ObamaCare’s Substandard Health Care Subsidies

Last week, Ohio’s voters amended their state’s constitution to say that they wouldn’t be bound by the federal individual health insurance mandate. The Buckeye State is now the 13th state to reject the mandate.

Ordinary Americans aren’t the only ones incensed by the law. State officials are uncovering a laundry list of glitches in the way ObamaCare doles out subsidies for the purchase of health insurance through the state-run, federally regulated health insurance exchanges, which are set to go live in 2014.

The federal insurance subsidies and tax credits are among the few popular features of the law. But they won’t remain that way as Americans learn more about them.

ObamaCare provides subsidies to those whose incomes fall between 133 and 400 percent of the federal poverty level, and who do not have access to federally defined “affordable” coverage through their employer.

All other Americans — including those in the exact same income bracket — will not be eligible to receive subsidies. In other words, a worker who doesn’t get coverage through work could receive thousands of dollars more in compensation thanks to the subsidies than a worker with similar wages who gets health insurance through his employer.

In some extreme cases, well-off individuals could claim subsidies far greater than their relatively poorer brethren would receive.

Consider the loophole that would add 3 million middle-class Americans to the Medicaid rolls. As written, ObamaCare allows individuals to exclude a large portion of Social Security income from the calculation that determines whether they qualify for Medicaid benefits. So an early retiree earning up to $64,000 could qualify for a safety-net program intended for the poor.

The House of Representatives has voted to scrap this provision, but the Senate has yet to act.

Medicaid for the middle class isn’t the only misguided subsidy established by ObamaCare. The law could actually encourage married couples to get divorced.

Since eligibility is based on federal poverty levels that do not proportionally increase with household size, fewer than two million couples — out of 60 million — are projected to benefit from the subsidies. Nearly half of the beneficiaries will be single folks without children.

Two individuals who make between $61,600 and $91,200 in 2014 would not be eligible for tax credits if they got married. However, both could qualify for subsidies if they decided to cohabit or even divorce. In other words, saying “I do” could cost some couples as much as $10,000 a year.

Married couples and families with children face another roadblock. ObamaCare’s definition of “affordable” employer-provided coverage only takes into account the cost of an individual insurance policy. So if an employer provided employee-only coverage deemed affordable by the government, then his family would not be eligible to purchase subsidized coverage through the exchanges.

To cover a spouse and kids, a worker would have to pay for a family policy through his employer or buy one on the individual marketplace. Both options may be beyond his family’s means. One study found that this “affordability” conundrum could force a family of four making $28,000 per year to spend as much as 43 percent of its income on insurance.

Facing sky-high premiums, workers might beg their employers to offer unaffordable coverage — or even drop it altogether — so that they could get their families on the exchanges. Such a response could blow up the law’s cost estimates for its insurance subsidies.

Of course, in some states, there may not even be any subsidies. States are required to establish exchanges, but if they refuse, the federal government will step in and do so for them.

Here’s the catch — under the law, only state-established exchanges are allowed to distribute tax credits. Nowhere does the law mention that subsidies can be distributed through federally operated exchanges. So Americans living in states which choose not to erect exchanges of their own — now 12 and counting — would appear to be cut off from the federal lucre.

Rep. Nancy Pelosi (D-Calif.) famously said of ObamaCare, “We have to pass the bill so that you can find out what is in it.” But even the Democratic minority leader must be surprised to find out that the law’s mechanisms for helping Americans pay for health insurance are fundamentally flawed.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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