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Solving the Low-Income Worker ESI Conundrum

As I noted in my #OE3 projection methodology breakdown the other day, among the 32.3 million uninsured individuals in the country, around 4.9 million of them aren't legally allowed to receive federal financial assistance (tax credits/CSR) to enroll via the ACA exchanges because they already have a standing offer of ACA-compliant health insurance from their employers, but have (so far) refused to sign up for said coverage. The New York Times explains why many of them haven't done so:

But 10 months after the first phase of the mandate took effect, covering companies with 100 or more workers, many business owners say they are finding very few employees willing to buy the health insurance that they are now compelled to offer. The trend is especially pronounced among smaller and midsize businesses in fields filled with low-wage hourly workers, like restaurants, retailing and hospitality.

...Workers who are offered affordable individual coverage through their employers — a group that the employer mandate was intended to expand — are not eligible for government-subsidized insurance through the exchanges, even if their income would otherwise have qualified them.

But for those trying to get by on near-minimum wages, a plan that qualifies as “affordable” can still seem far out of reach.

That is the case for many of Mr. Sewell’s workers....Running the math on his plan — a typical one for the restaurant industry — illustrates why a number of low-wage workers are falling through gaps in the Affordable Care Act.

The annual premium for individual coverage through the Golden Corral Blue Cross Blue Shield plan is $4,800. Mr. Sewell pays 65 percent for service workers, leaving them with a monthly cost of $140.

The health care law defines affordable employer-sponsored insurance as that priced at 9.5 percent or less of an employee’s annual household income for individual coverage.

...Trying to persuade his hourly workers to buy the insurance is “like pulling teeth,” [another employer] said. His company’s plan costs $120 a month, but workers making about $300 a week are reluctant to spend $30 of it on insurance.

The employer mandate has not yet had any noticeable effect on the number of workers enrolled in employer-sponsored health plans, according to a survey by Mercer, a human resources consulting firm.

...A study by ADP, the payroll processing giant, found an income tipping point at which most employees who are eligible for health insurance will buy it: $45,000 a year.

...Workers making $15,000 to $20,000 a year buy employer-sponsored individual insurance when it is offered only 37 percent of the time. That rate rises at every income increment ADP studied until $45,000, when it reaches 82 percent and levels off. Further income gains have virtually no effect on the rate, ADP found.

It's important to note that not all of those 4.9 million people are low-income. I don't know what the income bracket breakout among them is, but I'm assuming that at least 2-3 million of them fall into the lower level income range that we're talking about htere.

This next bit also goes to my point about the individual mandate tax being one year behind the curve, meaning that many people underestimate how much they'll have to pay:

...For employees, forgoing coverage can mean facing tax penalties. Ms. Morris said she was surprised by the $95 fee she had to pay this year for being uninsured in 2014. “I had kind of heard about it, but I didn’t think it was going to kick in until later,” she said.

This particular issue will be less of a problem as the mandate tax increases year after year, but it also explains why only 214,000 people took advantage of the #ACATaxTime special enrollment period this year; my guess is that millions of others didn't understand that they already had to pay the $95 fee for last year; signing up this spring was only letting them avoid (most) of the $325 fee for not signing up for this year.

In other words, folks like Ms. Morris thought they could sign up in 2015 to avoid paying $95 for 2014...but in fact, she had to pay it regardless. If she didn't sign up this year either, she's gonna get hit with a $325 penalty next spring...and $695 after that. Greater awareness of the penalty will help avoid surprises like this and will improve enrollment...but doesn't solve the income problem itself.

Andrew Sprung has come up with a pretty obvious solution to this problem:

Repeal the employer mandate. Put low income workers in the exchanges. https://t.co/LLaPvOevt8

— xpostfactoid (@xpostfactoid1) October 20, 2015

That really does seem to be the best solution here. The employer mandate itself doesn't seem to be having too much of an impact one way or the other as of yet...but offering tax credits to the low-income employees via the exchanges would boost enrollment and resolve most of their financial concerns, while also fixing the "job lock" issue for many. Of course, this would also cause an ACA funding problem, since some of the funding for the exchange subsidies is currently supposed to come from the $2,000/person tax paid by employers for not offering insurance, but that's an issue which could be resolved in any number of ways.

Of course, with a GOP-held Congress, that's unlikely to change anytime soon. In a reasonable world, President Obama could cut a deal: I'll agree to kill a) the Employer Mandate and b) the Cadillac Tax if the GOP agrees to a) allow low-income workers to receive tax credits via the exchanges and b) raise taxes somewhere else (really, this could be anywhere else) to cover the funding difference from doing so.

Since the GOP hates the ACA anyway and refuses to raise taxes on anyone except the poor in the first place, I don't see the issue being resolved.

I should also note that Jed Graham also proposed the same thing in his book, "Obamacare is a Great Mess"...while also presenting his idea for a "no tax increase" solution to the funding issue:

Another possible explanation for why companies may be offering a choice between skinny and comprehensive coverage may be even more troubling: Many of their low-wage workers might not be eligible to buy subsidized coverage through HealthCare.gov or their state exchange. If an employer offers comprehensive coverage that costs no more than 9.56% of a worker’s pay in 2015, that coverage is deemed affordable and the worker isn’t entitled to any exchange subsidies. In that case, a company might think it’s doing workers a favor by offering a skinny plan as a way for them to buy coverage on the cheap and avoid paying an individual mandate penalty.

Undoubtedly, many low-wage workers would object to ObamaCare’s affordability standard: For a $ 20,000-earner, a $ 1,900 insurance premium would be onerous, costing nearly twice as much as a subsidized silver exchange plan and about four times as much as bronze coverage. Here is the problem: If low-wage workers are offered employer coverage that qualifies as affordable –even if it isn’t –then the only policy within their financial reach may be a skinny one.

...A number of policy analysts who strongly support the rest of the ACA have suggested scrapping the employer mandate, giving up the estimated $ 167 billion in revenue it would raise in the next decade to help to offset the cost of health reform. Eliminating it would be the best outcome. However, this chapter also will offer a fallback plan that could preserve a more modest degree of employer responsibility for health coverage without any of the mandate’s glaring flaws.

Graham's solution is too detailed to get into here (plus, his book is well worth the $3 bucks to download anyway); maybe that would work, maybe not. The point is that this issue is fixable...or it would be, if the GOP were willing to compromise on anything to improve things for people.