Now that President Obama has delayed the employer penalty for not providing health insurance until 2015, as well as the requirement that people applying for health insurance on the exchanges provide verification of income, Congress should also postpone the individual mandate and other provisions of the bill.
This would give lawmakers the opportunity to consider a technical corrections bill to improve some aspects of the Affordable Care Act.
Obama’s dual delay in the employer penalty and individual income verification — which may not be legal, according to Stanford University Law School professor Michael McConnell — are designed to encourage more people to sign up for insurance on the exchanges, the websites where they can purchase health insurance. But the current system will only create confusion.
Under Obama’s new regulations, firms can eliminate their health insurance programs, or refrain from setting them up, without paying $2,000 per worker. They send their employees to purchase insurance on the exchanges. A firm with a staff of 100 will not have to incur an expense of $140,000 (the first 30 employees are exempt) in 2014. This will encourage some employers to drop health insurance.
Household income can be difficult to calculate, especially for those with multiple working family members and multiple jobs. Yes, household income is on the annual tax return, but many earners are exempt from filing, or do not have their April 2013 forms handy. And there are so many forms of income on the tax return — income, adjusted gross income, taxable income — that it is not always obvious which one to pick.
When the firm’s employees go to the exchange and sign up for insurance, they will not have to prove their income. This is important because premiums will be costly, especially for younger people, and the level of premiums depends on household income, with a sliding scale of subsidies for those between 133% and 400% of the poverty line — up to $94,000 for a family of four. (Those who earn under 133% of the poverty line will be signed up for Medicaid.) People who understate their incomes will get lower premiums, no questions asked.
Leaving in place the individual mandate also drives people to the exchanges. That is why the administration has not delayed that section of the Act. Since people are required to have insurance or pay a penalty — admittedly a low penalty — they will be more likely to sign up for insurance than if the administration had also waived the individual mandate.
If the exchanges were up and working, then the president’s goal might be achieved — millions of happy customers purchasing health insurance on state exchanges. Exchanges are supposed to be ready by Oct. 1. But only 14 states and the District of Columbia are planning to set up exchanges, and many states are not ready. Neither is the federal government, which has to set up exchanges for remaining states.
Setting up an exchange is not a simple matter. Not only does the website have to display the health insurance plans available for purchase, but the computer software also has to determine whether particular individuals are permitted to purchase the insurance, and their premium — which depends on the level of subsidy.
A June GAO report concluded that “Much progress has been made, but much remains to be accomplished within a relatively short amount of time.”
What would make sense would be to delay the entire plan for a year and make the system more flexible and consumer friendly.
Here are six proposed changes for lawmakers to consider to improve the Act.
The Act mandates a one-size-fits all, overly generous plan, with required free preventive care, mandatory mental health and drug abuse coverage, free contraceptives, and no lifetime maximum. Combined with the requirement that people can sign up anytime, health insurance becomes very expensive, with the young subsidizing the old.
Federal and state exchanges should be allowed to offer multiple health insurance choices, including catastrophic health plans for those who want to pay for routine costs out of pocket and insure only against major medical events. People should be able to buy insurance that does not cover birth control, mental health coverage, or kids covered until age 26, to give a few examples. One model is the Federal Employees Health Benefits Program, which offers many types of health plans to federal workers.
Raise individual penalties
The tax penalties for not signing up for insurance — $95 or 1% of adjusted gross income in 2014, $325 per person or 2% of AGI in 2015, and $695 or 2.5% of AGI in 2016 and thereafter — are too low relative to the cost of insurance. People will pay the tax and wait until they get sick to buy the insurance. For the sustainability of the program, the penalties need to rise.
End guaranteed issue
Under the Act, insurance companies have to take anyone in any open enrollment period, so people can wait until they are sick to sign up. This is similar to being able to buy auto insurance after a car crash or home insurance after a fire. Naturally, it raises premiums. People should get a discount if they sign up when they are young and healthy and keep continuous coverage. Conversely, they should be penalized if they sign up after they are uncovered.
Give all Americans refundable tax credits for health insurance purchase.
This amount could be adjusted up or down depending on income. Under the ACA, if people do not qualify for health insurance subsidies on the exchange and their employers do not offer insurance, premiums come from after-tax dollars. So someone in the 25% federal tax bracket with a family premium of $20,000, the cost estimated by the IRS in 2015, would have to earn an additional $26,000 before tax to pay for health insurance — more if he owes state income tax. This would modify the employer advantage to providing health insurance.