Exchanges, Subsidies and intent

[Note: This post was co-written by Henry Stern and Bob Vineyard]

We've often lamented that it's too bad no one read the ObamaTax bill before they passed it, and with good reason. A fundamental problem is that the 2000+ pages of the bill, and the 13,000+ (so far!) pages of reg's promulgated to enforce it, keep handing up surprises. As we've pointed out, folks in states which opted for Federally-run Exchanges aren't eligible for the ObamaSubsidies, thereby driving their costs even higher.

Or are they?

Cato's Michael Cannon has been, perhaps, the most vocal in pointing out this discrepancy:

"This was no “drafting error.” During congressional consideration of the bill, its lead author, Sen. Max Baucus (D-MT), acknowledged that he intentionally and purposefully made that bailout conditional on states implementing their own Exchanges ... On May 24, the IRS finalized a regulation that says the law’s $800 billion [subsidy funding] will not be conditional on states creating Exchanges"

So what's the big deal?

The following appeared on a forum for insurance professionals in which Bob participates (it's about the ObamaSubsidies noted above):

"If you are ELIGIBLE to join any employer group plan where your portion of the premium is less than 9.5% of your income, then you won't get a subsidy. Next - drumroll please - this also holds true for dependents ... Due to the fact that the EMPLOYEE portion is less than 9.5% of the FAMILY income, the entire family is disqualified from a subsidy even if the employer pays nothing for dependent coverage."

In fact, and this is a real kick in the shins, it doesn't seem to matter whether you actually sign up for the group or not: maybe you found a better deal on the Exchange [ed: hey, it could happen!] and buy it, presuming that the net premium will be less because of the subsidy. Nope.

And it's no better if you do sign up for the group plan:

"Actually, the employer doesn't even have to pay a large portion in order for this to kick many families out of the subsidy ... a family of four must pay $729 in premium to equal 9.5% of their income if they make 400% of FPL. That means that any employer group health plan that charged that employee less than $729 for the EMPLOYEE-ONLY coverage would disqualify him and his dependents from receiving a subsidy. Nice."

And it only gets better worse:

"If you have an increase in earnings, putting you over the limit, part of your subsidy can be taken from you later."

Talk about the gift that keeps on giving.

Bob notes that, unfortunately, this "gift" also comes with more questions than answers:

■ How much intrusion into our lives will be required to determine if someone is entitled to a subsidy?

■ Will everyone's return require an audit (which implies an after-the-fact review)? If you get your subsidy and then an audit later determines you were not entitled to it do you owe the money back plus penalty and interest?

■ Will the IRS be smart enough to run all the calculations?

■ Will this create an additional burden on employers who will then drop health insurance rather than put up with the red tape? Will this exercise remind employers of what they had to go through for MLR rebates and create a backlash?

■ Will Dudley be able to save Nelle from being blown up by Snidely?

And he points out that the only real answer we have is that this latest wrinkle illustrates how impossible this law will be to execute, and how much money will be wasted trying to implement and enforce it.

Our forum participant continues:

"How many will qualify [for the subsidies]? The government estimated 20 million. I hope they're closer than their estimates for PCIP enrollment. Their estimates for the small business health insurance premium subsidy was as much of a flop."

As we've pointed out here, the PCIP program, while itself laudable, has thus far enjoyed underwhelming success.

The lynchpin here is whether or not HHS Secretary Shecantbeserious, and her colleagues the Revenooers, can make their interpretation rule stick. So far, the law says what HHS (and, of course, Chief Justice Roberts) says it says.

Time (and, of course, November 6th) will tell.