Even with the Affordable Care Act, health insurance coverage for many families may remain unaffordable

Jan. 15, 2013 — Any hopes that large employers would be penalized for failing to offer affordable insurance coverage to the spouses and dependent children of their employees under the Patient Protection and Affordable Care Act (ACA) were recently dashed by a proposed interpretation of the law from the Obama Administration.

The interpretation, which was released by the Internal Revenue Service (IRS) late last month in the form of a proposed rule, related to the “Employer Shared Responsibility Provision” of the ACA, popularly known as the employer mandate. That provision provides that larger employers (those with more than 50 employees) offer insurance coverage not only to their employees, but to the “dependents” of those employees as well. If these employers fail to offer “affordable” coverage, they may be subject to monetary penalties.

But the IRS’s definition of dependents in the proposed rule excludes the spouses of employees, regardless of whether the spouse is employed.

Timothy Jost, a law professor at Washington and Lee University and an expert on legal interpretations of the ACA, explained that there is thus nothing in the proposed rule that would incentivize large employers who do not currently offer coverage to spouses to do so. And for employers who do currently offer coverage to spouses, he said, there is no disincentive in the proposed rule against dropping that coverage in the future.

The proposed rule may address the concerns of some employers about the costs associated with offering coverage to their employees’ spouses, said Shana Alex Lavarreda, director of health insurance studies at the Center for Health Policy Research at the University of California Los Angeles, “but from an employee’s perspective, your spouse is a hugely important part of your family, somebody who you want to be covered, and if they don’t have other coverage options this rule isn’t going to do anything to address that.”

And not affordable for dependent children

The ACA generally defines “affordable” insurance as coverage that costs no more than 9.5 percent of an employee’s household income in employee-paid premiums.  The proposed rule does require that employers must offer coverage to the dependent children (up to the age of 26) of their employees or pay a penalty, but does not require that coverage to meet any threshold of affordability.

 “Coverage for an employee under an employer-sponsored plan is affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income,” the proposal says. Since “self-only” coverage — which, as its name implies, does not include coverage for any family members — is all that needs to be affordable, that means that dependent coverage need not be affordable.

The result is that “an employer could offer insurance to its employees that would cover their kids, but not contribute to the cost of the kids’ coverage at all,” said Robert Hall, the associate director of the Federal Affairs Department at the American Academy of Pediatrics. “No matter what that coverage is going to cost the employee, the employer is off the hook as long as they offer it.”

Jost said that the proposed rule encourages those employers who do not currently offer coverage to the children of their employees to offer affordable employee-only coverage while contributing only a limited amount for family coverage, putting workers in a position of being able to get family coverage only if they cover a large gap between the employer contribution and the total insurance company premium.

 “For some families,” Jost said, “that difference is not going to be affordable.”

Some children will be eligible to receive insurance through the Children’s Health Insurance Program (CHIP), but CHIP eligibility is based on family income and varies from state to state. In most states, children are ineligible if their family’s income is greater than 250 percent of the federal poverty line ($47,725 for a family of three in 2012), though many states have even lower thresholds.

Hall said that, under the proposed IRS rule, many children from middle-income families would be at risk of neither being eligible for CHIP nor having access to affordable insurance through their parents’ employer.

Consequences for families

When all of the provisions of the proposed rule are examined together, many advocates said that they now have further reason to doubt that the Affordable Care Act will live up to its goal of guaranteeing that all families have access to affordable coverage.

Under the proposal, “you can easily imagine a scenario in which a family is spending significantly more than 9.5 percent of its income on premiums,” said JoAnn Volk, a research professor and project director at the Georgetown University Health Policy Institute. She described a scenario known as “premium stacking,” in which the premiums associated with covering each individual family member may seem affordable in isolation, but, when those premiums are stacked on top of each other, the resulting total insurance cost to the family equals a huge percentage of the family’s income.