The Affordable Care Act’s ‘affordability’ paradox

(bigstockphoto) On the surface, it looks like a simple and straightforward health reform requirement: Employers must offer their workers affordable health insurance or pay a fine for not providing coverage. An offer of insurance is “affordable,” the law says, if the premium is less than 9.5 percent of an individual’s household income.

But this single provision of the law--particularly its use of the term “affordable”--has become a vexing challenge for the Obama administration, and one that underscores how much regulations will matter in determining what the health overhaul ultimately looks like.

We know that the health reform law requires “affordable” insurance to cost less than 9.5 percent of a worker’s household income. But here’s a crucial detail it left out: What counts as the “premium”? Is it the cost of providing insurance for just the employee, or for the workers’ entire family? There’s a huge difference between the two: the average premium for an individual last year was $921 per year, compared to the average $4,129 for a family policy, according to the Kaiser Family Foundation. In other words, health insurance premiums of $4,129 send a company past the affordability target a lot faster than just providing an individual policy would.

This has huge implications for the health reform law. If the Obama administration went, for example, with the wider, family-coverage based definition, many more Americans would not have an affordable offer of insurance. And that would make them eligible for federally-subsidized health insurance. Richard Burkehauser, an economist at Cornell, ran the numbers and estimated that, under a family-coverage based definition, the federal government would be on the hook for $48 billion more in subsidy payments. His study this summer generated a slew of headlines charging that the health reform law would cost $50 billion more than originally thought.

That probably explains why, in regulations, the administration went with a narrower definition: It will use an offer of individual health insurance coverage as its benchmark for affordability. But now, consumer advocates say that creates another regulatory mess.

Elsewhere, the health reform law also says that any family with an “affordable”offer of insurance isn’t eligible for federal subsidies. Family members of a worker who gets an affordable but individual insurance policy could essentially get hit with a double-whammy: They’re not covered by the “affordable” employer plan and not eligible for subsides on the exchange.

A sizable number of Americans could end up in this grey area. The Center for Labor Research and Education at the University of California, Berkeley published a study Tuesday finding that, in California alone, it could amount to 144,000 people. Members of California’s congressional delegation have seized on the study to push the administration. They say that the regulation does not align with Congressional intent: They want these family members to be eligible for exchange subsidies.

“This new analysis highlights the importance of the administration getting the affordability measure right,” says Rep. Pete Stark (D-Calif.). “If they define it only in relationship to individual coverage, children and spouses fall through the cracks.”

The back-and-forth over defining affordability is one among dozens of regulatory debates happening in health reform right now. Regulators are attempting to define what counts as an “essential” health benefit, that all insurance plans will have to cover. They’re wading into a heated battle over who should be exempt from a provision requiring all health plans to cover birth control.

Regulations don’t get nearly as much attention as Supreme Court challenges of the law or repeal campaigns. And, to be fair, the Federal Register isn’t exactly a page turner. But regulation is where a lot of the action is at in health reform, where key decisions are being made to determine how the overhaul moves forward.