Obamacare and the Law of Unintended Consequences

By John Davidson and John Davidson and Emily Poirier–Texas Public Policy Foundation

Health insurance brokers have begun designing new “Band-Aid” plans that offer minimal coverage as a way for employers to avoid steep fines under Obamacare—and employers are buying them. A recent article in the Wall Street Journal detailed these plans, which cover just enough to be compliant with the law’s minimum requirements but won’t pay for things like surgery, X-rays, or hospital stays.

The employer mandate in the federal health care law consists of two penalties. The steeper penalty would impose a fine of $2,000 per employee on any businesses that, “fails to offer to its full-time employees… the opportunity to enroll in minimum essential coverage,” if just one full-time employee enrolls in a health insurance exchange (minus 30 employees). Thus, as Avik Roy points out at Forbes, that would mean a firm with 50 employees would have to pay a fine of $2,000 * 20 = $40,000 (in non-tax deductible dollars).

The lesser fine applies to employers that offer minimum essential coverage that doesn’t meet the law’s requirements for affordability or actuarial value. If a worker declines to enroll in a minimal plan and instead goes to the exchange, the fine is $3,000 times the number of workers who enroll on the exchanges. If only three employees do this, the fine would only be $9,000.

For businesses that opt for so-called “Band-Aid” plans, the result will likely be that older or sicker employees will choose to get coverage on an exchange instead, which will mean higher premiums for exchange plans.

Robert Kocher, a health advisor to President Obama during the drafting of the federal health care law, told the Wall Street Journal that his “expectation was that employers would offer high quality insurance.”

Reactions like this are hardly surprising coming from an Obamacare architect. The drafter’s of the law also expected the states to set up exchanges and expand Medicaid, and yet 26 states have thus far refused to set up exchanges while 22 have not expanded Medicaid.

None of these things were anticipated by Obamacare’s drafters, yet they are the obvious result of basic economic principles—and they aren’t the only unintended consequences we’ll suffer when mandates and penalties kick in on January 1, 2014. Despite what Obamacare supporters believed in 2010, evidence is mounting that the health care market cannot be centrally planned, and that employers and individuals will find a way around the law’s myriad mandates and penalties.

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