While many opponents of the Affordable Care Act have been busy stressing over the penalty they would be required to pay should they fail to purchase health insurance come 2014, it turns out that the IRS is clearing the way to reduce the number of Americans subject to the penalty—while making it near impossible for millions of people to afford suitable coverage for their families, subverting the very purpose of the law itself.
It begins with a poorly drafted provision in the healthcare reform law stating that individuals who receive their health insurance as a benefit of employment will be permitted to take a pass on their company policy and elect to buy their coverage on the health exchange—allowing them to take advantage of the federal healthcare subsidies available to low and middle income Americans—if their company provided health insurance policy is deemed ‘unaffordable’.
‘Unaffordable’ is defined as requiring the employee to pay more than 9.5% of the employee’s household income towards his or her employer provided healthcare benefit.
As an example, let’s take an employee who earns $35,000 a year. According to the IRS rule, if that employee is paying less than $3,325 a year towards their healthcare benefit, that employee will be required to stick with the company health insurance policy and would be barred from taking advantage of the federal subsidies available in the form of tax credits that the exchanges have to offer.
The Kaiser Family Foundation’s 2012 survey of what employees pay towards their employer provided healthcare benefit reveals that the average, individual employee made an annual contribution of $951 towards their health benefit. Thus, there would not appear to be much of a problem here.
But this is where it gets ugly…
The same Kaiser Family Foundation survey reveals that the average contribution of employees who are paying towards a family policy is $4316 a year—a number well in excess of the 9.5% of earnings for someone making just $35,000 a year.
Thus, we would expect that the employee and his family —or, at the least, the remainder of the employee’s family—would be free to head over to the health exchanges to get their insurance and benefit from the subsidies available to those in their earnings bracket, right?
We would be wrong because the Internal Revenue Service has ruled that only the portion of the contribution attributable to the individual employee is to be considered for purposes of determining what is affordable—not the entire contribution an employee with a family pays for family coverage.
Thus, using the example of our employee who is the sole breadwinner in the family and earns $35,000 a year, so long as the contribution directly attributed to his own health coverage is less than $3,325 a year, nobody in the family qualifies for participation on the healthcare exchanges and nobody can qualify for the intended government subsidies.
Using the Kaiser averages, the family in our example will end up paying over 12 percent of their annual income for health insurance—a crushing amount of money for a family earning just $35,000 a year and well beyond what is affordable for many.
The result will be millions of spouses and children left to go uninsured.
How can this possibly make sense when the very purpose of the healthcare reform law is to get more Americans insured rather than less?
Says Jocelyn Guyer of the Center for Children and Families at Georgetown University,
“We can see kids falling through the cracks. They will lack access to affordable employer-based family coverage and still be locked out of tax credits to help them buy coverage for their kids in the marketplaces, or exchanges, being established in every state.”
So absurd is this ruling—given the intent and purpose of the Affordable Care Act—Congress will have no choice but to correct the offending passage and set this straight, yes?
I wouldn’t hold your breath.
With a GOP controlled House dead set on doing anything in its power to disrupt Obamacare—even if it means leaving millions of children uninsured—it is highly unlikely that they will do what is necessary to correct this problem.
For those who are quick to enjoy so negative a result of what they perceive to be a poorly crafted and ill conceived health care reform law, they should understand that virtually all legislation—even legislation that meets the approval of the staunchest healthcare reform critic—comes complete with drafting errors and ambiguities. However, in normal circumstances, either the courts or Congress can typically be depended upon to straighten out such ambiguities in order to support the intent and purposes of any given law.
Sadly, ‘normal circumstances’ do not apply when it comes to Obamacare as the law’s enemies will be more than happy to deny health care coverage to millions of American children in order to press what they will perceive as a political advantage.
It should also not go unnoticed that there are no shortage of experts who believe that the IRS has misinterpreted the provision and made a credible case to support the notion that Congress intended the 9.5% cut-off to apply to the total family benefit—not just the individual employee benefit.
I suppose there is some good news.
In a separate regulation proposed by the IRS, the spouse and children of the employee used in the example provided above would be exempt from any penalty resulting from not having health insurance coverage as the cost to the family under the employee’s work benefit would exceed 8 percent of the household income.
I’m sure that will come as very cold comfort indeed should that family’s child fall ill.
Mistakes happen. Ambiguity in legislation is a normal, everyday occurrence.
However, failure of this Congress to repair this issue would be anything but normal and a truly shameful example of how politicians will sacrifice anyone who gets in the way of a convenient political narrative.
Nobody should sit idly by and allow this perversion of the Affordable Care Act to happen.