Opting Out and Individual Affordability Credits: a reply to DOLB

by Bruce Webb

Divorced One and I are having what I think is a useful exchange that started with my post on Eligibility and Enrollment which he followed up with More on the Public Option. If you haven’t read that please do as this piece won’t make much sense otherwise.

DOLB and I now agree that employees can opt-out of employer paid coverage and enroll in the Public Option. The key to entry to the PO is to not be ENROLLED in an employer plan. Now clearly there are ways to decline or drop employer paid coverage today. For example if you are retired military and covered under Tri-Care you don’t need to accept coverage, or if you get married to someone with a family plan you can drop coverage, at worst you would have to wait until the annual Open Enrollment period. There is nothing in ether current law or this proposed legislation that binds you to the employer plan. On the other hand the system is set up as ‘opt-out’ rather than ‘opt-in’, if you accept a job with employer coverage and for whatever reason (perhaps you are a Christian Scientist) refuse to sign up for a plan option the employer is authorized to auto-enroll you in the lowest cost plan. But you can, if you choose take positive steps to opt-out of such coverage. So why does CBO project that so few people will choose to opt-out of employer coverage and into the Public Option? Well you would have to ask them, generally CBO doesn’t discuss its specific methodology, but the answer seems to be that on their calculations such a choice would not be financially advantageous to the worker. This was explained in a response of a congressional staffer to DOLBs email question:

Any individual (but not any employer) can participate in the Exchange and therefore could sign up for the public option. BUT, to do so, they would have to dis-enroll in their qualifying coverage and meet the other requirements necessary to participate in the Exchange. However, there is zero incentive for anyone to do this since they’d be responsible for 100% of the cost of the care they chose in the Exchange. If they stuck with their employer sponsored or other qualifying care, the vast majority of the cost of coverage is picked up by someone other than the individual. That’s why so few people are projected to enter into the public option. Additionally, access to the Exchange, and the public option, IS restricted for employers. Only the smallest businesses can use it at first, and later slightly larger businesses. The Secretary can then choose to open it up to all employers if she feels the Exchange has the capacity to handle that. The goal is to do so.

Under Sec 411(3) Employers whose employees opt-out of coverage and enroll in an exchange plan, including the PO, have to pay a fee, but according to the congressional staffer the money does not explicitly follow the employee. So where does it go? What does it pay for? And there seems to be only one answer, one discussed below the fold.

The flat fee paid by employers for each opt-out employee goes into the general pot that funds individual affordability credits for Exchange Eligible employees which in this case includes the opt-outs. The rules governing affordability credits are laid out in Title III Subtitle C based on Income Determinations set out in Sec 345. Under the bill if you make more than 400% of Federal Poverty Level you are not eligible for affordability credits. Which means that any opt-out in this category would indeed be stuck with 100% of the cost of an Exchange Plan. But people earning between 150% and 400% of FPL would be eligible for affordability credits on a sliding scale. The question would be whether there are any circumstances under which the value of those credits exceed the value of the employer contribution to the employer plan. CBO seems to be calculating that in most cases the answer is no, the premium limits on those employer plans established in the bill being enough to maintain a rough parity between out of pocket costs between and individual plan under the Exchange and an employer group plan with enough advantage to the latter to keep employees from jumping ship. And maybe they have the balance right.

So when the staffer said that opt-out employees are stuck with 100% of the cost I think it was not quite right, if you are an Exchange Eligible Individual you are eligible for sustainability credits which reduce your cost. But per CBO not enough to actively induce large-scale opting out. Meaning that while everyone is theoretically ELIGIBLE for the Exchange, relatively few people will choose to ENROLL.