My Brush with Obamacare

26 November 2010 at 9:19 pm 29 comments

| Scott Masten |

I had my first personal encounter with America’s new health care legislation last week. The University of Michigan’s current (i.e, pre-Obamacare) faculty-and-staff health care benefits provide health care coverage for faculty children up to age 25. As a result, my daughter, who turns 24 this next month, was eligible for an additional year of coverage under my benefits. Last week, the UM Benefits Office sent employees an email announcing the Patient Protection and Affordable Care Act’s much-touted requirement that health care policies hereafter provide coverage of dependents up to age 26. The announcement added, “The health care reform law removes all previous and current eligibility requirements for coverage.” But then a little further down was the following: “In order to be eligible for coverage under your benefits, a dependent child must … not [be] eligible for health benefits through his or her own employer.” So my daughter, who was eligible to remain on my UM plan for another year before Obamacare, becomes ineligible January 1 because she works for a small company that offers a health plan. It’s not the end of the world, of course. My daughter (who lives at home) will be a bit poorer because she will have to pay for her own health care a year sooner than expected, and the coverage probably won’t be as comprehensive as the UM plan is. If that were the only issue, I wouldn’t have bothered with this post.

What makes this blog-worthy was my subsequent communications with UM’s Director of Benefit Operations, who noted, in response to my inquiry about the change in eligibility, that “There is no regulatory language qualifying the type of plan, or even the level of contribution required.” In other words, an 18-25 year-old minimum-wage worker whose employer offered a $1,000 per month health plan with a $250 co-pay and a $500 per month deductible and no prescription, dental, or vision coverage, would be ineligible to remain on his or her parent’s health plan under the new law. The UM’s DBO said they are expecting to see employee dependents quitting jobs in order to remain on their parent’s health plans. The public has been treated to a steady stream of surprises buried in the health care legislation since its passage. The legislation’s apparent failure to recognize that “health benefits” is not a single, homogeneous commodity, and the perverse incentives that failure creates, looks like another to add to the list.

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29 Comments Add your own

  • 1. Jay Livingston  |  26 November 2010 at 11:33 pm

    I’m a bit confused. UM just initiated a policy denying coverage to dependents who had coverage with their employers. Are you saying that UM could not have instituted this policy prior to the PPACA?

  • 2. Scott Masten  |  27 November 2010 at 8:41 am

    The UM **could** have limited coverage to children who did not have coverage with their employers, but they didn’t. Under UM’s policy as currently in effect, children of UM faculty and staff could remain on their parents coverage until the month in which they turn 25. The other side of the question you asked — and that I raised with with UM’s DBO — is whether the “no employer-sponsored plan” criterion was mandatory under the PPACA. The answer to which is no; UM **could** have continued its previous coverage rules (adding coverage for an additional year). So UM is not blameless for my daughter’s loss of coverage. The point of the anecdote, however, was just to introduce the broader issue, which is that, because the law does not define any standards for what an employer-sponsored health plan must offer, any plan, no matter how expensive or how limited in coverage, disqualifies a child from coverage under his parent’s plan.

  • 3. Mich  |  27 November 2010 at 10:22 am

    So you are making a political point. All policies will end up with winners and losers. Those on the margin will be impacted first and will adjust their behaviour accordingly. The speed to inject politics into otherwise meaningful debates is alarming and counterproductive.

  • 4. Scott Masten  |  27 November 2010 at 11:00 am

    My point is a policy point — often made by others on this web site — that regulations often fail to account for the complexity of the regulated behaviors and, in doing so, induce behaviors and impose costs that are both unintended and potentially more costly than the “problems” they intend to address. Failing to define the parameters of a qualifying plan will have significant efficiency effects that benefits managers now, and the public later, are just beginning to encounter. I don’t see how this is “political” any more than any other policy analysis is political.

  • 5. Jay Livingston  |  27 November 2010 at 11:02 am

    I must have missed the point. It sounds to me as though UM is more than just “not blameless.” I would put most of the blame on UMCare rather than ObamaCare.

  • 6. Scott Masten  |  27 November 2010 at 11:30 am

    The anecdote isn’t the point. That is just how I happened to come across this particular feature of the law. My inquiry was originally self-interested, but the response I received from the Benefits Office pointed out broader problems with the law. Perhaps over time, these issues will be addressed. (Or perhaps could have been avoided if the legislation had not been rushed through.) But as it stands, the law creates incentives for young, low-wage workers to quit jobs that offer expensive and/or minimal health care coverage in order to stay on their parent’s plans, which may, in turn, create an incentive for companies that rely on such workers (e.g., fast food restaurants) to drop such plans.

  • 8. FC  |  28 November 2010 at 1:05 am

    That any reader of an economics blog could write the words “inject politics into otherwise meaningful debates” is deeply sad.

  • 9. Huh?  |  28 November 2010 at 8:01 am

    UMCare doesn’t just get “most” of the blame, it gets ALL of it. It is unilaterally reducing dependent coverage, there is NOTHING in PPACA making them do this.

  • 10. Scott Masten  |  28 November 2010 at 8:34 am

    Thank you, Peter, for the link. It anticipates my post perfectly. (But I wish you would stop injecting politics into the debate!)

    To “Huh?”: Please read comment #6.

  • 11. Huh?  |  28 November 2010 at 9:24 am

    Comment #6 does not completely jibe with what the law actually says and seems to reflect a view of the law skewed by what the benefits office said, which is COMPLETELY wrong.

    This is the reality, ironically, of NOT rushing to IMPLEMENT the law, as the incentives you claim (which are far from indisputable) will persist only through the implementation gap period.

    The legislation actually addresses the issue of insufficient coverage by requiring ramping up of coverage during the gap period (which companies are complaining about and some even being granted exemptions to).

    The legislation was crafted over 17 years (remember, it almost wholly consists of the 1993 Republican plan) so it was the furthest thing from rushed, implementation will just not be completely painless no matter what. This is a big f’in deal, as the saying goes. But it has been made about as painless as possible, and politicizing it further only increases the pain — for example this improper move by your insurer may be politically motivated (it certainly reaped political gain by your blog post).

    If you read the HHS regulatory papers on the subject, or even better, go back and read the research filings on the legislation, you will see that the impacts of reform were considered in quite granular detail. I submit that the public, apparently yourself included, has also been treated to some false claims about the legislation being rushed and insufficiently analyzed.

  • 12. Peter Klein  |  28 November 2010 at 9:55 am

    @”Huh?” (BTW we prefer real names on his blog): did you see Epstein’s recent Forbes piece on rulemaking?

    http://blogs.forbes.com/richardepstein/2010/11/23/government-by-waiver-the-breakdown-of-public-administration/

    The claim that “the impacts of reform were considered in quite granular detail” flies in the face of everything we know about public administration.

  • 13. Huh?  |  28 November 2010 at 10:10 am

    The information is available for direct review. All things considered, it’s quite a bit more granular than the bumbling-idiot image conjured by politically motivated academics like the writer of that article, yourself and your colleagues here.

    Of course there has to be a balance, this IS politics after all, and when you have one side whinging about such a complex piece of legislation being over 2,000 pages long, there is only so much tolerance for academic minutiae before the legislation becomes unpassable.

    As for the article, I’m not sure how repealing healthcare reform is justified by the existence of the mentioned waivers, since implementing reform systemically invalidates the waivers. It also systemically addresses the administrative overhead the article also decries.

    So … Huh?

  • 14. Peter Klein  |  28 November 2010 at 10:25 am

    Ah, very revealing comment — the hubris of the intellectual! This has nothing to do with bumbling idiots, but the fantastical notion that a body of experts can draft a 2,000 page bill to “manage” something as complicated as health care. It’s as if you think Mises’s and Hayek’s arguments against central planning have something to do with the IQs and dedication and integrity of the planners.

  • 15. Huh?  |  28 November 2010 at 12:06 pm

    Then why the need to repeatedly resort to saying essentially that in claiming the legislative design fails at such a high level? Why the failure to acknowledge that the legislation was considered down past the level of the examples you give to prove failure? Such broad attacks are usually deliberate obfuscation.

    Empirical evidence shows that government “management” can in fact bring about tremendous differences in the delivery of healthcare to a populace — for better or worse.

    We need not perfectly control or even understand every part of a complex system in order to imperfectly manage it to reach a desired goal; this happens in practically every advanced human endeavor, from medicine to transportation to communications to law.

    Regardless, to return to the original point in closing, I would be MUCH more angry at the company dropping my daughter’s coverage for no good reason than at the law that, long-term, eliminates that. The reality the anecdote represents is very much the point.

  • 16. Scott Masten  |  28 November 2010 at 2:32 pm

    Sorry for the slow response; Internet was down. But I suppose there’s not much need for my response anyway. “Huh?” is doing a fine job refuting himself, to wit, 17 years of granular attention culminating in a 2000-page bill STILL couldn’t manage to identify the parameters of a qualified plan before the relevant provision went into effect. Saying that it will be dealt with in the future is little consolation to the organizations that have to conform to the legislation as its written in real time. It’s as though planning for and adjustments to incomplete and continually changing government regulations are costless activities.

    And for the last time, the “original point” of the post was NOT about our particular experience. (And I’m not angry at anyone. The University had no obligation to provide coverage for my adult daughter; it was a nice benefit but not something to which I felt entitled.) The anecdote simply provided the context for how I learned about the real problem of the lack of specificity in the regulation. But judging by “Huh?”‘s fixation on this anecdote, it sure seems to have upset him.

  • 17. Jay Livingston  |  28 November 2010 at 5:15 pm

    I don’t know about Huh, but fhe reason I was confused about the point of the post was that although the title suggested it was about Obamacare, it was mostly about UMcare. Even the Obamacare relevance of the second paragraph was not clear to me. You wrote that the UM DBO said, “There is no regulatory language qualifying the type of plan, or even the level of contribution required.“ Required by who? Is this the lack of any level required by the new law? Or is it the lack of level required under UM’s new policy? If it’s UM saying that your daughter is ineligible if her employer provides any coverage, however meager, then I don’t see what that has to do with Obamacare.

  • 18. Huh?  |  28 November 2010 at 6:20 pm

    What relevant provision are you speaking of? There is no provision of the healthcare law that justifies your experience with your insurer. The qualified plan specific definition is not required here, as the provisions in question do not, as you have pointed out, require a qualified plan to be offered. The law itself requires a qualified plan to be offered, but that is a nuance of implementation that develops later (this is part of the point of the implementation period).

    Ultimately, no one should suffer a negative consequence as the result of the implementation of this provision, even in the gap period. If people quit their bottom-end job to get health insurance they otherwise would not have had and they find that financially justifiable, that is a net positive for them.

    It is unrealistic to have expected the legislation to have the minutiae worked into the codification; laws of this complexity and social purpose simply must have reasonably administrative (regulatory) flexibility to reach the broad goals outlined in the legislation. Depriving such legislation of administrative flexibility is setting it up for failure, which would undoubtedly then be held up by the same parties as proof of their positions. Intellectually lazy at best, but more often these days, calculated political strategy by those in opposition to these kinds of laws ideologically.

  • 19. Scott Masten  |  28 November 2010 at 8:43 pm

    In the spirit of scholarly inquiry, I am going to concede that I am not an expert on the PPACA. As my post noted, the source of my information on the law was a UM Benefits email announcement and subsequent email and phone conversation with the UM Director of Benefits Operations. Here is the content of the announcement:

    HEALTH CARE ELIGIBILITY FOR CHILDREN
    This email is an update on the impact of the Patient Protection and Affordable Care Act (health care reform law) and how it will affect health care eligibility for children of University of Michigan employees and retirees effective January 1, 2011.

    What you need to know
    Effective January 1, 2011, the U-M health plans will allow eligible faculty, staff and retirees with children or stepchildren up to the age of 26 to enroll them as dependents for health care coverage. This change means your child or the child of your spouse or OQA, up to the age of 26, can remain in or be re-enrolled in your U-M health care coverage. The health care reform law removes all previous and current eligibility requirements for coverage.

    Your children or stepchildren can be enrolled, even if they are:

    *Not enrolled in school
    *Married
    *Not financially dependent on or residing with their parents.

    In order to be eligible for coverage under your benefits, a dependent child must meet all of these requirements:

    *The dependent is your child by birth or adoption, your stepchild, or the child of your other qualified adult (OQA),
    *The dependent is not eligible for health benefits through his or her own employer, and
    *The dependent is under the age of 26 (coverage ends at the end of the month the dependent turns age 26)

    The email from UM’s DBO read in full:

    The new dependent requirement under health care reform have relaxed the child dependent eligibility requirement for residency, financial support and marital status, as well as increasing the maximum age to 26. At the same time, the new regulations exclude coverage for those adult children who are eligible for their own employer health plan. There is no regulatory language qualifying the type of plan, or even the level of contribution required. It is not uncommon for the Feds to release revised regulations or some kind of clarification of the intent. We are following this issue, but nothing has been forthcoming yet.

    Obviously, I can’t reproduce the phone call in which the DBO elaborated on the consequences of the law and the overall problems his office faces complying with it. You can take my word for it or not. Bottom line: I based my post on the information I received. I have no reason to doubt its accuracy. But I’m going to do some further inquiry into the law and its implications, and I will post an update to this post when I have additional information.

  • 20. Jay Livingston  |  28 November 2010 at 9:22 pm

    “the new regulations exclude coverage for those adult children who are eligible for their own employer health plan.” Whose new regulations– the feds or UM? If this refers to regulations in the PPACA (about which I’m sure I know less than you do), it means that the federal law forbids UM from covering a 25-year-old who has employer insurance. It seems more likely that the new regulations are those invented by UM, but I know even less about those.

  • 21. Scott Masten  |  29 November 2010 at 6:51 am

    Jay, “Regulations” refers to government regulations. That’s clear from the sentence that follows: “There is no regulatory language qualifying the type of plan, or even the level of contribution required. It is not uncommon for the Feds to release revised regulations or some kind of clarification of the intent. We are following this issue, but nothing has been forthcoming yet.” The reference is to federal regulations.

  • 22. Jay Livingston  |  29 November 2010 at 7:31 am

    As I say, I don’t know the PPACA, but it does seem strange that it would prevent UM from providing coverage for an employed dependent. I could see the law saying that UM is not required to provide such coverage, but if it says that UM may must exclude employed dependents, then you’re right:at least one aspect of the new law is screwed up.

  • 23. Gregory Rader  |  29 November 2010 at 4:49 pm

    Scott and Jay, it seems like there might be several possibilities here:

    1. The law does not require UM to forbid coverage but it does strongly encourage the regulations to be taken up as a package. Some stipulations might be required of public plans and optional of private plans, but the complexity of addressing each individual stipulation encourages private plans to adopt the format of the public plan wholesale. In other words, the regulation essentially defines the new standard and it is administratively very costly to deviate from that standard.

    2. Second possibility is essentially a less strong version of the first. The regulation does not explicitly discourage private plans from adopting wholesale but it nonetheless creates the new standard…the default choice. UM then did not bother to customize significantly from the default choice for its own internal reasons.

    3. The regulation has no bearing on private plans and UM is simply using a new standard that doesn’t apply to them as an excuse to reduce benefits.

    Does that effectively cover it?

    Scott, I know you were trying to make a larger point about central planning and unintended consequences but the three scenarios above do have some bearing on that point. Particularly if the truth falls closest to scenario #3. The point would still be valid in the general sense but the implications would be much less clear.

    My guess is that the truth is more like the first two scenarios…the new regulation creates an assumed standard that will be followed regardless of whether it is technically required.

  • 24. Scott Masten  |  29 November 2010 at 9:27 pm

    Gregory, Thanks very much for the comment. Those seem like three reasonable hypotheses. In our phone conversation, the DBO did make an allusion to conforming to a standard but it was made in connection to (as I recall) peer institutions. At the time, I didn’t give it much thought or credence. But I can’t rule out that something along those lines is at work. What is harder to justify, in my mind, is what looks like an attempt to pin the responsibility for the change on the PPACA if, as Huh? asserts, the PPACA is not responsible. I haven’t had much time today to look into it because of teaching, but I did find a distinction between grandfathered and non-grandfathered plans that appears relevant. I also have another email in to the DBO seeking additional clarification on the rationale for the change and its relation to the PPACA. We’ll see if the reply helps sort among your alternative hypotheses.

  • 25. Huh?  |  29 November 2010 at 9:50 pm

    The PPACA and federal regulations (both available for viewing online) say that grandfathered plans MAY exclude dependents with their own offers of insurance. The analysis described in the HHS regulation bulletin indicates that the point was to prevent plans that did not previously offer coverage to 26 from seeing an influx of people who had their own employee plans (impact mitigation by eliminating a “perverse incentive”). It was never meant to address plans that already offered dependent coverage past the previously required age, and certainly did not intend to be used as an excuse to reduce already-existing coverage; that would of course defeat the entire purpose.

    Nothing in the law or regulations require that coverage be eliminated for dependents with employer insurance offers. A company is always free to make the offer of coverage; the employer insurance exception language simply exempts insurers from the REQUIREMENT in PPACA to offer coverage.

  • 26. Scott Masten  |  30 November 2010 at 10:52 am

    I have acknowledged from the outset (see my comment (#2) in response to Jay above) that the PPACA did not require UM to drop coverage for adult children like my daughter. And there is no place in my original post or the subsequent discussion where I said that it did. I think we are all in agreement on that point.

    A question raised by Gregory’s comment is whether the PPACA created some secondary or indirect reason (or maybe excuse) for the UM to drop the coverage. After all, UM wasn’t obligated to provide the coverage in the first place, so why was the decision to drop the coverage contemporaneous with the implementation of the new health law? As the announcement indicates (see comment #19), the UM went out of its way to associate the change with the PPACA. I’m increasingly open to the possibility that that was strategic: They simply used the PPACA as cover for a reduction in benefits that they wanted to make anyway. But I’ll wait to hear back from UM DBO before settling on that explanation.

    The issue that motivated this post from the outset (i.e., what made it “blog-worthy,” as I said in the post) was the potential for the failure of the law to account for heterogeneity in plan types and contributions to result in situations where it would pay for, in my example, “an 18-25 year-old minimum-wage worker whose employer offered a $1,000 per month health plan with a $250 co-pay and a $500 per month deductible and no prescription, dental, or vision coverage” to quit his job to remain on his parent’s health plan. From what I have seen so far (and consistent with Huh?’s comments, I believe), this incentive remains in the case of grandfathered plans.

    But again Huh? provides grist for Peter’s and my mill when he says, “It was never meant to address plans that already offered dependent coverage past the previously required age, and certainly did not intend to be used as an excuse to reduce already-existing coverage; that would of course defeat the entire purpose” (emphasis added). The whole point is that regulators never (well, most of the time) intend or mean for bad consequences. But they predictably occur.

  • 27. Warren Miller  |  30 November 2010 at 7:07 pm

    The first ‘H’ in “Huh” is a typo. It’s s/b a ‘D.’

  • 28. Peter Klein  |  1 December 2010 at 10:00 am

    Mr. or Ms. “Huh?”, I’m going to ask that you refrain from posting any more comments without first providing a) your real name and b) a legitimate email address.

  • 29. Huh?  |  1 December 2010 at 10:04 am

    To clarify again point 1, the law does raise plan standards across the board AND disincentivizes employers from dropping coverage by assessing penalty fees, upon its full implementation in 2014. Some standards rise in steps in the time before then.

    At different times leading up to that point it may make more sense to go this way or that for workers at that very low margin (with little to lose by quitting the job), but come 2014 everyone will have decent health insurance as a baseline.

    The current low level of regulations have given rise to a tremendously inefficient system through their own set of incentives; we know empirically that a higher level of regulations can reap increases efficiency. On the other hand, countries with no regulation are invariably deep third-world nations.

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