CBO: 7 million to lose employer-based insurance when ACA rules take effect

But don’t worry – your family will be able to buy health insurance through a government exchange for a mere $20,000 a year!

As much as I would like to call this fiction, it isn’t.  The Affordable Care Act health insurance mandate and penalty regulations are confusing and ridiculous.

An employer must offer each employee “affordable” coverage (meaning the employee’s premium contribution is less than 9.5% of their total household income) if the business has 50 or more full time employees.  The employer must offer coverage to children of an employee who are under 26 years of age, but they do not have to make it “affordable.”  And they do not have to offer any coverage for the employee’s spouse.

Starting with the 2012 Form W-2, employers with greater than 250 employees will be required to report the total amount (employer plus employee contributions) of each employee’s health care benefits.  All employers will be required to report this starting in the 2013 tax year.  Supposedly this will allow employees to estimate what they would pay if they lost their employer contribution subsidy and chose to continue the same coverage under COBRA.  But there is probably a more sinister motive – an incentive to tax employer health contributions as a part of a worker’s earned income.  The Kansas City Star reports, “The tax break for employer-paid health benefits equals about $180 billion a year in potential tax revenue. Analysts say that is worth 80 percent more than the tax break for home mortgage interest deductions.”

Now let’s look at that “9.5% of total household income” number.  The most current median household income estimate is around $52,700 per year; 9.5% of this number is roughly $5,000.  According to the Kaiser Foundation, the employee share of an annual individual health insurance premium averaged $951 (roughly $80/month) in 2012.  But under the ACA’s new definition, an “affordable” employee contribution could very well be five times that amount, or more as household income increases.

Right now, most employers take advantage of group rates that allow them to offer the best possible rates to employees and their families.  But under the new ACA rules, “affordable” takes on an entirely new meaning, which, to paraphrase Inigo Montoya, does not seem to be what the government wants us to think it means.  In fact, this new definition of affordable seems to give insurers an enormous amount of room for rate hikes.  It also seems to allow employers to shift employer/employee contributions more heavily toward employees, and to incentivize the discontinuation of reasonably-priced coverage for family members.

So under the new ACA rules, an employee could end up paying several times what he is paying now for coverage.  And coverage for the rest of the family could be priced so high that he has to decline participation.  As long as insurance is available – regardless of actual cost – the employer will be in compliance.  Or the employer may choose to forgo offering employee insurance altogether and simply opt to pay the penalties.  This is certainly an attractive option if insurance rates continue to skyrocket.  I’m actually surprised that the estimated number of insureds who will lose employer-provided coverage isn’t even higher.

Of course the solution to this problem is supposed to be the government insurance exchanges, which theoretically would provide working families with access to fairly-priced health insurance that can be purchased individually.  But in reality, the ACA rules provide virtually nothing to help working middle class families that find themselves priced out of employer-provided coverage, but with an income level that is insufficient to afford individual policies yet too great to qualify for premium subsidies or penalty exemptions:

Without being included in the employer’s contribution, the family health-care insurance coverage will be off the chart, leaving the spouse and kids to fend for themselves.

[Gottwals] added, “Furthermore, if the employee’s premium is deemed ‘affordable’ because it is below 9.5 percent of the employee’s W-2 wages, the non-working spouse and children will be denied access to federal subsidies to buy healthcare in the Exchanges.  Hence, if the employer offers ‘unaffordable’ coverage to the spouse and kids, the spouse and kids are precluded from federal assistance” … This is because, if the spouse is not offered healthcare, he or she can actually get a federal subsidy to buy coverage in an Obamacare exchange.  Whereas, if the spouse is offered “unaffordable” coverage by an employer, the spouse is denied federal subsidy assistance.

… “After the regulations issued in the last month, the plan appears to be a penalty against marriage and a message to many employers to not bother even offering healthcare to spouses. And it still leaves 460,000 kids uninsured.”

The Federal and state subsidies, which would total around $5000 a year for an average family, are still not a very good deal, since they are mostly in the form of income tax credits, rather than cash credits toward monthly premiums.  And those premiums?  Look out — in its Final Notice for the rules governing the penalties for individuals without a qualifying insurance plan, the IRS used a premium cost estimate of $20,000 a year for a family of five to calculate costs in the document’s examples.  And that’s for the lowest (“bronze”) tier of available coverage options.  I don’t even want to know what they think the Platinum plan will cost.  And yes, the IRS is now in charge of administering your health insurance.  I’m still wrapping my head around that one.

But the good news is that the new IRS rules also contain clarification of the numerous exemptions that may keep an individual or his family from paying the non-compliance penalty:  incarceration, undocumented immigration status, religious objection, temporary transition between jobs/temporary unemployment, health insurance cost (for the employee) already more than 8% of family income, income too low to pay Federal income tax, member of an Indian tribe, etc.  In fact, the CBO is now estimating that these exemptions will result in only 2% of Americans actually meeting the penalty requirements.  Unfortunately that 2% will consist primarily of working middle class Americans.

The Kaiser Foundation says that employer-provided family health insurance plans already have an average cost of around $15,700 a year.  With a very real chance of losing employer benefits, and a projected cost of $20,000 a year if a family of five has to buy its own insurance, it is painfully clear that the future offered by the Affordable Care Act will be anything but “affordable.”

Say … anyone remember something about an average family’s health insurance costing $2000 a year less after the Affordable Care Act was fully implemented?  Nah, me neither.  Must have been my imagination.

But hey, did you hear that The Biebs and Rihanna might have ‘hooked up’ last year behind Selena’s back?

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