Obamacare to Make Children’s Health Insurance Unaffordable for Millions of American Families
In passing the Affordable Care Act, Congress and the President created a law filled with unintended consequences, some of which are only now coming to light.
A shocking unintended consequence of Obamacare is that insurance for dependent children is not required to be “affordable.”
Believe it or not, there is no provision in the law to ensure that dependent children receive “affordable” insurance. In fact, dependent children will in many cases be charged the full unsubsidized cost of insurance, with no alternatives and will be charged a penalty if they don’t take it. No need to adjust your screen, you read that right.
Starting in 2015, if an employer chooses to offer health insurance to employees, that employer must also offer insurance to the employee’s dependent children, up to age 26, regardless of marital status.
While the employee coverage must be “affordable” – which means that employees can be required to contribute no more than 9.5% of their income toward the premium – there is no requirement that the insurance offered to their children be “affordable.” That means that employers can require their employees to pay 100% of the cost for their kid’s insurance.
A key word to pay attention to here is the word “offer.” This word triggers another part of the law that says if an individual is ‘offered’ an employer sponsored plan, that individual cannot get subsidized coverage on the insurance exchange. This applies to anyone who is offered the employer sponsored plan: the employee, dependents, or spouse. This is even true if the individual declines the insurance that was offered because it was too expensive.
Here’s how it works:
• Beginning on January 1, 2015, Large Employers (50+ Full Time and Full-Time Equivalent Employees) must offer affordable, minimum value health insurance to their Full-Time employees or pay penalties;
• If an Employer offers qualified coverage to its Full-Time employees, then the Employer MUST also offer health insurance to their Full-Time employees’ children up to age-26, too;
• The insurance for children does NOT have to be affordable – the employer CAN require the employee to pay for 100% of the cost of the children’s insurance; and,
• If the Employer offers insurance for the children, the children become ineligible for subsidized coverage on the insurance exchanges; and finally
• If the children do not take the coverage, because it is too expensive, the children will be assessed a penalty for failing to satisfy the Individual Mandate.
In case the full gravity of this scenario has not completely sunk in, let’s look at how this would play out in real life. A family of 4 making up to $94,200 (in most states) would qualify for a subsidy to help them purchase insurance on the exchange if they were not offered an employer sponsored plan. Let’s say Mom’s employer offers insurance to mom, dad and the 2 kids, but charges full price for Dad and the kiddoes. In this scenario, Mom cannot be required to pay more than 9.5% of her income for her coverage, but the other 3 are left to fend for themselves and the law of unintended consequences leaves them with very few options.
This unfortunate family is now disqualified from receiving subsidized coverage on the exchange for Dad or the kids, and they make too much money to qualify for Medicaid or other income based assistance programs.
Based on the numbers released by some states, the cost to insure Dad and the kids could well exceed the 9.5% of income that is deemed to be “affordable.” And they will still have to pay their co-pays and deductibles. Let’s say they decide not to bear this cost; then what? They are assessed a penalty for violating the Individual Mandate and not having health insurance.
But the bad news doesn’t stop there. In this example, I used a family that is making some pretty decent money. What about families who make even less money? Specifically, what about families who make just enough money that they can’t qualify for Medicaid? The way the system is set up, that family has the worst possible result. The cost to that family to pay 100% of the cost of insurance – whether through the employer or unsubsidized coverage on the exchange – will be too great. But the law doesn’t stop there, not only is there no relief for this family, we are going to further punish their efforts to be gainfully employed by charging them a penalty to boot.
The really screwball thing here can be seen when we look at spousal coverage. You see, there is no requirement that employers offer insurance to spouses at all. If an employer does offer insurance to spouses, there is no requirement that the insurance offered be affordable. That means that spouses could also be charged 100% of the cost of the premium. Once offered the coverage, even at 100% cost, spouses become ineligible to receive subsidies on the insurance exchange. As long as the employer does not offer the coverage to spouses, spouses may still qualify for a subsidy.
We have seen a lot of press about companies who have gone public about their policy to stop offering spousal coverage. The reaction among many Americans was to say those employers are jerks for dropping the spouses. However, once people understand the reality of this problem, we have heard people asking their employers to please just not offer it so they don’t lose the subsidy. Employers have this option when it comes to spouses, but not kids. Kids are stuck in a no-win situation.
Will this happen? Will some employers charge dependents 100% of the cost of their insurance? The answer to this is an unequivocal “Yes.”
While there are some employers that say they want to offer coverage for spouses and dependents, they are changing their tune once they see the cost of insurance next year. Many employers are faced with figuring out how to insure hundreds or thousands more employees in 2015 than they have ever had to insure before. Not only that, the fact of the matter is that insurance rates are going to go up as a result of the guaranteed issue rules (among other things). Given these hurdles, it is absolutely certain that some employers are not going to subsidize dependent insurance. Especially when they are not required to.
From day-one, the Administration has said that their goal was to make health insurance more affordable for everyone. However, in structuring these regulations regarding the coverage of children, the Congress and the Administration have created a set of rules that almost guarantees that children – especially the children of low-wage employees – will be out of luck.
With this no-win scenario that has been created, low-wage workers may find it impossible to buy insurance for their children on their salaries. Although the law was touted as requiring personal accountability and shared responsibility, the law has the effect of punishing low-wage workers for working. For low-wage families that need health insurance, they may have no choice but to work less hours so that they can provide Medicaid for their children. What if healthcare reform incentivized low-wage workers to work more and make more money instead of punishing them for it?
What is the solution? One solution is not to require Employers to offer dependents insurance. That way, the dependents would still qualify for subsidized coverage on the exchange. The other alternative is to allow dependents to qualify for subsidized coverage on the exchanges if they do not elect to accept an unsubsidized employer offered health plan that was offered to them.