By Larry Levitt and Gary Claxton
Kaiser Family Foundation, August 24, 2011

A recent draft regulation issued by the Treasury Department describes who is eligible for premium tax credits to help them afford coverage offered through health insurance exchanges beginning in 2014. The approach that the regulation proposes for measuring the affordability of employer coverage could have significant financial consequences for a modest number of lower- and middle-income families.

Starting in 2014, the health reform law generally requires people to have health insurance and provides tax credits to help them afford it. Those who are offered health insurance through a job, however, are expected to take that coverage and generally are not eligible for premium tax credits. This includes both the worker and any family members who are eligible to enroll in the job-based coverage. There is an exception to this rule, though: if people are offered coverage by an employer that has patient cost-sharing above a certain level or is unaffordable, they are permitted to forgo the employer plan and apply for a tax credit that can be used for coverage in an exchange. Job-based coverage is considered unaffordable if the amount of the out-of-pocket premium for the employer coverage exceeds 9.5% of that person’s income.

While it’s clear how this applies to a single worker without any dependents, determining a family’s eligibility for premium tax credits is far less clear in the law. One way would be to look at what the family would have to pay for coverage based on its size and compare that to its income. A second way, which the Treasury Department has proposed, would judge affordability for the entire family based solely on whether the employee’s contribution for single coverage would exceed 9.5% of family income, regardless how much it would cost the entire family to enroll in job-based coverage. A third hybrid approach is also possible: affordability for the worker could be determined based on the required contribution for single coverage while affordability for the remaining family members would be based on the required contribution for family coverage.

What would this mean for families? We estimated the effect based on coverage in 2008 using demographic and insurance data from the Medical Expenditure Panel Survey and employee premium contribution information from the Kaiser/HRET Employer Health Benefits Survey. The analysis – which assumes no behavior changes by employers in response to the health reform law – suggests that there are about 3.9 million non-working dependents in families (technically, “health insurance units”) in which the worker has access to affordable employer-sponsored coverage but the family does not. Under the draft regulation, these family members would be excluded from getting federal tax credits to help them buy coverage in health insurance exchanges. On average they’d have to pay 14% of their income to opt into the employer coverage, substantially more than what they would pay in an exchange.

In the draft regulation, the Treasury Department indicated that it expects to exempt these family members from the requirement to buy insurance, so they won’t be penalized if they choose to forego coverage. Some of these families would probably still decide to enroll in their employer coverage even though they would have to pay a large percentage of income for it; that would likely be the case even if they were permitted to buy subsidized insurance in an exchange. People value insurance, and they particularly value employer-provided benefits. But, some of these family members would undoubtedly remain uninsured.

http://healthreform.kff.org/notes-on-health-insurance-and-reform/2011/august/measuring-the-affordability-of-employer-health-coverage.aspx

Comment: 

By Don McCanne, MD

Although this policy failure of the Affordable Care Act (ACA) was touched on briefly in a recent message, it is elaborated on here because of its great importance to families.

To avoid being assessed a penalty for being uninsured, most employees will be required to obtain their health insurance through their employment. They will not be allowed the option of obtaining coverage through the state insurance exchanges and will have to forego the tax credits available for exchange plans, unless their premium is unaffordable (over 9.5% of income).

But what about their families? The Treasury Department (IRS) has tentatively ruled that ACA prohibits them from using the insurance premium for the family to determine whether it meets the threshold of affordability. Only the individual employee’s premium can be used. Even though the premium for family members may be unaffordable, they are not allowed the option of using tax credits to purchase plans in the exchanges.

What are they to do? The IRS agrees that these family premiums are unaffordable so they are ruling that the family members have a right to remain uninsured without having to pay the penalty required by the individual mandate. Our government in action – protecting the right to remain uninsured!

This is not a Catch 22, but rather a Catch 4,000,000 since it is estimated that close to four million dependents will fall into this trap in which the worker has access to “affordable” employer-sponsored coverage but the family members do not. This will impact most heavily middle-income families since those with low incomes may be eligible for Medicaid, and those with very high incomes will likely be able to afford family coverage.

What happened to the American dream? The dream wherein hard working, middle income families could be assured of shelter, food, education, and health care? It seems that all they can be guaranteed today is the right to participate in a tea party, that is if they bring their own tea.

Measuring the Affordability of Employer Health Coverage

By Larry Levitt and Gary Claxton
Kaiser Family Foundation, August 24, 2011

A recent draft regulation issued by the Treasury Department describes who is eligible for premium tax credits to help them afford coverage offered through health insurance exchanges beginning in 2014. The approach that the regulation proposes for measuring the affordability of employer coverage could have significant financial consequences for a modest number of lower- and middle-income families.

Starting in 2014, the health reform law generally requires people to have health insurance and provides tax credits to help them afford it. Those who are offered health insurance through a job, however, are expected to take that coverage and generally are not eligible for premium tax credits. This includes both the worker and any family members who are eligible to enroll in the job-based coverage. There is an exception to this rule, though: if people are offered coverage by an employer that has patient cost-sharing above a certain level or is unaffordable, they are permitted to forgo the employer plan and apply for a tax credit that can be used for coverage in an exchange. Job-based coverage is considered unaffordable if the amount of the out-of-pocket premium for the employer coverage exceeds 9.5% of that person’s income.

While it’s clear how this applies to a single worker without any dependents, determining a family’s eligibility for premium tax credits is far less clear in the law. One way would be to look at what the family would have to pay for coverage based on its size and compare that to its income. A second way, which the Treasury Department has proposed, would judge affordability for the entire family based solely on whether the employee’s contribution for single coverage would exceed 9.5% of family income, regardless how much it would cost the entire family to enroll in job-based coverage. A third hybrid approach is also possible: affordability for the worker could be determined based on the required contribution for single coverage while affordability for the remaining family members would be based on the required contribution for family coverage.

What would this mean for families? We estimated the effect based on coverage in 2008 using demographic and insurance data from the Medical Expenditure Panel Survey and employee premium contribution information from the Kaiser/HRET Employer Health Benefits Survey. The analysis – which assumes no behavior changes by employers in response to the health reform law – suggests that there are about 3.9 million non-working dependents in families (technically, “health insurance units”) in which the worker has access to affordable employer-sponsored coverage but the family does not. Under the draft regulation, these family members would be excluded from getting federal tax credits to help them buy coverage in health insurance exchanges. On average they’d have to pay 14% of their income to opt into the employer coverage, substantially more than what they would pay in an exchange.

In the draft regulation, the Treasury Department indicated that it expects to exempt these family members from the requirement to buy insurance, so they won’t be penalized if they choose to forego coverage. Some of these families would probably still decide to enroll in their employer coverage even though they would have to pay a large percentage of income for it; that would likely be the case even if they were permitted to buy subsidized insurance in an exchange. People value insurance, and they particularly value employer-provided benefits. But, some of these family members would undoubtedly remain uninsured.

http://healthreform.kff.org/notes-on-health-insurance-and-reform/2011/august/measuring-the-affordability-of-employer-health-coverage.aspx

Although this policy failure of the Affordable Care Act (ACA) was touched on briefly in a recent message, it is elaborated on here because of its great importance to families.

To avoid being assessed a penalty for being uninsured, most employees will be required to obtain their health insurance through their employment. They will not be allowed the option of obtaining coverage through the state insurance exchanges and will have to forego the tax credits available for exchange plans, unless their premium is unaffordable (over 9.5% of income).

But what about their families? The Treasury Department (IRS) has tentatively ruled that ACA prohibits them from using the insurance premium for the family to determine whether it meets the threshold of affordability. Only the individual employee’s premium can be used. Even though the premium for family members may be unaffordable, they are not allowed the option of using tax credits to purchase plans in the exchanges.

What are they to do? The IRS agrees that these family premiums are unaffordable so they are ruling that the family members have a right to remain uninsured without having to pay the penalty required by the individual mandate. Our government in action – protecting the right to remain uninsured!

This is not a Catch 22, but rather a Catch 4,000,000 since it is estimated that close to four million dependents will fall into this trap in which the worker has access to “affordable” employer-sponsored coverage but the family members do not. This will impact most heavily middle-income families since those with low incomes may be eligible for Medicaid, and those with very high incomes will likely be able to afford family coverage.

What happened to the American dream? The dream wherein hard working, middle income families could be assured of shelter, food, education, and health care? It seems that all they can be guaranteed today is the right to participate in a tea party, that is if they bring their own tea.