Federal Rule Limits Aid to Families Who Can’t Afford Employers’ Health Coverage
Published: January 30, 2013 - New York Times
WASHINGTON — The Obama administration adopted a strict
definition of affordable health
insurance on Wednesday that will deny federal financial assistance to
millions of Americans with modest incomes who cannot afford family coverage
offered by employers.
In deciding whether an employer’s health plan is
affordable, the Internal
Revenue Service said it would look at the cost of coverage only for an
individual employee, not for a family. Family coverage might be prohibitively
expensive, but federal subsidies would not be available to help buy insurance
for children in the family.
The policy decision came in a final regulation
interpreting ambiguous language in the 2010 health
care law.
Under the law, most Americans will be required to have
health insurance starting next year. Low- and middle-income people can get tax
credits to help them pay premiums, unless they have access to affordable
coverage from an employer.
The law specifies that employer-sponsored insurance is
not affordable if a worker’s share of the premium is more than 9.5 percent of
the worker’s household income. The I.R.S. said this calculation should be based
solely on the cost of individual coverage, what the worker would pay for
“self-only coverage.”
“This is bad news for kids,” said Jocelyn A. Guyer, an
executive director of the Center for Children and Families at Georgetown
University. “We can see kids falling through the cracks. They will lack access
to affordable employer-based family coverage and still be locked out of tax
credits to help them buy coverage for their kids in the marketplaces, or
exchanges, being established in every state.”
In 2012, according to an annual survey by the Kaiser
Family Foundation, total premiums for employer-sponsored health insurance
averaged $5,615 a year for single coverage and $15,745 for family coverage. The
employee’s share of the premium averaged $951 for individual coverage and more
than four times as much, $4,316, for family coverage.
Under the I.R.S. rule, such costs would be considered
affordable for a family making $35,000 a year, even though the family would have
to spend 12 percent of its income for full coverage under the employer’s plan.
The tax agency proposed this approach in August 2011
and made no change in the definition of “affordable coverage” despite protests
from advocates for children and low-income people and many employers. Employers
did not want to be required to pay for coverage of employees’ dependents. But
they said that family members should have access to subsidies so they could buy
insurance on their own.
However, that would have increased costs to the
government, which would have been required to spend more on subsidies.
Paul W. Dennett, senior vice president of the American
Benefits Council, which represents many Fortune 500 companies, said:
“Individuals who do not have affordable family coverage should be eligible for
premium tax credits in the exchange. The final rule does not provide that.”
Under the law, people who go without insurance will
generally be subject to tax penalties. In a separate proposed regulation issued
on Wednesday, the Internal Revenue Service said that the uninsured children and
spouse of an employee would be exempt from the penalties if the cost of coverage
for the entire family under an employer’s plan was more than 8 percent of
household income.
Bruce Lesley, the president of First Focus, a child
advocacy group, said: “The administration recognizes that the cost of family
coverage will be unaffordable for many families. They will not have to pay the
penalty. But that will not be much of a consolation to families who cannot get
health insurance for their kids.”
The 2010 health care law extended Medicaid
to many childless adults and others who were previously ineligible. The Supreme
Court said the expansion of Medicaid was an option for states, not a requirement
as Congress had intended.
Kathleen Sebelius, the secretary of health and human
services, said Wednesday that she wanted to use her discretion to prevent the
imposition of tax penalties on certain uninsured low-income people in states
that choose not to expand Medicaid.
A rule proposed by her department would guarantee an
exemption from the penalties for anyone found ineligible for Medicaid solely
because of a state’s decision not to expand the program. The administration said
this was “an appropriate use of the hardship exemption.”
About 20 states are expected to expand Medicaid;
governors in other states are opposed or uncommitted. Many illegal immigrants,
prisoners and members of certain religious groups opposed to the acceptance of
insurance benefits will also be exempt from penalties if they forgo coverage,
the administration said.
The Congressional Budget Office predicts that 30
million people will be uninsured in 2016 and that 6 million of them will pay
penalties.