Employee Benefits Compliance, Exchanges / Marketplaces / Subsidies, Subsidies

Critics Say Proposed Rule Would Make Millions Ineligible For Health Insurance Subsidies

In recent meetings with clients, and in response to Leavitt’s latest HCR webinar, many employers have asked for clarification about the connection between employer penalties and exchange subsidies for lower-paid employees and their families. Kaiser Health News published an excellent article that explains this and highlights the issues.  Below is an excerpt from the Kaiser Health News article (April 16, 2012) by Julie Appleby (produced in collaboration with The Washington Post).   Additional explanation is added below by Leavitt. Click here for the full Kaiser Health News article.
Consumer advocates, physician groups and several Democratic lawmakers are fighting a quiet battle over a key benefit in the health-care law: tax credits to help millions of people purchase insurance. 
At issue is a section of the law that outlines when low- and moderate-income employees can opt out of their employer’s coverage and instead get federal subsidies to buy insurance through new state-based marketplaces, called exchanges.
The debate over who qualifies for subsidies has been overshadowed by more-polarizing issues such as the government’s authority to require most people to buy insurance. But if the Supreme Court upholds the law – or even most of the law – the way the tax-credit dispute is resolved will help determine how many people can get subsidized coverage.
A proposed Treasury Department rule says workers and their families cannot qualify for those subsidies unless their employer’s plan is unaffordable because it exceeds 9.5 percent of their household income. 
Consumer advocates oppose the rule because it bases affordability on how much employees would pay to cover themselves, not on the cost of covering their entire family. As a result, they say, many workers will be unable to afford family coverage, yet their spouses and children will be ineligible to get help to buy insurance. An estimated 3.9 million dependents would be affected, according to one estimate.
“The proposed rule excludes people Congress intended to cover,” said Bruce Lesley, president of First Focus Campaign for Children. [. . .] 
Treasury officials are reviewing the comment letters as they draft final rules expected to be released in the upcoming weeks. [. . .]
‘Self-only coverage’
[Additional explanation by Leavitt:
Specifically, at issue is whether the Patient Protection and Affordable Care Act (PPACA) requires that affordability be defined in terms of the cost of “self-only coverage” or whether the affordability standard could be based on the cost of family coverage for employees who have families for whom they need to provide health coverage.
PPACA defines the affordability threshold for several purposes: 
  1. The employer’s calculation of whether or not the cost of self-only coverage is more than 9.5% of “household income.” Guidance has already been issued that modifies the ACA language  to allow employers to use 9.5% of W-2 wages from the employer, since employers generally will not know an employee’s household income.
  2. The exchange’s calculation of whether or not the cost of self-only coverage is more than 9.5% of “household income.” Individuals purchasing insurance in an exchange cannot qualify for a federal subsidy unless this 9.5% threshold test is met. This is  the affordability test at issue in this article, and the question is  whether regulators  will allow that determination to be based on the cost of family coverage rather than of self-only coverage.
  3. Treasury’s determination of whether an individual will be exempted from penalties for not buying insurance.  The Kaiser article says Treasury officials plan to use  the cost of a family plan for individuals with families. 
End of Leavitt explanation]
A lot is at stake for employers and taxpayers. For every worker who forgoes “unaffordable” job-based coverage and gets subsidized insurance, the employer would pay either a $3,000 per subsidized-worker penalty or $2,000 per employee, whichever is less. Employers with fewer than 50 workers are exempt. 
The government’s costs will also be lower if more workers retain job-based coverage, because fewer people will seek subsidies.
On the other hand, tax credits are the main way the law is expected to help low- and middle-income Americans buy insurance if they don’t get affordable employer-based coverage. By 2019, for example, the Congressional Budget Office estimated that the government will spend $70 billion in tax credits to help 18 million people buy coverage through the exchanges, which are supposed to be set up by 2014.
Major differences in costs
The average amount workers paid for an individual health insurance policy last year was $921 – or 18 percent of the total cost of the plan, according to an annual survey by the nonpartisan Kaiser Family Foundation and the Health Research & Educational Trust. (Kaiser Health News is a foundation program.)
Family coverage costs more than individual coverage, and employers often contribute a smaller percentage of the total cost.
Workers’ share of a family plan averaged $4,129 last year, or 28 percent of the total cost, according to the foundation survey.
Based on those figures, a worker making $40,000 a year would be ineligible to seek subsidies because the $921 is less than 9.5 percent of income, even though the cost of the family plan would exceed that cap. In that case, the worker’s dependents also would be unable to get help. [. . .]
If final rules retain the affordability definition as it now stands, Lesley and others say it will be important to maintain the Children’s Health Insurance Program, which provides coverage for poor children and is funded only through 2015. Harder to resolve, he and other advocates say, will be finding coverage for spouses in families where dependents are ineligible for subsidies.

This article was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

For the full article from Kaiser Health News, click here