Clarence Fanto: IRS ruling could up cost of health care

Sunday February 3, 2013


A troublesome speed bump for President Obama's health care law threatens damage to lower- and middle-class working families unless urgent repairs are made.

In a largely overlooked ruling by the Internal Revenue Service this past week, the definition of "affordable" for employer-provided family policies could leave millions of workers out in the cold.

An unintended consequence: The Affordable Care Act will deny federal subsidies for family coverage, including children, because the IRS ruling stated that only the cost for an individual employee will determine whether an employer's health plan qualifies as "affordable."

Starting next Jan. 1, the law requires most Americans to carry health insurance either from an employer or directly from insurance companies through an online exchange program that will fire up Oct. 1.

Low- and middle-income workers who are not offered health insurance by their employer can apply for tax credits to help cover the cost of out-of-pocket premiums.

Here's the rub: The IRS has decided that if a worker's share toward company coverage is more than 9.5 percent of household income, the insurance plan does not quality as affordable. But that will be figured out based only on the much lower cost of individual, or "self-only" coverage, not for the family.

As reported by the Kaiser Family Foundation's annual survey, employers pay an average of $5,615 a year to cover an individual's health coverage. But family coverage costs them $15,745.

On average, employees pay $951 a year toward the cost of their employer's premium, but a whopping $4,316 for family coverage. The impact of the recent IRS ruling is that those charges would be considered "affordable" for a family earning $35,000 a year; full coverage would eat up 12 percent of that family's household income.

Employees who can't afford such a big bite out of their income will not qualify for tax credits. Instead, they'll be hit with tax penalties if they don't buy insurance for themselves, though their spouse and children would be excused from the fines.

Under federal rules proposed on Friday, the fine in 2014 would be $95 per adult, or 1 percent of family income, whichever is higher. By 2016, the penalty would soar to $695 per adult, or up to 2.5 percent of family income.

People who are self-employed or work for companies with full-time staffs numbering 50 or less -- which are not required to offer insurance -- will be eligible for subsidies if an individual makes $45,000 a year or less, or families of four with household income under $90,000.

But many employees who can't afford their company's family-coverage premiums will opt to pay the fine. The Congressional Budget Office predicts that 30 million people will remain uninsured in 2016 (the current figure is around 48 million) and six million of those will pay the fine to the IRS.

Here in Massachusetts, the health insurance safety net is much stronger; subsidies are available to children via MassHealth and to adults through Commonwealth Care as long as family income does not exceed $33,516 for an individual, $45,396 for a couple, $57,276 for a family of three, and so on up the scale. (Details at

It remains to be seen whether the new federal law will affect the state's widely lauded plan. But the rest of the nation is in for a rude shock unless the damaging guidelines issued by the IRS are modified, and quickly.

Clarence Fanto's column appears each Sunday on this page. To reach him, email


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