Thursday, July 26, 2012

Could ObamaCare Make The Uninsured Problem Worse?


When President Obama was selling health reform, he often talked about providing universal coverage. But a Congressional Budget Office report out this week finds that goal getting more elusive.
The report found that despite ObamaCare's $1.2 trillion price tag, it would only cut the ranks of the uninsured in half, leaving 30 million without coverage. That's seven million more uninsured than the CBO first projected in March 2010.
The latest downgrade comes in the wake of the Supreme Court ruling, which gave states the freedom to reject ObamaCare's massive expansion of Medicaid. Since then, governors in more than 25 states have said they will refuse to expand Medicaid or are leaning in that direction, despite the generous federal contributions.

But the uninsured problem under ObamaCare could be much worse than the CBO projects.
What the report doesn't cover is the fact that the other legs of the ObamaCare stool designed to expand insurance coverage — the individual mandate, the employer mandate and the state insurance exchanges — are also buckling.
As a result, ObamaCare will likely cover far fewer uninsured than advertised. There's even a chance that, if all goes wrong, it could actually make the uninsured problem worse.
The individual mandate, for example, is a cornerstone of ObamaCare's effort to expand coverage. But tax experts who've studied how the IRS will enforce the mandate conclude that it's likely to be ineffective, because the law makes it virtually impossible for the IRS to collect the tax penalty from those who don't pay it.
Under normal circumstances, the IRS has broad powers to collect taxes from those who don't pay what they owe. It can charge civil and criminal penalties, impose liens, and seize assets and bank accounts.
But ObamaCare specifically blocks the IRS from using these enforcement tools when it comes to collecting any unpaid ObamaCare tax penalties.
These restrictions "make it unlikely the IRS can effectively enforce the individual mandate," according to a detailed analysis of the tax penalty by Jordan Barry and Bryan Camp, law professors at the University of San Diego and Texas Tech University, respectively.
"The individual mandate," they conclude, "may not actually be mandatory after all."
The problem is that if the mandate doesn't work, ObamaCare could make the uninsured problem worse, at least in the individual insurance market.
That's because ObamaCare's insurance market reforms — called "guaranteed issue" and "community rating" — force insurers to cover anyone, regardless of their health status, while forbidding them from charging the sick more than the healthy.
ObamaCare's designers knew that without an effective individual mandate, these market reforms could cause a "death spiral" as healthy people dropped coverage knowing they could get it — guaranteed — whenever they got sick. This death spiral, in fact, is just what happened in states that tried those market reforms without imposing a mandate.
ObamaCare backers say that generous subsidies offered through the ObamaCare "exchanges" will more than make up for a neutered mandate.
But Obama's solicitor general, Donald Verrilli, admitted before the Supreme Court that without an effective individual mandate, "guaranteed issue and community rating will, as the experience in the states showed, make matters worse, not better. There will be fewer people covered; it will cost more."
In addition to problems with the individual mandate, there are increasing concerns about the effectiveness of the employer mandate at maintaining the employer-based system of coverage, through which 154 million get insurance.
Studies consistently predict that around four million people will lose workplace coverage as a result of ObamaCare, despite the fines imposed on businesses that don't offer insurance. But the most recent analysis from the Congressional Budget Office says the number could be as high as 20 million.
And a study out this week by Deloitte finds that almost one in 10 businesses expect to drop coverage, with another 10% saying they weren't sure. A 2011 McKinsey & Co. survey found that 30% of companies "definitely or probably" would drop health benefits under ObamaCare.
Finally, there's a potentially fatal flaw in ObamaCare's insurance exchanges, which are designed to let individuals pick from a variety of government-approved health plans and get subsidies if their incomes are below certain levels.
As written, the law only allows state-run exchanges to offer subsidies, according to an analysis by Jonathan Adler and Michael Cannon published by Case Western Reserve University School of Law. Federally run exchanges, they concluded, aren't allowed to.
If federal exchanges can't provide subsidies, that would dramatically undermine ObamaCare's efforts to cover the uninsured, since as many as half the states might leave it to the feds to set up their exchanges.
The lack of subsidies at federally run exchanges would mean far fewer could afford coverage. The CBO expects 25 million to join the exchanges, assuming all of them can offer subsidies to the 80% who would be eligible. It would also mean that businesses in those states would be exempt from the employer mandate.

Under the law, that mandate only kicks in if an employee is eligible for subsidized coverage through an exchange.
As a result, the "mandate is effectively unenforceable in states that decline to create an exchange," Adler and Cannon conclude.
To be sure, the topic is the subject of fierce debate, and the IRS has written rules assuming federal exchanges can offer subsidies.
Whether all these worst-case scenarios actually come to pass is impossible to predict. States could all decide to expand Medicaid, people might respond to the mandate even without IRS enforcement, businesses could end up keeping their insurance benefits, and courts could decide that the federal exchanges can offer subsidies.
But as IBD has previously reported, the history of state and federal health reforms show that they have consistently failed to live up to expectations.

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