After the Cliff Comes Obamacare

Implementing healthcare reform is likely to mean considerable uncertainty and disruption over the next couple of years.

Milton Ezrati of Lord AbbettOnce the matter of the fiscal cliff is resolved, as is likely by early next year at the latest, it would be nice to contemplate a reprieve from Washington. Unfortunately, there will be no such luck. Apart from the crying need for fundamental fiscal reform, a new urgency will develop around the implementation of Obamacare, more formally known as the Affordable Care Act. The law dictates full implementation by January 2014. Despite the Supreme Court decision affirming the healthcare law and the president’s re-election, the matter is proving to be more complex and politically fraught then even pessimists expected. The attendant uncertainties will disrupt plans and planning throughout the economy at least the next 12 to 24 months.

The insurance mandate forms part of the problem. Endorsed last year by the Supreme Court, it imposes penalties on those who fail to buy insurance, ranging from $695 for each uninsured individual to 2.5% of family income, whichever is higher, up to $12,500. Tracking compliance alone will burden the Internal Revenue Service. Though the implementation budget funds no more than 1,200 new hires at the IRS for Obamacare, the agency may need to hire up to 16,500 additional employees. Enforcement will bring on further complications. Though the law makes the penalties clear, it makes no provision for either civil or criminal actions against those who refuse. The IRS has no ability to seize bank accounts or dock wages, nor will interest accumulate on unpaid penalties. The only thing the IRS can do beyond sending scary letters (for which, admittedly, it has remarkable talent) is to withhold refunds, hardly a motivation if the refund is less than the penalty.

The task that has befallen the federal government will impose formidable and unanticipated burdens. HHS will have to create at least 25 front-end interfaces to take in users’ personal information, screen insurance schemes and itemize acceptable plans. It will also need to build systems to verify user identities, certify health plans that meet standards and provide ways for users to navigate the exchanges and apply, not just online but over the telephone and by conventional mail. Complicating the process still further, HHS cannot build a single system. Each exchange will have to account for that state’s insurance laws, a task that will require the federal authorities to come up to speed on local insurance markets in at least the 25 states which have balked on exchange building, and very likely more of them.

The overlap with Medicaid will complicate the effort further. Since the states control Medicaid eligibility and the Supreme Court has allowed states to opt out of federal requirements, the exchanges run by HHS will have to cope with Medicaid questions. They will likely have to ask users to fill out separate Medicaid applications, probably on a separate, state-administered site. There will be delays as users wait for the state authorities to determine their eligibility. Should they be rejected, they will have to return to federally run exchanges to make the mandated insurance purchase. Without diligent efforts, many users will become confused as to whether they qualify for Medicaid or must buy personal insurance. Such people could easily fall through the cracks of a federally run system and lose all medical coverage.

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