Analysis: Obamacare Forgot About Spouses and Children in Cost Calculations

Published May 31, 2016

A new study published by the National Bureau of Economic Research highlights a major problem in the assumptions which informed the Congressional Budget Office’s calculations about the cost of President Obama’s health care law. The problem: the estimates were based on assumptions which sufficiently accounted only for the costs of covering individual employees–not the costs of covering their spouses and families.

According to The Daily Caller’s Neil Munro in his interview with economist and study co-author Richard Burkhauser, the cause is an instruction buried in the Joint Committee on Taxation’s recommendations, which “directed the Congressional Budget Office to ignore family members when determining whether employees actually pay more than 9.5 percent of their household income on insurance.”

The instruction was included in a correction of a complex, 150-page March 21 document. The correction read: “ERRATA FOR JCX-18-10 … On page 15, Minimum essential coverage and employer offer of health insurance coverage, in the second sentence of the second paragraph, ‘the type of coverage applicable (e.g., individual or family coverage)’ should be replaced with ‘self-only coverage.'”

Because of this rule change, Burkhauser said, employees who otherwise meet the eligibility requirements to receive the federal subsidy can be denied it, if their own share of the family’s insurance costs total less than 9.5 percent of their families’ incomes.

If theory, he added, “this will mean that millions of families that are not provided with affordable insurance [by companies] will be ineligible to go to the federal exchanges,” he said.

But companies and their employees share great incentives to rearrange workers’ compensation to win more of these federal subsidies, he said.

For example, he explained, an employee can ask his employer to raise the price of company-provided insurance in exchange for an equal increase in salary. In many cases, that would boost the share of his income spent on health insurance to a percentage above the 9.5 percent threshold.

Once again, we see the problem with the estimates that went into this poorly designed reform: they are based on simply faulty assumptions about the way people respond to the incentives and disincentives of government, on an assumption that no one will game a system that is obviously easy to game. Past reports by the Congressional Research Service and others have found, of course, that people will absolutely game these scenarios whether to avoid the individual mandate or to gain access to subsidies. Why would you not, when free money from the government is the reward?

As more of these faulty and sometimes fradulent estimates become known, the Affordable Care Act looks less and less affordable. And the taxpayers will be left to bear the costs.

A summary of Burkhauser’s study is available at the NBER site.