Problems with ObamaCare: discontinuities

Last updated on: August 11, 2013 at 11:16 pm by Jane the Actuary

Problems with ObamaCare: discontinuities 2013-08-11T23:16:00-06:00 Jane the Actuary

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There are a lot of issues with ObamaCare. Some of the largest issues, and those which surely many Democrats could be persuaded of, have to with discontinuities.

For instance, eligibility for subsidies: up to 133% of poverty level, once gets Medicaid, at 134% of poverty, it’s into the premium support system. Depending on one’s point of view, that’s a loss (for those happy about the full benefits, without copays, that Medicaid provides) or a gain (for families where the difficultly finding practitioners who accept Medicaid causes problems), but it’s a cliff nonetheless.

And at the top end, the cliff of 400% of poverty level is even worse — with one dollar in extra income, a family can lose upwards of $10,000 in government subsidies.

And on the employer side, a cliff at 50 employees working 30 hours per week is causing no end of troubles.

And there are further discontinuities in the test of whether an employer offers “affordable” coverage, which can get employees into situations in which they don’t qualify for government subsidies but nonetheless would be challenged to pay for coverage, plus various situations in which an employee would be better off with an employer who doesn’t offer health insurance, collecting the government subsidy, compared to s similarly-situated peer who took a job with lower pay but health insurance provided.

This is at least an improvement on the current situation in which individuals with major health needs stay on welfare/disability because they depend on Medicaid for their health care, and have no change of paying for health insuarnce for pre-existing conditions upon leaving. Or my former neighbors: they had to give up guardianship of their severely disabled son to the center where he lived, so that he would qualify for Medicaid.

This is the same sort of issue that appears in mutiple contexts. Some time ago, I saw a chart graphing the discontinuities in welfare benefits in general (cash welfare, food stamps, housing subsidies, daycare benefits, EITC, etc.)– that is, while many welfare benefits have a gradual phase-out (e.g., food stamps), others have a cliff, and even those with phase-outs, when taken altogether, produce situations in which an individual (typically a single mother) loses by growing her income.

Intuitively, it bugs me — and I don’t buy the counter-argument that people don’t pay enough attention for this to matter. (In the comments on the article with the above graph, I remember someone claiming to have worked at a welfare office and observing the recipients paying very close attention to the limits at which various welfare benefits ended.) We already see employers avoiding the 30-hour threshold.

What’s the answer? Well, at the risk of being a broken record, VoucherCare avoids that issue by providing the same voucher to everyone (well, vouchers which can purchase the same amount of health insurance, with cost varying by age/sex/health status). Single-payer likewise pays the same benefits to everyone.

Is there an alternate way of avoiding the discontinuities? With respect to the employer mandate, one could, I suppose, make the requirement proportionate to hours worked, so that a full-time employee requires full health insurance benefits, and a half-time employee requires a half-subsidy (if tax law were to permit subsidies to be portable — so that this subsidy could be applied to offset the cost of one’s spouse’s insurance or private insurance purchased on an exchange or through a broker).

As for the discontinuities in the individual subsidies, I suppose, at the lower end, if the “insurance value” of Medicaid could be quantified, individuals above the 133% threshold who want to retain the copaylessness of Medicaid could be asked to pay premiums on a sliding scale. At the top end, the 400% of poverty cap to eligibility for subsidies could be eliminated. It’s not a solution I like — but it would work, at least.

So why were these discontinuities created? The 400% cap is clear: it was meant to hold down costs. The part-time/full-time cut-off: I suppose it was based on an expectation that these were two separate categories of jobs, with no ability to perceive employers acting to cut full-time jobs to avoid the requirement.

So this post may seem as if doesn’t really go anywhere, but I’m trying to think through the various issues with ObamaCare. In particular, the Democrats hold all the cards right now — what arguments could I, in theory, make to persuade my own (quite liberal, single-payer supporting) Representative to mend O’care?

And the discontinuities is a big issue. (Also the monstrosity of the system, and the amount of bureaucracy and data-collection necessary to integrate information on household wages, insurance purchase, and employer benefits to enforce ObamaCare as it exists. And the fact that there’s nothing to make a dent in actual costs. But that’s for later posts.)

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