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


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.