The ACA in Practice vs. the ACA as Drafted

Margot Sanger-Katz reports that the Obama administration has been aware of obstacles to the implementation of the state-based insurance exchanges for months:

In an ideal world, the exchange websites need to be able to talk to several federal agencies—IRS to verify an applicant’s income and employment status, the Department of Homeland Security to determine her citizenship, and the state government to see if she qualifies for Medicaid, to name a few—all in real time, so a person could fill out a form and purchase insurance in one sitting.

Each of those departments has its own computer system and its own means of tracking information. Creating a “data hub” to share them has been a challenge, as a recent Government Accountability Office report highlighted. It is increasingly clear that the kind of, one-stop shopping that was once described – and that Obama himself referenced in a speech on Monday — will not be available in most parts of the country.

“It’s the joyous, simultaneous, nonlinear equation from hell,” said Kip Piper, a former top official at HHS and OMB who is now a consultant in close contact with IT vendors. Piper said it’s no surprise that the administration has given up on certain functions given the technological complexity needed and the short time-frame.

But the long-term nature of the bad news could be good news for those who hope that the new marketplaces will launch in some form on time. The struggles with technology and administrative complexity have not come as a recent surprise to administration officials; they’ve been negotiating them for months already. By eliminating non-essential tasks, they may be violating the letter of the health reform law, with its rigorous timetables and multiple requirements, but they may be more likely to get the core functions right.

In a similarly optimistic vein, Ezra Klein argues that the recent decisions to delay the employer mandate and to relax income verification requirements make it easier rather than more difficult to implement the Affordable Care Act.

There were two noteworthy changes to Obamacare in the last seven days. The first is that the employer mandate, which tells businesses with more than 50 employees to provide affordable insurance or pay a per-employee penalty, won’t be enforced until 2015. The second is that people applying for low-income subsidies in the exchanges will face fewer audits in 2014.

Both changes make the same trade-off: They raise the law’s first-year costs in order to reduce its first-year problems.

The poorly designed employer mandate was perhaps the most serious threat the law faced in its first year. Only about 10,000 of the economy’s 5.7 million firms were expected to face the mandate, but that’s still a lot of angry business owners. And while some of those business owners would respond by grudgingly offering insurance, others would respond by cutting back on hours for their employees, or even firing some of their employees.

For Obamacare, the resulting headlines would be lethal. Add in that even businesses that were already complying with the mandate would have to follow annoying reporting requirements to prove they offered insurance and the law had a real problem among a politically powerful constituency.

Now, it doesn’t. At least not until 2015, assuming the mandate actually begins then. That isn’t to say the delay is costless: The federal government will lose billions in penalty revenues, and some employers who would’ve begun offering health care will simply let their employees drift into the individual marketplaces instead. But in terms of implementation, Obamacare just got a lot easier to implement, if a bit pricier.

The consumer-information delay is a similar story. The question here is how the insurance marketplaces verify the income and insurance status of the people who come to them looking for help. If they don’t scrutinize the claims closely enough, some people who don’t qualify for subsidies may receive them anyway. But if they require reams of documentation, various parts of the process can break down as computer systems prove unable to talk to each other or people struggle to come up with the required paperwork. The result would be that people who do qualify for help don’t get it — a problem that bedeviled the first year of the Medicare Prescription Drug Benefit.

On Friday, the Obama administration said that in the law’s first year, they would accept the testimony of consumers when they applied for health insurance. That means that if you tell the government you make $10,000, the government simply believes you. There will be random audits, much as there are when you pay your taxes, but that’s about it. In 2015, the requirements will tighten further, and the federal government can claw back subsidies that were improperly awarded. [Emphasis added]

Ezra’s analysis helps clarify a number of issues. But a few thoughts immediately come to mind:

1. Ezra knows that though only 10,000 out of 5.7 million firms were expected to face the mandate, 71 percent of all U.S. employees work for firms with 50 or more employees. (See the CBO’s March 2012 report on “Small Firms, Employment, and Federal Policy.”) And though virtually all firms with 50 or more employees offer health insurance coverage to their employees, the percentage of workers at those firms covered by health benefits varies considerably — some workers choose to waive employer-sponsored coverage, either because they are covered via a spouse or because they’d prefer not to pay for it (a group that might shrink if the individual mandate is enforced); and some workers, particularly part-time or temporary workers, are not offered coverage. Many firms that offer coverage offer health insurance plans that fall below what ACA deems an acceptable threshold. So anger aside, the employer mandate does create real challenges for many large employers. To his credit, Ezra acknowledges that the employer mandate might have a labor market impact — a story that Jed Graham of Investor’s Business Daily has been covering for much of the last year.

2. Leaving aside the broader rule of law question, my sense is that the claim many (I can’t say if it’s most) of those claiming that the ACA is indeed facing implementation difficulties is that the ACA is facing implementation difficulties as drafted

3. Ezra treats the likelihood that delaying the employer mandate and relaxing income verification will raise the law’s first-year costs as relatively minor, yet it raises important questions. Much of the debate surrounding the ACA concerned its cost, and its advocates touted the fact that the CBO found that it would be deficit-improving. The pricier the legislation becomes as various provisions are delayed or abandoned — Ezra wisely doesn’t take for granted that the employer mandate will be enforced in 2015, though he does take for granted that income verification requirements will tighten — the more critics who claimed that the law as drafted was too rickety to yield such substantial savings are vindicated. Vindication plus a bag of chips will get you a bag of chips, as we used to say on the playground. But going forward, other elements of the ACA also look doubtful, e.g., the excise tax and the cap on ACA exchange subsidies, which IBD’s Graham described as follows:

Under a cost-control inserted during reconciliation, a greater share of premium payments would steadily shift to individuals and families after 2018 if exchange subsidies top 0.5% of GDP — as CBO projects they will.

In a report trying to clarify this aspect of the law that has bamboozled Medicare’s actuaries and respected health care analysts across the political spectrum, CBO said subsidies would not merely fail to keep up with inflation but would shrink in nominal terms for single policyholders between 350% and 400% of the poverty level once cost curbs are triggered.

If the employer mandate is administratively delayed beyond 2015, or if it is legislatively repealed, it is easy to imagine efforts to repeal the excise tax gaining momentum. And if the cap on exchange subsidies leads to sudden surge in premium payments for middle-income households, one assumes that the political pressure to repeal it will be considerable. Granted, this is all speculative. The point is to demonstrate that many of the law’s cost control elements are vulnerable, as demonstrated by the developments of last week. 

We have good reason to believe that while the ACA architecture was well-suited to securing substantial deficit reduction in a CBO analysis, the unrealistic assumptions embedded in the law mean that the ACA in practice will cost more than anticipated and raise somewhat less revenue than the ACA as drafted. Would the ACA in practice have gained the support of the various moderate Democrats who backed the ACA as drafted only reluctantly? I doubt it. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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