President Obama and supporters of his health-care law have defended it by saying that the Affordable Care Act is “the law of the land.” However, the spending reductions in the 2011 Budget Control Act—the so-called sequester—also remain “the law of the land.”
In promoting the former, the Obama administration has failed to enforce the latter. As a result, people trying to buy health insurance on the new exchanges are getting incomplete and misleading information, and they may experience more sticker shock next year.
Some have claimed that the sequester “exempts” Obamacare’s subsidies from spending reductions. That is only half true. The Budget Control Act does exempt from sequestration the premium subsidies for households with incomes up to 400% of the federal poverty level ($94,200 for a family of four) and that meet other eligibility criteria.
But other Obamacare subsidies, paid directly to insurance providers on behalf of eligible beneficiaries, are subject to the sequester—namely “cost-sharing subsidies.” These include subsidies for households with incomes below 250% of the federal poverty level ($58,875 for a family of four) to reduce copayments and deductibles. They also include subsidies to reduce out-of-pocket expenses for households with incomes up to 400% of the poverty level.
The Obama administration has acknowledged that the cost-sharing subsidies are subject to sequester reductions. A May report from the White House Office of Management and Budget estimated that the sequester would reduce the subsidies by 7.2% in fiscal year 2014. That amounts to a $286 million reduction through next September—the first nine months of Obamacare.
However, the administration hasn’t issued guidance on how it will implement the required cuts. Appearing before the House Energy and Commerce Committee on Aug. 1, Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner declined repeated requests to explain how the cost-sharing subsidy reductions would be applied. She did, however, pledge that the administration would release more information before the Oct. 1 start of open enrollment in Obamacare. But that deadline came and went without more information.
Clearly, someone will be left holding the bag, and the administration doesn’t want to address who that someone will be.
There are two possible outcomes. The first is that individuals who have managed to enroll in subsidized health insurance will find they’ve been misled about their copays and deductibles. Families who currently think their plan will charge a $20 copayment for doctor visits may instead face a $25 charge when the sequester kicks in. Individuals who now believe they face maximum out-of-pocket costs of $2,000 may end up paying hundreds more.
The other alternative is that insurers may be stuck with the sequester cuts. A May 31 Congressional Research Service report, noting that Obamacare requires insurers to reduce cost-sharing for eligible individuals regardless of the sequester, concluded that “insurers presumably will still have to provide required coverage to qualifying enrollees but they will not receive the full subsidy to cover their increased costs.” In other words, the CRS, Congress’s own think tank, believes insurers may be forced to eat the costs of the sequester reductions—$286 million through September, and billions more through 2021.
Having first proposed the sequester two years ago, the Obama administration now finds itself on the horns of a self-imposed dilemma. It can tell the American people that the “good deal” President Obama promised isn’t as good as they thought—that those who spent hours and days signing up on Healthcare.gov bought coverage that will cost more than advertised. If full disclosure truly were to prevail, the administration would also admit that this classic bait and switch occurred solely due to its failure to account for its responsibilities under the Budget Control Act.
Or the administration can try to force insurers to bear the full costs of the sequester reductions—and watch them promptly drop out of the exchanges.
This is no mere “glitch” in the website, nor was it unforeseen. The administration has known for years that the cost-sharing subsidies were subject to sequester, but has failed to plan for its impact.
In her Aug. 1 appearance before the House Energy and Commerce Committee, Ms. Tavenner testifed that it is the administration’s “strong preference that the issue of sequestration go away entirely.”
But neither Ms. Tavenner nor President Obama can pick and choose which laws they wish to enforce. And the administration’s rush to implement one law, while ignoring the requirements of another, means Americans could face a rude awakening when they discover what their Obamacare coverage will cost them.
This post was originally published in The Wall Street Journal.