ObamaCare Delays To Cost Billions More

July 8, 2013

The Obama administration quietly brought out its steamroller last Friday for the second time in a week to try to smooth out the implementation of ObamaCare.

Just three days after delaying the law's employer mandates came word that the new insurance exchanges needn't verify enrollees' income used to determine federal subsidies.

It's not surprising that the complexity involved in carrying out the massive law should encounter some bumps in the road. But these problems are more than bumps — they involve a series of cliffs built into ObamaCare where the returns for more work take a nose-dive.

Costly Delays

Smoothing out these cliffs in the law can only be done by spreading money around, which is exactly what President Obama's steamroller will do.

That extra cash will subsidize coverage for workers without requiring an employer contribution, at least temporarily. It will make it easier for enrollees to understate their income to get subsidies that are richer — much richer in some cases. And it will enable modest-income families and poor adults who were supposed to be cut off from subsidies to access federal help.

By suspending many of the least popular features for a year or more, ObamaCare's cost is likely to be significantly higher; public support may be temporarily supported as well.

Modest-income families are among those that get the rawest deal from ObamaCare. If a spouse is offered individual coverage by an employer that meets the law's affordability test of 9.5% of household income, then the other spouse and their children are ineligible for exchange subsidies.

"This would leave many people paying large portions of their household income for family coverage offered by an employer," Georgetown University's Center for Children and Families had complained to the Treasury Department. "Many others are likely to go without health insurance because of the high cost.

Under ObamaCare's official rules, such families might be better off financially if they earned less. The law's "family penalty" now won't be a concern for 2014.

Friday's release from the Department of Health and Human Services said that state exchanges may take an applicant's word regarding the availability of affordable employer coverage.

This follows logically from Tuesday's announcement that employer reporting requirements about each worker's access to health insurance would be suspended for 2014. No reporting requirements, no fines.

The Honor System

Considering ObamaCare's complex rules that deem unaffordable employer coverage for families "affordable," it's only logical that many families will sign up for subsidies who weren't supposed to be eligible.

Friday's release also gave state exchanges temporary leeway to apply the honor systemto enrollees when it comes to reporting their income.

This is key because exchange subsidies can differ greatly for households separated by a few thousand dollars in income. In fact, the lower-earning household might be better offunder ObamaCare after factoring in lower taxes, bigger premium subsidies and far-lower deductibles.

For example, a couple earning $30,000 might face a $300 deductible, thanks to cost-sharing subsidies, while one earning $32,000 could face a $3,500 deductible, according to one estimate provided to Kaiser Family Foundation by Towers Watson.

Also in Friday's release, HHS provided guidance that there would generally be no effort to verify income when enrollees report a level that is higher than records would suggest. This could carry a large cost to the federal government in states that have opted out of ObamaCare's Medicaid expansion, as noted by The Incidental Economist health care blog and conservative health scholar Avik Roy.

That's because many households with income below 100% of the poverty level who aren't currently eligible for Medicaid would be shut out of ObamaCare subsidies. But it now appears that simply reporting income at least as high as the official poverty level would open the door to large exchange subsidies for these individuals.

The delay of the employer mandate also will at least temporarily smooth over two additional ObamaCare cliffs: the 49-worker firm and the 29-hour workweek.

For employers with 49 full-time-equivalent workers (based on hours worked, not just headcount), the 50th worker for firms that do not carry health coverage would carry a $40,000 penalty.

Firms that do offer coverage which is either too pricey for some workers or not deemed comprehensive enough would owe $3,000 for each full-time worker who gets ObamaCare subsidies. Because the fine is nondeductible, it would equate to $5,000 in deductible wages for a profit-making firm facing a 40% federal and state tax rate.

Because that annual fine would be imposed for a worker clocking 30 hours per week, but not for one who puts in 29 hours, it would equate to a wage hike of $96.15 per hour.

Thus, the 30-hour workweek is likely to last only as long as the employer mandate is delayed.

The Congressional Budget Office has projected that the employer mandate would raise $10 billion in fiscal 2015, starting October 2014. That doesn't include any extra subsidy costs due to the mandate's temporary absence.

House Budget Committee Chairman Paul Ryan, R-Wis., has asked the CBO to recalculate the health law's budget impact as a result of the administration's changes.