It now appears as if Obamacare might force millions of middle-class Americans to buy health insurance they can’t afford, or else it could end up costing taxpayers $500 billion more over 10 years.
The problem begins with Obamacare’s individual mandate, which forces every American to buy a federally approved health insurance policy. Obamacare then makes all insurance policies more expensive by forcing insurance companies to insure every customer who wants a policy, while also limiting the prices that can be charged. However, Obamacare attempts to soften the financial blow of the mandate by subsidizing insurance premium payments for those with annual incomes between 133 percent and 400 percent of poverty. The government defines the poverty level as $22,000 for a family of four. Those below 133 percent of poverty are forced into Medicaid.
The $777 billion that Obamacare is slated to pay in subsidies to insurance companies through 2021 is by far the most expensive part of the program. But it could have been even more expensive. Americans who are offered “affordable” insurance coverage by their employers are not eligible for Obamacare subsidies. But what is the definition of an “affordable” insurance plan?
Section 1401 of Obamacare says an insurance plan is unaffordable if the employee portion of an employer-offered health insurance premium “exceeds 9.5 percent of the applicable taxpayer’s household income.” So a family of four whose breadwinner earned $80,000 would be eligible for subsidies if the nominal premium for the plan that his employer offered exceeded $7,600 a year. The average family premium in 2010 cost $13,770, so millions of Americans would have been eligible for generous Obamacare subsidies.
But when the Congressional Budget Office scored the Obamacare legislation, the analysts were instructed to use a different definition of affordable coverage. Instead of comparing a family’s income to the cost of insuring a family, the Budget Office scored a family’s income to the cost of insuring just the individual employee.
The average premium for an individual policy is far less than the average family premium ($13,770 compared to $5,049). So all of a sudden, our $80,000-income family would not have qualified for Obamacare subsidies. However, they still would have been on the hook for expensive health coverage because of the individual mandate. A recent study estimated that it would have cost $47.5 billion a year to close this subsidy gap.
Instead, the Treasury Department “fixed” this apples-to-oranges problem Friday with new Treasury Department regulations that just exempt affected families from the individual mandate. While this regulatory fix may save the government hundreds of billions of dollars, it puts affected families in a worse position than they were prior to reform. They may not have to buy insurance, but if they do want family coverage their options are now more limited and more expensive.
How many families are hurt by the Treasury Department’s new regulations? We don’t know. Members of Congress should call on the Budget Office to re-estimate Obamacare’s costs using the more accurate family premium data.