Health Insurance On The Honor System

At least until 2015, Obamacare’s healthcare exchanges won’t verify the income or health insurance status of individuals seeking health insurance subsidies. Suderman expects this to make the law more expensive:

[The exchanges will] rely on “self-reported” information. And then subsidies will be available to anyone who simply attests that they do not get qualifying, affordable health insurance from work, and that their household income is low enough to be eligible for subsidies.

As Ben Domenech writes in this morning’s Transom, what this means is that “the most significant entitlement increase since the Great Society will be operating on the honor system.” And as Yuval Levin says, it may turn out to be “an open invitation to fraud.” Even if outright fraud does not become a major issue, the combination of the delays may increase the cost of the law relative to what it would have been: No employer penalty, and no health status or income verification, means that more people will end up on the exchanges, receiving subsidies. And more subsidies means a more expensive law. The deficit reduction it was supposed to have achieved, already significantly reduced, is almost certainly reduced further—and perhaps gone entirely.

Ezra believes that Obamacare “just got easier to implement”:

Obamacare’s critics appear to be enjoying something of a Pyrrhic victory right now: They get to (rightly) criticize the administration for unilaterally delaying unpopular and ill-drafted elements of the law. But they seem to be assuming that the bad media coverage now can be extrapolated into bad implementation next year.

That misses the choice the White House actually made: Bad press now, and higher costs in 2014, in return for an easier roll out. Whether you think the White House is making the right policy call will depend on whether you prefer slightly lower costs to a smoother rollout. But so far as Obamacare’s implementation goes, it just got easier, not harder.

Reihan suggests an alternative to the exchange subsidies:

The most straightforward way to address the ACA’s growing pains is to abandon both the existing tax preference for employer-sponsored insurance and the sliding-scale exchange subsidies and replace them with a dead-simple fixed-sum tax credit. John Goodman of the conservative National Center for Policy Analysis has called for a refundable tax credit of $2500 for individuals and $8000 for a family of four to help finance insurance payments. The beauty of this approach is that it would level the playing field between employer-sponsored insurance and the exchanges, and it would be relatively easy for the federal government to implement. Moreover, it wouldn’t create a work disincentive, as working longer hours or for higher pay wouldn’t lead to a cut in your subsidy. Not everyone will embrace Goodman’s idea. Liberals might argue that it’s not generous enough and conservatives might argue that it costs too much. Yet it has a virtue that the ACA as currently conceived does not, namely that we actually have some hope of getting it up and running.