Delay in Obamacare requirement puts onus on the honor system

NEW YORK Fri Jul 5, 2013 1:34am EDT

A Tea Party member reaches for a pamphlet titled ''The Impact of Obamacare'', at a ''Food for Free Minds Tea Party Rally'' in Littleton, New Hampshire October 27, 2012. REUTERS/Jessica Rinaldi

A Tea Party member reaches for a pamphlet titled ''The Impact of Obamacare'', at a ''Food for Free Minds Tea Party Rally'' in Littleton, New Hampshire October 27, 2012.

Credit: Reuters/Jessica Rinaldi

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NEW YORK (Reuters) - The Obama administration's move to delay a key element of healthcare reform has another, unintended, consequence: A crucial part of that reform will depend on consumers observing the honor system, with millions of dollars at stake.

The U.S. government said on Tuesday it would postpone by a year the provision that employers with 50 or more workers provide them with health insurance; the delay is intended to let companies work out how they report their compliance to tax authorities.

Data on what coverage employers offer and what it costs, to be provided to the Internal Revenue Service, is also meant to help verify whether consumers qualify for government subsidies to purchase health insurance on state- and federally run online exchanges that open on October 1. President Barack Obama's healthcare reform needs millions of people to enroll in coverage sold on the exchanges in their first year in order to work, spreading the financial risk among millions of consumers.

While most of those buyers are expected to be people without insurance, the law lets employees whose workplace offers only "unaffordable" plans - those costing more than 9.5 percent of a worker's household income - not only sign up for coverage but receive federal subsidies, via tax credits, to pay for it. Those subsidies are expected to be worth some $5,000 per person annually, and before this week's announcement were expected to total about $23 billion next year.

Just under 26 million Americans are expected to be legitimately eligible for subsidies, estimates Families USA, a nonprofit group that works to expand access to healthcare.

Delaying the "employer mandate" already means the government is giving up potential revenue next year, as businesses whose employees buy subsidized coverage on an Obamacare exchange would be fined $3,000 per person.

In addition, without the reporting requirements of the employer mandate in 2014, "the exchanges and the IRS will not be able to verify whether someone's coverage is unaffordable" and thus whether the person is eligible for subsidies, said law professor Timothy Jost of Washington and Lee School of Law in Lexington, Virginia.

That leaves it up to individual consumers to be honest about what they do, or do not, qualify for.

A 'BOATLOAD' OF ILLEGITIMATE TAX CREDITS

"The shift of employees to the exchanges could cost (the government) a boatload," said Nicholas Bagley, a law professor at the University of Michigan. "Some people who are ineligible for subsidies, because their employer offers affordable insurance, may attempt to get subsidies on the exchanges. The IRS will have a hard time policing that sort of conduct."

States running their own Obamacare exchanges are scrambling to figure out how to deal with the delay in the employer-reporting requirement.

California, said spokeswoman Anne Gonzales, "was planning to tap into information from large employers to verify employee health coverage. The exchange is currently evaluating how the delay in implementation of the large employer mandate will impact enrollment and verification."

Of course, a good deal of the information Americans send the IRS, such as the value of the household goods they donated to the Salvation Army, already relies on the honor system.

"Obviously the government has made the decision that they're willing to live with that," said Kendra Roberson, a healthcare lawyer at law firm Covington & Burling LLP, referring to an honor system for these aspects of the 2010 Patient Protection and Affordable Care Act.

The honor system may force the government to leave even more money on the table. The law imposes a penalty of $95, or 1 percent of household income, on people who fail to obtain coverage. But those whose employer-sponsored policy is unaffordable - defined as more than 8 percent of household income for purposes of penalty assessment - do not have to pay the penalty even if they do not buy insurance.

To check whether someone is truly exempt, the IRS has to know whether the employer offers coverage and at what price.

"If the IRS doesn't have information about the plans large employers offer, it will be very hard to verify that. It will be an honor system," said Michigan's Bagley. "It could cost the government some money" if individuals elude the penalty through error or dishonesty.

(Reporting by Sharon Begley and Patrick Temple-West; Editing by Michele Gershberg and Douglas Royalty)

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Comments (28)
wildcat48 wrote:
We see the potential problems with Obamacare. Why push through an immigration reform so quickly?

Jul 05, 2013 1:59am EDT  --  Report as abuse
Timbuk3 wrote:
We see the potential problems with oranges, why should we eat apples? #analogyfailure
There are always problems in the world, that is not a sufficient reason to fail to act on immigration reform.

Jul 05, 2013 2:39am EDT  --  Report as abuse
WildBillWB wrote:
Yes, immigration reform should fail on it’s own.

Jul 05, 2013 3:49am EDT  --  Report as abuse
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