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IRS ruling a ‘disaster for Obamacare?’ Nope.

Ruling may be 'unfortunate,' but it won't leave 'millions' uninsured

Note to readers: I welcome questions and comments, and will try my best to reply in a timely manner. I ask only that you do your part to keep our discussion reasoned and polite. – MM

Under the Affordable Care Act, Americans who are not offered “affordable” insurance at work can purchase coverage in the ACA’s health insurance exchanges, where many will be eligible for generous subsidies.

The law defines “affordable” as insurance that costs less than 9.6 percent of income. But the ACA doesn’t specify whether it is referring to individual coverage or family coverage, which is always far more expensive. The wording is ambiguous, an “oversight,” say many legislators.

Now the Internal Revenue Service (IRS) has ruled that the government will look at the cost of coverage for an individual – not a family – when deciding if a plan is “affordable.”

A disaster for Obamacare?

Yesterday, Forbes ran a story about the rule under a headline that blared, “IRS Ruling to Create Millions of Uninsured Americans as It Undermines the Very Intent of Obamacare.”

Forbes’ take plays right into the conservative claim that Obamacare is a disaster. “We are now entering the crucial phase of the law’s enactment,” crows blogger Dwight L. Schwab, “and many critics are saying, ‘I told you so.'”

Whoa! Let’s look at Forbes’ argument, and the numbers.

Fear-mongering vs. facts

Forbes observes that, according to the Kaiser Family Foundation’s 2012 survey of employee benefits, on average, workers contribute $951 annually for an individual plan. But those buying family coverage fork over $4,316, “a number well in excess of the 9.5% of earnings for someone making just $35,000 a year.” Yet, under the IRS decision, “only the portion of the contribution attributable to the individual employee” can be “considered for the purpose of determining what is affordable – not the entire contribution.”

Forbes’ contributor Rick Ungar offers an example: If an employee who earns $35,000 and “is the sole breadwinner in the family” pays less than $3,325 annually for his own insurance … “nobody in the family qualifies for participation on the healthcare exchanges and nobody can qualify for the intended government subsidies.” If the employee signs up for a family plan with his employer it would cost “over 12 percent of their annual income … a crushing amount.”

“The result,” Ungar says, “will be millions of spouses and children left to go uninsured.”

Millions uninsured???

Let’s begin with that last sentence. Just how many children would be shut out? Bruce Lesley, president of First Focus, a children’s advocacy group, estimates that 500,000 children could remain uninsured.

A U.S. Government Accountability Office (GAO) report offers a similar estimate … that “460,000 children may be left uninsured if states stop funding the Children’s Health Insurance Program (CHIP) beyond 2015.” (Funding ends in 2015 because legislators assumed the ACA would protect kids.) “Federal funding could be extended,” the GAO notes. (My guess is that, if necessary, Congress would expand CHIP funding.)

But what about the mothers? If 500,000 children might be affected, that means that, at most, 500,000 mothers would be left uninsured. But in most of these cases, parents may well have have two children, sometimes more. Let’s assume that, on average, they have two children. That means 250,000 mothers (half of 500,000) might find themselves uninsured because of the IRS rule.  Add those 250,000 mothers to a maximum of 500,000 children, and 750,000 people wind up “going naked” as insurers put it.

Married couples who don’t have children also should be counted. If only one spouse works, and they cannot afford the family plan his employer offers, another adult could be left out. But, these days, few married women under 65 who don’t have children stay at home. We’re still far from “millions.”

Forbes’ example

Forbes’ example of a single-breadwinner family is the exception, not the rule. Among families earning $25,000 to $60,000, 67 percent of mothers and 85 percent of fathers work.

In these cases, couldn’t each parent purchase insurance through their employer? In an e-mail, health policy consultant and researcher Linda Bergthold (also a healthinsurance.org contributor) replies, “Yes. And since employers have to cover dependents (but not spouses), the parent with the better coverage should carry kids on his or her plan.”

Finally, the IRS’ decision will only affect families with income under $45,000. For those earning more, a $4,316 contribution toward a family plan wouldn’t exceed 9.6 percent of income. Even if the IRS had decided differently, they wouldn’t have qualified for a subsidy.

The claim that, as a result of the IRS ruling, “millions” will be left uninsured is fear-mongering, pure and simple.

This is not a surprise that adds to the rolls of the uninsured

As Washington & Lee law professor Timothy Jost points out in an e-mail, the IRS decision is “unfortunate, but not a disaster for Obamacare.” Moreover this is not the bombshell that gleeful conservatives suggest: “The Congressional Budget Office (CBO) has interpreted the statute this way all along” says Jost, “so these won’t be additional uninsured.”

Could Congress or the courts override the IRS rule?

“Congress could, but this Congress won’t,” says Jost. As for the courts, “it could be challenged in court, I would think, because it is an interpretation of the statute, one that I think is incorrect.”

Will a court address the issue? This remains to be seen.

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wenpotter
7 years ago

This is the most reasoned and well researched analysis of this IRS ruling I’ve seen yet. Thanks, Maggie.

maggiemahar1
maggiemahar1
7 years ago

@desoutherland Those employment numbers are from the first quarter of 2012, so they reflect unemployment..  
Real unemployment (including people who have given up looking for work and people who are working part-time even though they want and need full-time work) is somwhere in the teens. The bureau of labor statistics (BLS) doesn’t include them when it reports unemployment at about 8%. But the numbers I’m using are not BLS numbers– they’re based on Gallup polls from the 1st quarter 
and Gallup is pretty good. 
 
As for food chains cutting back on full-time workers, many have threatened to do this and found that that the public reaction was very negative. Customers threatened boycotts. As a result,  Olive Garden, Red Lobster, and other Darden Restaurants have announced that they it won’t be following through with its plan to cut all hourly workers below the 30 hours a week that would qualify them for employer-provided health coverage under Obamacare.
 
As for McDonalds, it should worry about how workers will react if it tries to cut back hours to avoid providing health insurance: “In October, workers at McDonalds, Burger King and other fast-food chains in New York City staged a walkout to demand better pay and the right to unionize. ”
Moreover  huge chains like McDonalds do large enough volume that they could probably cover a significant part of the cost of healthcare by raising prices on their most popular items by a very small percent. 
 
As for the legislation, I’m assuming that you haven’t read the Affordable Care Act. Trust me, the staffs who helped Congress put it together have. And I have read it — more than once. That’s part of my job. It’s not perfect, but it’s a very good piece of legislation that will, the Congressional Budget tells us, pay for itself (i.e. pay for the subsidies, expansion of Medicaid, etc.) cover millions of Americans who are now uninsured, and reduce the deficit. How could it do all of this? I’ve written a report on this which you’ll find here. http://tcf.org/assets/downloads/tcf-bettercare.pdf
I’d urge you to read pages 3 through 7. I can’t tell you how frustrating it is to hear people say “we wont’ be able to afford Obamacare” when they have never read the bill, and don’t know how it saves money and raises money. 
 
Finally, the Affordable Care Act will improve the quality of care that we receive. 
It stresses preventive care –which is why insurers selling policies to individuals and small businesses will have to offer free preventive care– no co-pays and deductibles don’t apply.
 
In European countries where preventive care is often free, health care is less expensive (and the population is healthier) because many diseases are treated and managed before they get to the stage where they become very 
expensive, requiring hospitalization and surgery. Just one example: In some European companies cervical cancer is now practically non-existent because all women can get free Pap smears. In the U.S., poor women still die of cervical cancer because Pap smears are not free and even a $20 co-pay can mean the difference between buying groceries for the family and going to an Ob-Gyn.
 
In addition, under the ACA insurers won’t be able to sell “Swiss cheese” policies that some call “junk insurance”– filled with holes. All policies sold to individuals and small businesses in the Exchanges will have to cover all
essential benefits. 
 
Unfortunately, in our newspapers and magazines— and on our television “news” shows you will find a great deal of misinformation about Obamacare.
Usually the people writing the stories and scripts for news shows have never read the bill. And they have no compunction about quoting people who have a political ax to grind and are not particularly interested in facts. For instance,
many stories still report that the Olive Garden and other Darden restaurants will be cutting back on full-time employees–even though they have 
announced that they won’t be doing that. 
 
Finally, on tort reform, the Affordable Care Act sets aside money to study it, and President Obama has already announced that the favors creating “Safe Harbor” laws for doctors who follow practice guidelines based on medical evidence. If they do, they will be protected from lawsuits.

maggiemahar1
maggiemahar1
7 years ago

@tonylehr
n  Tonylehr–  I think you’re right. Republicans are ideologically opposed to Obamacare and want to see it fail. They probably believe that the IRS ruling means that “MILLIONS” will be left out in the cold—or at least they want the public to believe it.

maggiemahar1
maggiemahar1
7 years ago

@tonylehr
n  Tonylehr–  I think you’re right. Republicans are ideologically opposed to Obamacare and want to see it fail. They probably believe that the IRS ruling means that “MILLIONS” will be left out in the cold—or at least they want the public to believe it.

maggiemahar1
maggiemahar1
7 years ago

@Kevin @ Ask for Benefits
n  Kevein @ Ask for Benefits.
Rick Ungar is a single-payer advocate who believes that Obamacare cannot work—but that it will lead to a single-payer system where the government pays for all healthcare.
Ungar explains that this is because under the Affordable Care Act, insurers covering a large group have to spend 85% of premiums—or send rebates to customers. (It’ 80% if they are covering a small group because administrative costs are higher.)  Ungar argues that there is “absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid.” http://www.forbes.com/sites/rickungar/2011/12/02/the-bomb-buried-in-obamacare-explodes-today-halleluja/
I’m not sure where Ungar gets his information.— For many years, I was a financial journalist at Barron’s, often wrote about insurers, and read their financials.  Many insurers do spend roughly 85% of premiums on health care when insuring large groups (and 80% when insuring small groups.)  That is why, when this 80/20 rule began to be implemented last year, many insurers didn’t have to send out rebates.
What will be a much bigger deal for insurers is that, under the ACA, they can’t shun the sick by turning down people suffering from pre-existing conditions (or charging them exorbitant rates.) The fact that they will have to cover all essential benefits when selling to individuals and small companies will also be costly.  I expect many smaller for-profit insurers will go under, or will be acquired by larger insurers. Large insurers are likely to join up with hospitals and doctors to form “accountable care organizations” where they will share in profits if they are able to give patients “better care for less.”  In some cases, this will work very well. Geisinger serves as a model.
The good news for insurers is that the premium subsidies  (combined with the mandate) will bring many more young customers into the pool, and that will help the insurers. (I wrote a blog post about this here on HIO. http://www.healthinsurance.org/blog/2013/01/03/will-health-insurance-premiums-skyrocket-in-2014/ Scroll down to ‘younger americans.”
Finally non-profits-profits like Kaiser Permanente will do very well under Obamacare.  Kaiser already sells comprehensive coverage to many people—and stays in the black while doing it. Because the insurance is good, customers stick with them for generations.
There are many other excellent non-profits—and since the ACA passed, more are springing up .
Kaiser is in fact better than Medicare—which is run by the government.  Single-payer is not necessarily the best care– and I very much doubt that single-payer will take over health care in the U.S. Most people want alternatives—not just one insurance system. Look at what happened in the UK (which does have single-payer) when Margaret Thatcher took over the government. Her conservatives government gutted the UK’s single-payer system, slashing funding. They’re still trying to recover.
One thing single-payer advocates rarely mention: no country in Western Europe has single-payer. They all use insurance companies—and almost all are non-profits. I would be happy to see a government-run public option competing with non-profit insurers (and for-profits if they become accountable care organizations), but I would not want to be stuck with one government-run health care system. You never know who the American public might elect next.,

maggiemahar1
maggiemahar1
7 years ago

@Kevin @ Ask for Benefits
n  Kevein @ Ask for Benefits.
Rick Ungar is a single-payer advocate who believes that Obamacare cannot work—but that it will lead to a single-payer system where the government pays for all healthcare.
Ungar explains that this is because under the Affordable Care Act, insurers covering a large group have to spend 85% of premiums—or send rebates to customers. (It’ 80% if they are covering a small group because administrative costs are higher.)  Ungar argues that there is “absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid.” http://www.forbes.com/sites/rickungar/2011/12/02/the-bomb-buried-in-obamacare-explodes-today-halleluja/
I’m not sure where Ungar gets his information.— For many years, I was a financial journalist at Barron’s, often wrote about insurers, and read their financials.  Many insurers do spend roughly 85% of premiums on health care when insuring large groups (and 80% when insuring small groups.)  That is why, when this 80/20 rule began to be implemented last year, many insurers didn’t have to send out rebates.
What will be a much bigger deal for insurers is that, under the ACA, they can’t shun the sick by turning down people suffering from pre-existing conditions (or charging them exorbitant rates.) The fact that they will have to cover all essential benefits when selling to individuals and small companies will also be costly.  I expect many smaller for-profit insurers will go under, or will be acquired by larger insurers. Large insurers are likely to join up with hospitals and doctors to form “accountable care organizations” where they will share in profits if they are able to give patients “better care for less.”  In some cases, this will work very well. Geisinger serves as a model.
The good news for insurers is that the premium subsidies  (combined with the mandate) will bring many more young customers into the pool, and that will help the insurers. (I wrote a blog post about this here on HIO. http://www.healthinsurance.org/blog/2013/01/03/will-health-insurance-premiums-skyrocket-in-2014/ Scroll down to ‘younger americans.”
Finally non-profits-profits like Kaiser Permanente will do very well under Obamacare.  Kaiser already sells comprehensive coverage to many people—and stays in the black while doing it. Because the insurance is good, customers stick with them for generations.
There are many other excellent non-profits—and since the ACA passed, more are springing up .
Kaiser is in fact better than Medicare—which is run by the government.  Single-payer is not necessarily the best care– and I very much doubt that single-payer will take over health care in the U.S. Most people want alternatives—not just one insurance system. Look at what happened in the UK (which does have single-payer) when Margaret Thatcher took over the government. Her conservatives government gutted the UK’s single-payer system, slashing funding. They’re still trying to recover.
One thing single-payer advocates rarely mention: no country in Western Europe has single-payer. They all use insurance companies—and almost all are non-profits. I would be happy to see a government-run public option competing with non-profit insurers (and for-profits if they become accountable care organizations), but I would not want to be stuck with one government-run health care system. You never know who the American public might elect next.,

maggiemahar1
maggiemahar1
7 years ago

@wenpotter
n  Wen Potter—Thanks very much!

maggiemahar1
maggiemahar1
7 years ago

@wenpotter
n  Wen Potter—Thanks very much!

npabon
npabon
7 years ago

@maggiemahar1  @desoutherland
 I work in a US army hospital for 5 years in Germany. I have friends, doctor, nurses and technitian from germany,England, France, Luxemburg and Austria. By our conversation, Your are wrong 100% in these countries medical care is restricted. Doctors canonly see certain amouth of patient per day, since if they see more, that ecess number yhey will not get conpensated. Preventice care? they do not have option. Some of them have, if you whant to call them, underground clinic and office. They see patients, in a cash basis only, Now granted, europeand are more health concious than us americans, but not becuse like, is becuse getting sick there is to burdensome and time consum,ing. Xray 3-10 days waiting, unless is an mergency, and may be life threating or may lose a limb or life. OBGYN pap, 10-25 days waiting and some time 4 month. They reliey a lot on primary sign and sytom, and some time, by the time they get to odctor is very long term treatments. In no way I canaccept your premises that in europe the medicine is better than in the US. Oh one point, free! in europe, specially in Germany, were I spend most of my time, taxes are horrible. Everthing is tax, food, cloth, shoes, not only at local lever but national, average 35-48% if you buy a luxury item, that is define by the goverment, they apply a luxury item tx, average is 42-63%. almost 100% of these civilian, all agree we are lucky. Those healthy europen you talk about, they come here for long term treatment and in some intance medication, wich are cheaper here than there. i also read the 3,200 pages of the Obama Care, and as a benefit consultant i found 189 flawn in the law. i do not know those who help the congrees to write this law, but there were not benefits consultant, doctosr nurse or any medical prationer at all. One more point if you allow me. by CBO very time they reviw the law cost in crease by doulble, I think the last time is over 2.1 trillion in the next 10 years( but dont quote me on it) is a bad law, And I agree with the psotion, reform Tort and speed the issue of new drug, limit regulation, and I belive the sytem eventualy will adjust.

npabon
npabon
7 years ago

@maggiemahar1  @desoutherland
 I work in a US army hospital for 5 years in Germany. I have friends, doctor, nurses and technitian from germany,England, France, Luxemburg and Austria. By our conversation, Your are wrong 100% in these countries medical care is restricted. Doctors canonly see certain amouth of patient per day, since if they see more, that ecess number yhey will not get conpensated. Preventice care? they do not have option. Some of them have, if you whant to call them, underground clinic and office. They see patients, in a cash basis only, Now granted, europeand are more health concious than us americans, but not becuse like, is becuse getting sick there is to burdensome and time consum,ing. Xray 3-10 days waiting, unless is an mergency, and may be life threating or may lose a limb or life. OBGYN pap, 10-25 days waiting and some time 4 month. They reliey a lot on primary sign and sytom, and some time, by the time they get to odctor is very long term treatments. In no way I canaccept your premises that in europe the medicine is better than in the US. Oh one point, free! in europe, specially in Germany, were I spend most of my time, taxes are horrible. Everthing is tax, food, cloth, shoes, not only at local lever but national, average 35-48% if you buy a luxury item, that is define by the goverment, they apply a luxury item tx, average is 42-63%. almost 100% of these civilian, all agree we are lucky. Those healthy europen you talk about, they come here for long term treatment and in some intance medication, wich are cheaper here than there. i also read the 3,200 pages of the Obama Care, and as a benefit consultant i found 189 flawn in the law. i do not know those who help the congrees to write this law, but there were not benefits consultant, doctosr nurse or any medical prationer at all. One more point if you allow me. by CBO very time they reviw the law cost in crease by doulble, I think the last time is over 2.1 trillion in the next 10 years( but dont quote me on it) is a bad law, And I agree with the psotion, reform Tort and speed the issue of new drug, limit regulation, and I belive the sytem eventualy will adjust.