramount is whether Congress acted within, or exceeded, its constitutional authority when it required in the Act that individuals buy health insurance.

In all the debate, what has received little attention is a provision that would raise the cost of insurance for some low- or middle-income families, or even make it unaffordable entirely, a consequence of this signature Obama initiative to extend health insurance to about 30 million of the 50 million now uninsured.

In a new National Bureau of Economic Research working paper, Cornell University professor Richard Burkhauser, Indiana University professor Kosali Simon, and Cornell PhD candidate Sean Lyons showed that in 2014, when the law will take full effect, 13 million low-income Americans may be unable to get subsidized health insurance through new state health care exchanges because one family member has employer-provided coverage for that person only.

Under the Act, firms with more than 49 workers have to offer "affordable" health insurance coverage to full-time employees, or pay a $2,000 or $3,000 penalty. (An estimated 47 million persons, or 45 percent of private nonfarm payroll employees, now work for employers with fewer than 50 employees.) But affordable coverage can be for the employee only, not dependents.

The Act requires the employee to accept such insurance, even if the family is excluded.

Most significantly, if a family member has such coverage, the rest of the family would be ineligible for federal subsidy of the premium it must pay if it buys a policy, regardless of the cost of an unsubsidized premium.

According to American Enterprise Institute economist Joseph Antos, "The intentional exclusion of family members from coverage under subsidized insurance through the exchanges meant that the Act was scored as reducing the deficit, rather than increasing it. That was the key to passage among fiscally-conservative Democrats."

If the remaining members of the family cannot afford the premium, then they would remain uninsured and receive their care from emergency rooms and community centers. Even today, emergency departments are filled with Medicaid patients who either cannot get appointments with doctors or cannot leave work to take children to doctors.

Congressional Budget Office director Douglas Elmendorf stated in a March 20, 2010 letter to then-House Speaker Nancy Pelosi,

"Under the legislation, workers with an offer of employment-based coverage would generally be ineligible for exchange subsidies, but that 'firewall' would be enforced imperfectly and an explicit exception to it would be made for workers whose offer was deemed unaffordable."

Workers offered unaffordable coverage at work would be eligible for subsidized care through the exchanges, both for themselves and for their families.

How much might the premium cost? Mr. Burkhauser and his coauthors estimate that for a four-person family at 133 percent of the poverty line earning $28,000, purchasing a family health insurance plan would cost 43 percent of family income, without government subsidies. That plainly is unaffordable.

This perverse incentive has a number of consequences, none of them foreseen by the architects of the Act.

Workers with families will prefer to work for firms that do not offer health insurance. In that way, they can qualify to purchase family coverage through the exchange, and get a subsidy. For a family at 133 percent of the poverty line, premiums will be capped at 2 percent of income.

If the employer does offer health insurance, the worker with dependents might prefer that the coverage is unaffordable, that the employee's share of the premium exceed the affordability test. That's not a typo-if the coverage is unaffordable, then the employee will be able to buy subsidized insurance for his family on the exchange.

A firm that offers unaffordable coverage will have to pay a penalty of $3,000 per worker. But workers might prefer to have the employer pay the $3,000 penalty even if some of it reduces an employee's income, and be able to buy subsidized coverage on the exchange.

This provision of the Act would cause disincentives to marriage. Say that Bill, who receives health insurance from his employer, wants to marry Betty, who is buying her subsidized health insurance from the state exchange. If they married, Betty would no longer qualify for subsidized coverage.

Or, take Susie and Sam, married with two children, earning below 400 percent of the poverty line (about $90,000 for a family of four). Susie is a stay-at-home mom.

Now, Sam's employer provides family coverage. But, come 2014, the costs of health insurance will rise due to Act's requirement to offer a more generous plan. Then, Sam's employer will just be required to provide affordable coverage for him alone. If Sam and Susie were to get divorced, Susie could buy subsidized family coverage through the exchange.

The Congressional Budget Office estimated that in 2019 another 3 million people will turn to the insurance exchanges due to employers dropping coverage. But with employer affordable health coverage applying only to singles, this number would be far greater, resulting in higher insurance costs to the government and bigger federal budget deficits.

Congress needs to address this problem.

The preferred way would be to do away with the mandate that employers must provide health insurance, especially overly generous plans, with no copayments for routine care, unlimited coverage, and mandatory mental health and drug abuse coverage. If employers were permitted to continue to offer lower-cost plans, fewer firms would drop single and family coverage.

Lower-income individuals could be given a refundable credit to purchase a plan of their choice, from any state, as has been proposed by House Budget Committee Chairman Paul Ryan. This would encourage competition among plans, lowering costs. Just as consumers select from a variety of auto, home, and life insurance options, they should be able to choose among health plans.

Even if the Supreme Court upholds the constitutionality of the individual mandate, the health care law will remain costly, inefficient, and in need of reform.