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Health reform’s $50 billion question: What’s ‘affordable’?

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The definition of “affordable” in the Affordable Care Act has become a sort of regulatory saga as of late.

The issue grew out of what looks, on the surface, to be a simple provision. The reform law says that an “affordable” offer of insurance can only be as much as 9.5 percent of household income. This becomes important because anyone who has an “affordable” offer of employer insurance, has to take it (or, alternatively, pay a fine for not carrying coverage). But anyone with “unaffordable” insurance -- coverage that costs more than 9.5 percent of household income for premiums alone -- gets a little more choice. They can take the unaffordable option, or they can head to the exchange for something cheaper, likely with a federal premium subsidy.

This part of the law seems straightforward. Turns out though, there’s a big, gaping hole. The law doesn’t say what we should count as the “premium:” is it the cost of insuring the employee alone, or the employee and her family? Employers regularly provide both levels of coverage. The price difference is quite significant: the average premium for an individual last year was $5,049 per year, less than half of the average $13,770 for a family policy, according to the  Kaiser Family Foundation. In other words,$13,770 gets you to 9.5 percent of a salary a whole lot faster than $5,049 does.

The thinking on this went back and forth during the health reform debate. A Senate Finance Committee report last October specified that “affordable” coverage should apply to both individual and family coverage. The Joint Committee on Taxation, too, “initially interpreted the rule broadly to include family coverage for workers with families,” a new paper from the National Bureau of Economic Research recounts. Later, though, JCT “interpreted the rule narrowly to mean single coverage, whether or not the worker had a family.” The CBO stuck with this more narrow interpretation, too.

“That was changed and it matters greatly,” says Richard Burkhauser, co-author of the paper and an economics professor at Cornell University. “We’re not saying one is right or one is wrong. We’re just saying it really matters.”

Burkhauser is right; this definition matters a lot. If the Obama administration went, for example, with the wider, family-coverage based definition, Burkhauser estimates in a separate paper that millions more Americans would become eligible to purchase on the exchange. At the very end high end of Burkhauser’s estimate, published by the Employment Policies Institute, that could mean an additional $48 billion in federal subsidies.

“If you use the family coverage. . .you could have a very powerful effect on crowd out of employer insurance and much larger movement onto the exchanges,” Burkhauser says.

The Obama administration finally made its preference clear last Friday. It sided with the narrower reading of “affordable.” In a proposed rule , HHS and Treasury suggest only taking into account individual, not family premiums, that exceed the 9.5 percent trigger.

“I don’t think they want the headlines that it was going to cost $50 billion more,” says Tim Jost, a law professor at Washington & Lee University who specializes in health policy. He was disappointed, but not surprised, at where the Obama administration came down on this issue. “I think in general Treasury has been pretty conservative in terms of how they consider the statue.”

That’s the saga behind one word -- and there’s more of these to come. The Center for Budget Priorities and Policy’s Judy Solomon points that, while the administration tackled the definition of “affordable” in this regulation, they didn’t get into another key term: “adequate coverage.” The law says employers must provide “adequate coverage,” which the law defines as footing the bill for 60 percent of benefit costs.

That raises the question - 60 percent of what?

“We still need to define a minimum value,” says Solomon, who asked administration officials about the issue on a Friday call. “It’s one of the things we’ll be addressing, alongside a lot of other people, in comments.”  

Taken together, both of these decisions underscore how -- even after passage -- many regulatory decisions with wide-reaching implications remain.

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