Little-Known ACA Proviso Stirs Controversy

There’s a largely unseen battle raging among consumer advocates, physician groups and some Democrats in Congress over a key benefit in the Patient Protection and Affordable Care Act (ACA) — tax credits that will help millions of people purchase insurance.

According to Kaiser Health News, “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 are steadfast in their opposition to the rule because it bases affordability on how much an employee might pay for individual coverage, rather than on the cost of covering their entire family.  As a result, many workers won’t be able to afford family coverage, yet their spouses and children will be ineligible to get help to buy insurance.  Approximately 3.9 million dependents might be impacted, according to one estimate.

“The proposed rule excludes people Congress intended to cover,” said Bruce Lesley, president of First Focus Campaign for Children, who sent a letter to Treasury signed by more than 100 advocacy groups, including the American Academy of Family Physicians, the Children’s Defense Fund, the March of Dimes and the National Council of La Raza.  The letter asks President Barack Obama and congressional leaders to take “administrative action or legislation” to spell out what Congress intended.

Treasury officials are drafting final rules, which are expected to be released soon.  “We are working with consumers, businesses and all interested parties to ensure women and families get the affordable care they need,” Treasury Department spokeswoman Sabrina Siddiqui said.

Supporters of the proposed rule, primarily employer groups and insurance brokers, say it is in keeping with the wording in the ACA that defines affordability in terms of the cost of “self-only coverage.”  Critics, including the National Partnership for Women and Families, say it allows for basing the affordability standard on the cost of family coverage. The group notes that Treasury officials plan to use the cost of a family plan as a basis for exempting some people from penalties for not buying insurance.  “It’s unlikely that Congress intended affordability to be determined one way” for penalty fines and another for subsidies, according to the groups.

Several Democratic lawmakers who played key roles in writing and passing the law say the proposed rule is not what Congress intended.  “The notion that Congress wrote the law in a manner that would exclude many families from access to more affordable coverage…is simply incongruent,” according to Representative Sander M. Levin (D-MI), the ranking Democrat on the Ways and Means Committee, and Representative Henry A. Waxman (D-CA), the ranking Democrat on the Energy and Commerce Committee.

Employers and taxpayers have a lot at stake in the way this rule is interpreted. For every worker who forgoes “unaffordable” job-based coverage in favor of subsidized insurance, the employer pays either a $3,000 per subsidized-worker penalty or $2,000 per employee.  The government’s stake will be less if more workers retain job-based coverage and fewer people seek subsidies.  At the same time, tax credits are the main way the law is expected to help low- and middle-income Americans buy insurance if they don’t have access affordable employer-based coverage.  By 2019, for example, the Congressional Budget Office (CBO) estimated that the government will spend $70 billion in tax credits to help 18 million people buy coverage through the exchanges.

Workers paid an average of $921 for an individual health insurance policy last year. That equals 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.  An employee’s share of a family plan averaged $4,129, or 28 percent of the total cost.

Based on those figures, a worker earning $40,000 will be ineligible to get subsidies because the $921 is less than 9.5 percent of income, even though the cost of the family plan exceeds that cap. In that scenario, the worker’s dependents will be ineligible to receive subsidies.  The policy is certain to impact women, who are 2.5 times as likely as men to be insured as a dependent, the hardest, according to the National Partnership.

“It will force more people into not having an affordable option,” said Dana Cope, executive director with the State Employees Association of North Carolina.  According to Cope, family coverage costs increased the ranks of the uninsured in North Carolina, where the state subsidizes employee coverage, but does not contribute toward family insurance.  “State employees…who earn on average $41,000…cannot afford to cover their dependents,” Cope said.

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