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Another Obamacare 'Glitch' Will Add Billions to the Deficit

Posted By Daniel Graulich On July 22, 2011 @ 1:00 pm In Obamacare | Comments Disabled

A new report from Cornell economist Richard Burkhauser and his colleagues [1] has once again called into question the claims of the Congressional Budget Office (CBO) and White House that Obamacare would have only a minimal impact on employers’ decisions to offer their employees health care. The report warns that Obamacare could cost at least $50 billion more per year than originally thought.

The controversy centers on the “firewall” provision in the health law, which applies to employer plans with premiums equaling more than 9.5 percent of a worker’s income. If a worker would have to pay more than this amount to buy qualified health coverage from his employer, then that coverage is deemed “unaffordable,” which makes him eligible to obtain subsidized health insurance in the newly established health exchanges starting in 2014.

Obamacare proponents argued that the premium for a family plan—higher than an individual plan—could be used in determining whether employer-sponsored insurance is “affordable,” but the Joint Committee on Taxation (JCT) scored the bill using individual premiums only. If a worker was offered an “affordable” individual policy (regardless of how “affordable” the family policy was), JCT figured, he would buy insurance from the employer, because he would still have to comply with the individual mandate and wouldn’t have access to the generous premium subsidies in the health insurance exchanges.

To avoid a situation where middle-class families will be forced to take on high insurance costs or suffer penalties for failing to purchase health insurance, the Department of Health and Human Services (HHS) will likely interpret the law to include the price of family coverage in its application of the firewall provision. That means a family policy costing more than 9.5 percent of a worker’s income would trigger eligibility for his entire family to get subsidized coverage in Obamacare’s exchanges.

If HHS does this, the cost projections for Obamacare will be completely thrown off, as many more people would be eligible for tax subsidies in the health insurance exchanges. Burkhauser and his colleagues estimated that this change could cost taxpayers an additional $50 billion per year. Under this best-case scenario, Obamacare would no longer be deficit-neutral by 2017.

Of course, it is possible that employers will stop offering their employees health coverage altogether to avoid the “firewall” provision—due to the uncertainties surrounding its administration, the potential compliance costs, and the potential limits it places on employers’ hiring decisions. This gives further credence to the argument that the generosity of the federal tax subsidies would incentivize employers to maximize their cost savings by shifting their employees into the exchanges. If this happens, the costs of Obamacare would add more than a trillion dollars to the national debt by the end of the decade.

Daniel Graulich is a member of the Young Leaders Program at the Heritage Foundation. Click here to learn more about interning at Heritage. [2]


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URL to article: http://blog.heritage.org/2011/07/22/another-obamacare-glitch-will-add-billions-to-the-deficit/

URLs in this post:

[1] new report from Cornell economist Richard Burkhauser and his colleagues: http://epionline.org/study_detail.cfm?sid=138

[2] Click here to learn more about interning at Heritage.: http://www.heritage.org/about/internships-young-leaders/the-heritage-foundation-internship-program

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