Long May She Waive

By Joseph Antos

Several hundred firms have been granted waivers on some of ObamaCare’s rules; but other firms undoubtedly meriting similar waivers will not get them, and their workers will suffer.

Ronald McDonald is not the only one who gets to keep his health insurance next year. Health and Human Services (HHS) Secretary Kathleen Sebelius has been quietly granting waivers of a new ObamaCare requirement that will drive up the cost of insurance. The pace of waivers has picked up dramatically, much to the displeasure of liberal advocates. The good news is that the Obama administration has had to acknowledge that its healthcare overhaul does not work for everyone. The bad news is that this only avoids the worst political heat, and does not represent a change in policy direction.

Under the healthcare legislation passed in March, insurance must cover up to $750,000 in health benefits next year, and any cap on benefits must be eliminated by 2014. That requirement drives up the cost of insurance, putting coverage out of reach for many low-wage workers. McDonald’s Corporation was among many companies that might have had to drop its low-cost “mini-med” plan and, thanks to its size and resources, the threat made national news. In an election year, that kind of publicity was enough to convince HHS it could make exceptions. In October, 30 health plans were exempted from the rule. By December, waivers had been issued to 222 employers, insurers, and unions.

The bad news is that the waivers are only a way to avoid the worst political heat, and do not represent a change in policy direction.

This sudden surge of activity does not signal that anything fundamental has changed, however. HHS has spent the past nine months issuing guidance and regulations at a furious pace in an attempt to fill the holes and correct some of the errors in the healthcare law. But that activity does not account for the numerous special circumstances facing millions of people with all sorts of different insurance arrangements that are unknown or poorly understood by Washington regulators. The waivers help, but they are not permanent and only delay the inevitable.

The liberal wing of the Democratic Party is upset because it views any waiver as a failure to force insurers to “do the right thing.” Senator Jay Rockefeller (D-West Virginia) has voiced his displeasure over what he sees as an unnecessary concession to an industry that he does not trust, conveniently ignoring that his union friends were among the first to seek relief from the benefit mandate.

Worse yet, the liberal advocates seem to have forgotten who pays for the higher benefit limit: the very workers whom they think they are protecting. Since a worker is only worth what he or she can produce, higher benefit costs resulting from the new law will increase the premiums workers pay, reduce other benefits, or lower cash wages. This increase in labor cost also discourages new hires, something we can ill afford with a nearly double-digit unemployment rate.

Since a worker is only worth what he or she can produce, higher benefit costs resulting from the new law will increase the premiums workers pay, reduce other benefits, or lower cash wages.

It is not surprising that the number of waivers has jumped recently, as the word that there could be some relief leaked out to more companies faced with unaffordable government requirements. Much like the rush to get income taxes filed by April 15, some of us do not get it done until the last minute. But some companies will not catch on to the possibility of a waiver until after the end of the year, at least partly because the government has not widely advertised the option. Will HHS allow the equivalent of late tax filing and grant retroactive waivers in January or later when the loss of insurance becomes real to many people? Almost certainly not. Firms will be told to try again next year, after it is too late to save their health plans.

Even with waivers, President Obama’s healthcare law creates an untenable situation for many employers who now offer health coverage to their workers. In this instance, several hundred firms have been granted a reprieve from the benefit cap rule, but only because major corporations made their complaint known to the public in an election year. Smaller firms—with less ability to navigate the regulatory maze—undoubtedly merit a similar waiver but will not get one, and their workers will suffer as a consequence. This arbitrary and unfair result is inevitable when politics overrides economic reality.

Joseph Antos is the Wilson H. Taylor Scholar in Healthcare and Retirement Policy at the American Enterprise Institute.