Last week two major pieces of the Affordable Care Act (PPACA) were delayed. First, and the part that received most attention, was that the employer mandate was delayed until 2015. This was a very big announcement – businesses with more than 50 full-time equivalent employees were struggling to figure out how to measure their plans’ affordability and whether they were a “minimum value” or not. Most difficult was the measurement of service periods for seasonal and variable hour employees. Add to this that there was conflicting information about how to perform these difficult calculations, and you can understand the cumulative sigh of relief that this part of the law was delayed. Especially, I might add, for the businesses on the smaller scale who don’t have a full legal or HR team on the job to tackle this kind of assignment!
But there was a second announcement, and I think it’s even more important to the overall implementation of PPACA. The Federal government announced that when individuals purchase their insurance through the “exchanges” (now called “marketplaces”, which thrills champions of free markets) that they will not be required to verify income. Why is this important? Because only in the government-managed exchanges will individuals be able to receive a means-tested subsidy of their health insurance premium.
What was not announced, however, was a suspension of the subsidies. Now noodle that for a second. The exchanges are still on track (questionable) for 10/1/2013 open enrollment. You will still be able to apply for a subsidy, and that subsidy is calculated based on the income that you will self-report. Can you spell f-r-a-u-d?
The principle behind the subsidies was to provide an incentive to the uninsured to become insured by reducing their costs on a proportionately means-tested basis. Those subsidies come from Federal tax dollars (read: penalties) and flow to the insurance companies, offsetting the individuals’ cost. A part of the formula for raising those funds was by fining employers who did not offer coverage, which has now been delayed one year. Delay of the mandate = less tax revenue. Delay of income verification = higher subsidy payment costs to the government. More expense, less revenue.
Some argue that the invitation to fraud is a wink-n-nod strategy to get millions to enroll by taking larger subsidies than they honestly are entitled to receive. Why? To make PPACA virtually un-repeal-able because so many would be enrolled in the government exchanges. That’s sinister political stuff.
There are other important issues raised by the delay of the mandate, such as the effect on families of those employees who are offered affordable minimum-value coverage by their employer. But the failure of the government to secure the income verification system on time opens the door wide to the kind of fraud that has plagued Medicare for decades.
Purves Insurance is located in Davis, CA and specializes in helping businesses not freak out about PPACA.