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Budget Deal Repeals Health Care Reform Voucher Provision

April 13, 2011
Related Topics: Medical Benefits Law, Benefit Design and Communication, Latest News
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Congressional negotiators hammering out a deal to slash tens of billions of dollars in federal spending have agreed to strip a provision in the health care reform law requiring employers to give low-paid employees company-paid vouchers to purchase coverage in state health insurance exchanges.

The budget deal, reached on April 8, narrowly averted a large-scale shutdown of the federal government after congressional leaders and the Obama administration agreed to a package that cuts about $38 billion in federal spending.

The health care reform voucher provision was originally inserted in the health care reform measure by Sen. Ron Wyden, D-Oregon, as the legislation was working its way through Congress.

“After weeks of closed-door negotiations to keep the federal government open, Free Choice Vouchers were placed on the chopping block even though there is no budget savings from cutting them this year,” Wyden wrote in an article published on the Huffington Post after he learned that budget negotiators agreed to repeal the voucher provision.

Under the provision, employees would have to meet two conditions to be entitled to the employer-funded vouchers: Their family income could not exceed 400 percent of the federal poverty level, or $89,400 for a family of four, and the premium contributions their employers require them to make must be between 8 percent and 9.8 percent of their income.

If those conditions are met, those employees would be entitled to receive a voucher from their employers, and the value of the voucher would not be tied to the plan in which the employee was actually enrolled.

Instead, the voucher’s value would be equal to what the employer would pay if the employee were enrolled in whichever of its plans offered the “largest” premium contribution by the employer. Then, the employee could use the voucher to purchase health insurance coverage from a state health insurance exchange. The exchanges are authorized under the health care reform law and are supposed to be set up by 2014.

If the cost of a policy purchased by an employee through the exchange is less than the value of the voucher, the employee could pocket the difference in cash, which would be considered income and taxed.

The provision, to go into effect in 2014, would have a huge and costly impact on employers with large numbers of low-paid workers—such as retailers—who are required to pay a high percentage of the premium.

And, depending on how the legislative language is interpreted in subsequent regulations, it also could prove costly to employers that offer employees a choice of health care plans ranging from relatively low-cost to very expensive plans.

Experts say the provision is almost certain to result in adverse selection, inflating employer costs.

For example, a young, low-paid employee working for a company with a high concentration of older, less healthy and expensive-to-insure employees likely would receive a voucher whose value would be much higher than the cost of buying coverage in an exchange, especially if the employee purchased a lower-cost high-deductible plan.

Under the health care reform law, exchanges can base premiums on the age of policyholders.

As a result, employees remaining in the employer’s plan would be the most costly to insure, pushing up employers’ health insurance premium costs.

Business lobbyists hailed the deletion. “Employers intensely dislike this provision,” said Gretchen Young, senior vice president of health care for the ERISA Industry Committee in Washington.

The broader measure is expected to be considered by the House and Senate this week.  

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

 

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