A new ObamaCare rule sends a strong signal to modest-income families that they can no longer afford to work for firms that offer affordable health coverage.
The rule also sends a message to employers that it might be heartless to offer modest-wage workers affordable coverage.
Millions of such families could find themselves in what Cornell University economist Richard Burkhauser calls ObamaCare’s “no man’s land,” where they can neither afford employer-sponsored family coverage nor access new government subsidies.
It’s unavoidable because the law’s definition of “affordable” — interpreted by the Treasury Department — only makes sense for single individuals.
Employer coverage is deemed affordable if an individual policy costs no more than 9.5% of household income — even if family coverage costs 25% or more.
In that case, the individual will be required to take the employer’s offer — or face a tax penalty. The spouse and dependent children would be denied access to ObamaCare subsidies, though they wouldn’t face a potential fine for lacking coverage.
With ObamaCare subsidies, an average family of four earning $50,000 in 2016, or 200% of the poverty level, would pay about $6,000 in premium and out-of-pocket costs for their health care. That’s $11,300 less than the same family would pay for coverage via an employer, the Congressional Budget Office has said.
There is a good chance such a family would balk at paying one-fourth of income on insurance premiums — even before deductibles and cost-sharing payments.
The affordability rule was apparently aimed at minimizing shifts from employer coverage that would thin out risk pools while adding to ObamaCare’s budget costs. If spouses and dependent children could access the law’s subsidies, employers would have far less reason to contribute toward such coverage.
Yet avoiding that outcome has repercussions. Workers will have a big incentive to seek work without health care coverage, especially small-business jobs and even part-time positions that are free of ObamaCare’s mandates.
Employers may find it makes sense to explicitly push premium costs to workers — and to shift to part-time jobs where possible.
Part-Time Future, Today
Indeed, the ObamaCare shift to more part-time work, particularly in the retail sector, already seems to be under way ahead of a midyear deadline before staffing levels begin to influence potential employer fines in 2014.
Firms with at least 50 full-time workers (defined by total hours, not just head count) may be fined up to $3,000 per employee who gets ObamaCare subsidies.
Several analysts have suggested that employers would respond to generous ObamaCare subsidies for moderate earners by dropping coverage. Burkhauser, along with co-authors Kosali Simon and Sean Lyons, suggest another option: Workers and employers could “change their current contracts” to make dependents eligible for exchange subsidies.
Shifting employer premium costs to wages could make an “affordable” plan unaffordable by ObamaCare’s definition for several million workers and their families, the authors conclude.
David Gamage, a Treasury tax policy official during the law’s drafting, has written that the ObamaCare family penalty “will incentivize many low- and moderate-income taxpayers to divorce,” though it’s not evident that families will take that route .