Medicare

Giving Health Insurance Subsidies to People Who Shouldn't Qualify For Them, Or: Why ObamaCare Won't Work, Part Infinity

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What if we gave ObamaCare's Medicaid and insurance subsidies to the wrong people? It could happen: Large numbers of people seeking coverage under the law may be given incorrect levels of subsidies — and some may receive subsidies when they shouldn't qualify for any subsidy at all, according to a new study.

President Obama's 2010 health care law relies on two primary mechanisms for expanding health insurance coverage. First, the law requires all participating states to expand Medicaid eligibility up to 138 percent of the poverty line. Second, for people with incomes range between 138 and 400 percent of the poverty line (currently about $90,000 a year for a family of four), it provides insurance subsidies to individuals for private health coverage purchased through a network of government-run insurance exchanges. Those insurance credits are doled out based on a sliding scale, with those on the higher end of the qualifying income spectrum receiving a smaller subsidy.

The problem is that it's actually rather difficult to determine which individuals and families qualify for which set of subsidies. One of the biggest challenges is dealing with the tens of millions of individuals whose incomes will fluctuate right around the Medicaid eligibility line. If a family's income was, say, 115 percent of the poverty line for the first few months of the year, and then rose to 180 percent of the poverty line for the next few months, would they qualify for private insurance subsidies, or would they be stuck in Medicaid? Will families be required to constantly deal with the hassle of switching back and forth, jumping between private coverage and government-run coverage for those with low-incomes? Will health providers be less effective dealing with patients who can't maintain continuity of coverage?

The law doesn't provide clear guidance on how to deal with questions relating to Medicaid churn. But it's probably going to affect tens of millions of people. According to a Health Affairs study published last year, "within six months, more than 35 percent of all adults with family incomes below 200 percent of the federal poverty level will experience a shift in eligibility from Medicaid to an insurance exchange, or the reverse; within a year, 50 percent, or 28 million, will." The burden on covered individuals to repeatedly jump back and forth between plans could be considerable; it would also add a significant bureaucratic burden the insurers and government officials attempting to manage mass levels of insurer hopscotching.

Nor is churn the only problem. A separate study in Health Affairs published this month reports that eligibility for the law's subsidies is going to be even more complicated than expected. Large numbers of people won't end up getting the right subsidy amount — including some who are given subsidies they shouldn't qualify for at all. The study estimates that about 2.6 percent of exchange applicants will be "judged eligible for subsidies would receive advance payments on those subsidies that were too high by $208 per year, on average."

The study points to a number of reasons why determining subsidy qualifications might be difficult. Income projections used to determine advance subsidy payments might be wrong, incomes might unexpectedly fluctuate, and time frames used to calculate income might be inconsistent. The sunderlying issue is that it's incredibly difficult to do fast, consistently accurate income estimation and verification for the 30 million or so individuals expected to be covered under law. A lot of mistakes are going to be made, and those mistakes will create frequent headaches for the individuals stuck in the system, the private insurers participating in it, and the government officials who are supposed to be overseeing it all.

If history is any guide, those mistakes are likely to be compounded by ineptitude and poor administration. As we know, the Department of Health and Human Services isn't the most adept steward of the hundreds of billions it already spends each year. The Government Accountability Office estimates that roughly 10 percent of Medicare payments are made in error, wasting more than $48 billion each year. The agency can't even track its own day to day or month to month operational spending, according to last year's independent audit of its finances. Thanks to ObamaCare, the federal government's health bureaucrats will have millions of new opportunities to engage in needless waste, to make costly mistakes, to blow billions of taxpayer dollars on infernally complex payment and subsidy schemes that will inevitably fail on a regular basis.

It won't be pretty. We'll shuffle poor families into Medicaid, a government-run health program that doesn't work, and make them jump through endless bureaucratic hoops. We'll subsidize the wrong people, and give the wrong subsidies to those who are technically supposed to receive government aid. We'll incentivize businesses to drop employee insurance coverage, and watch the price tag of the law skyrocket when businesses follow through. We'll pursue cost-control schemes that probably won't work and ignore promising market-driven reforms while making cheap insurance options more expensive or pushing them out of the market entirely. Forget, for a moment, the outrageousness of ObamaCare and its mandate; just as big a problem is that it won't work. 

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  1. “We’ll shuffle poor families into Medicaid, a government-run health program that doesn’t work, and make them jump through endless bureaucratic hoops. We’ll subsidize the wrong people, and give the wrong subsidies to those who are technically supposed to receive government aid. We’ll incentivize businesses to drop employee insurance coverage, and watch the price tag of the law skyrocket when businesses follow through. We’ll pursue cost-control schemes that probably won’t work and ignore promising market-driven reforms while making cheap insurance options more expensive or pushing them out of the market entirely. ”

    IN other words, Market Failure.

    1. If by “Market Failure” you mean GOVERNMENT Failure, then yes. Unless my sarcasm detector isn’t working.

  2. What will actually happen is that people will gain access to Medicaid during the times of year when their income is low, and will then not correct their incomes and move out of Medicaid when their income goes up.

    Federal tax returns don’t tell you when during the year income was earned. I could easily – EASILY – tell my state that almost all my income came in December and income equal to 137% of the Medicaid limit during the other months. Voila – instant free Medicaid for Fluffy.

    1. But, Fluffy, people won’t game the system just to get free health care.

      1. They are expecting this, T. In fact, they are counting on it. By design.

  3. Give a man a fish and he eats for a day. Give a man a subsidized fish entitlement debit card and he will vote Democrat for a lifetime.

    1. Give a man a fish and he eats for a day.

      Teach a man to fish and he’ll spend all day in a boat drinking beer.

  4. I think they won’t even worry about churn. Presumptive eligibility at enrollment and you’re good for the year. Auto-enroll those expected to qualify and allow “qualified entities” — hospitals, WIC centers, etc. — to enroll people.

    and when the rolls are completely FUBAR, cry administrative burden and “fall through the cracks” to prevent anyone from being kicked off.

    1. The trick is this, though, NoVa;

      Medicaid is administered by the states, and, more importantly, partially paid for by the states. They have an incentive to make sure that Medicaid isn’t paid to the unqualified, and the authority to make it stick.

      You’re describing (accurately!) how this program would undoubtedly be run if there wasn’t any fiscal oversight at all, which is to say, was the exclusive province of HHS. But its not. And if HHS tries to force the states to adopt its “what the hell, why not?” approach to qualifying, there will be political and judicial pushback.

      1. That’s a good point. But the Feds are paying for that vast majority of that expansion population. IIRC, it’s 100% initially and drops to 90% federal by 2020ish.

        1. My recollection (which could be wrong!) is that the feds are covering the people who become qualified because of the OCare changes. The states would still be on the hook for anyone else who gets through the “what the hell, why not” qualification.

          1. I don’t think it’s that straightforward (this is Medicaid, after all). Existing state eligibility standards come into play.

            But I think the Feds are trying to force the “why the hell not” approach with the maintenance of effort eligibility standards.

          2. My recollection (which could be wrong!) is that the feds are covering the people who become qualified because of the OCare changes.

            This correct, RC. By design.

          3. The states would still be on the hook for anyone else who gets through the “what the hell, why not” qualification.

            Ever heard of an HHS Block Grant?

          4. Right: Washington covers 100% of the cost of the newly eligible at first, sliding down to 90% of the cost in a decade. But right now there are 10-12 million people who are already eligible for Medicaid/CHIP but not enrolled who will be expected to enroll thanks to the mandate; Washington won’t offer the same deal to cover the cost of their coverage.

            1. Correct, Peter. Enter here The State Exchanges to cover the rest of this, which makes the guaranteed insurance coverage mandates even more nefarious. These State Exchanges have almost full-throated support by both TEAMS at the state level.

  5. I agree with the article, I just wish someone at Reason would have read it first so the lack of articles (to, for, etc.) and the word “sunderlying” didn’t detract from my reading it.

    1. How could an awesome word like “sunderlying” ruin the article?

      Sunderlying means “the act of uttering a variety of lies simultaneously.”

      1. I thought it was lying under the sun while lying.

        1. No, that’s solfibbing.

    2. I thought it meant “Telling lies so colossal that they tore the space-time continuum.”

      1. No, that’s singularilying.

        1. Ah, I get it. When you singularilie, you create a fibularity.

          1. Actually, it’s tibularity.

  6. How is the subsidy going to work? Are they planning to reimburse poor people who don’t have the funds to pay up front and wait for a reimbursement?

    1. Trust me: they won’t be reimbursing anybody, because nobody will be paying out of their own pocket, qualified or no.

  7. Those are just logistical details, quit being so negative. There’s no limit to what we can achieve if we all work together and use other people’s money.

  8. “Justice Roberts, Strike down this law!”

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