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This Looks Like A Loophole

The Obama administration issued long expected guidelines about the implementation of the health care law yesterday, and if this NY Times report has it right, a huge loophole in the new law could leave millions of Americans still uninsured.

The issue?

As the IRS apparently interprets the law, employers with more than 50 workers are required to offer health care insurance to the dependents (though not the spouses) of their full time employees, but there is no requirement to make that coverage affordable. Thus you can offer a “family plan” for a worker making $10 an hour (about $20,000 a year) that costs $15,000 and if the worker ‘elects’ not to buy the coverage, you as an employer have done your job.

The new law will, however, require companies to offer ‘affordable’ health care plans to employees, with “affordable” defined under the proposed regulations at 9.5 percent of total wages. As the Times notes, this creates a strong incentive for employers to put their health care dollars toward subsidizing individual plans while encouraging them to cut any subsidies they now offer for family plans.

So what kind of help can the spouses and children of workers expect under the new law if employers don’t offer affordable family plans? The Obama administration has no idea. To quote the Times,

It is unclear whether the spouse and children of an employee will be able to obtain federal subsidies to help them buy coverage — separate from the employee — through insurance exchanges being established in every state. The administration explicitly reserved judgment on that question, which could affect millions of people in families with low and moderate incomes.

It turns out that Nancy Pelosi was wrong; passing the health care bill wasn’t enough to know what was in it. We still don’t know how tens of millions of people will fare under this law, and how much it will cost federal and state governments. We have no idea what the consequences of the law will be for family budgets around the country. Given that at this point neither the White House nor the IRS (which is now responsible for key regulations that govern health care in our fascinatingly byzantine new system) knows how the law will apply to family insurance policies, we still don’t know some of the most basic facts about the brave new world of American health care.

It does, however, appear that the confident promises the health care law’s backers made about people who were happy with their current insurance being able to keep it were dead wrong. The law appears to create incentives for employers to jack up the price of the family plans they currently offer. It appears to create both a massive marriage penalty and a child penalty, and it increases the chances that one family will have to get its insurance from multiple plans with each insurance policy having its own different procedures and characteristics.

The strategic silence of the administration about whether the dependents of workers with affordable individual plans but without affordable family plans will be covered by the various subsidies and other measures the “Affordable Care Act” sets up points to a serious issue. If employers are going to be able to slough off the cost of family plans without penalty, federal and state governments are going to have a lot of expensive new subsidies to pay. But if employers are required to offer these plans at subsidized rates, American business would be crippled by huge imposed costs. And if ordinary families cannot get access to affordable insurance, the law could end up increasing rather than decreasing the number of Americans without health insurance.

So: will the new law bust government budgets, crush business under unaffordable costs or make health insurance prohibitively expensive for millions of working families? The wording of the law seems unclear on this point, and the Obama administration doesn’t want to give an answer. The new regulations seem to suggest that the administration realizes that business can’t pay these costs; at a time of fiscal cliff negotiations and massive public anxiety about deficits it doesn’t want to point to the potential new costs its cherished health care law could impose on the government. It is therefore waiting until a more opportune moment to take on the question of how the American health insurance system is going to work.

We still don’t know what kind of a health care system Congress created back in 2010. We still don’t know whether it will work or how much it will cost — and who will pay how much of the bill. The Affordable Care Act is not a solution to America’s health care problems.

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