Thursday, March 7, 2013

Possible Obamacare Tweaks

Supposing that the Affordable Care Act is implemented in essentially the same form as it was written, what minor modifications would be most likely?  Here's my list.  These are NOT my preferred changes, just my guesses of what labor market related minor changes are most likely.  The economics and politics of the tweaks are fascinating!

  1. Implementation date.  Push every provision dated January 2014 back to January 2015.  Another version would be to keep the 2014 date in law, but grant lots of one-year waivers.  The difference between these two approaches is who would be paying the Administration to go along.  In the first case, House Republicans might pay in terms of agreeing to a tax increase or raising the debt ceiling, etc.  In the second case, individual businesses might pay for their waiver, perhaps by supporting 2014 Democratic candidates for Congress.  A clever administration would remind the House Republicans that failure to pay concede enough would lead it to fall back on the waiver approach, which might cost Republican members seats in the next Congress.
  2. Form of the Employer Penalty.  The employer penalty, equivalent to more than $3,000 per employee not offered affordable insurance by his employer, is a particularly large burden on employment relationships with low-income employees.  It will reduce wages and create unemployment, especially among low-income people, and may end up indirectly costing the government more than the fees collect.  The per-employee penalty could be converted into a proportional payroll tax, which would make it much less of a burden on on employment relationships with low-income employees.  It could apply to all employees -- even those with health insurance from their employer -- but employer health insurance contributions could count as payments of the tax, as Massachusetts had once proposed before it settled on its per-employee penalty (see the "Competing Visions" chapter of this book).  If capped like the UI tax, it could be made to appear like an insurance payment.  Perhaps, relative to the status quo, Republicans could embrace this approach if the cap coincided with the existing penalty amount and Democrats could accept it once they realize that this penalty puts our government on the wrong side of the laffer curve for tax collections among low-income households.
  3. Limit Enrollment in the Exchange Subsidies.  Massachusetts is thought to have had a de facto enrollment limit on enrollment in their CommCare plans, but the limits were not reached.  Federal enrollments have already been limited in some of the plans created by the ACA [need cite for this].  There is a good chance that the exchange subsidies cost the federal government astonishingly more than anticipated, and stopping enrollment seems like the natural next step at that point.
  4. A Penalty for Employers that Drop Insurance.  This is different than a penalty for employers that do not offer insurance, because the drop penalty would not apply to employers who were previously not offering insurance (and thereby had nothing to drop).  Equivalently, employers who add insurance could be given a subsidy: employers who had already been offering it need not apply.  I am not aware of precedents of exactly this form, but there is a long history of subsidies with the same basic political appeal and economic characteristics.

The economic effects of these modifications are interesting.  Changing the form of the employer penalty to a proportional payroll tax would cause more low-income people to drop out of employer insurance (if they have it) and take coverage in the exchanges.  Perhaps that means that the payroll tweak would have to come after the enrollment limit.

An enrollment limit could reduce the long run substitution from employer coverage to exchange coverage.  But anticipation of that limit would accelerate the process: an employer who was too slow to make his employees eligible for exchange subsidies could ultimately cost his employees a lifetime of exchange subsidies.  Households who were too slow to reduce their incomes below 400% of the poverty line (households above that cannot get exchange subsidies even with unlimited enrollment) would also cost themselves a lifetime of exchange subsidies.  The economics of enrollment limits also depend on what criteria are used to admit applicants into the program as existing participants exit.

To the extent that it is reasonable to expect that employers will someday receive a subsidy for adding insurance, employers should hurry up and drop their health insurance so that they can qualify for this future credit.

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