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July 05. 2013 8:43PM

Delay in Obamacare requirement puts onus on consumers, the honor system

NEW YORK — The Obama administration’s move to delay a key element of health care reform has another, unintended, consequence: A crucial part of that reform will depend on consumers observing the honor system, with millions of dollars at stake.

The U.S. government said on Tuesday it would postpone by a year the provision that employers with 50 or more workers provide them with health insurance; the delay is intended to let companies work out how they report their compliance to tax authorities.

Data on what coverage employers offer and what it costs, to be provided to the Internal Revenue Service, is also meant to help verify whether consumers qualify for government subsidies to purchase health insurance on state- and federally run online exchanges that open on Oct. 1. President Obama’s health-care reform needs millions of people to enroll in coverage sold on the exchanges in their first year in order to work, spreading the financial risk among millions of consumers.

While most of those buyers are expected to be people without insurance, the law lets employees whose workplace offers only “unaffordable” plans — those costing more than 9.5 percent of a worker’s household income — not only sign up for coverage but receive federal subsidies, via tax credits, to pay for it. Those subsidies are expected to be worth some $5,000 per person annually, and before this week’s announcement were expected to total about $23 billion next year.

Just under 26 million Americans are expected to be legitimately eligible for subsidies, estimates Families USA, a nonprofit group that works to expand access to healthcare.

Delaying the “employer mandate” already means the government is giving up potential revenue next year, as businesses whose employees buy subsidized coverage on an Obamacare exchange would be fined $3,000 per person.

In addition, without the reporting requirements of the employer mandate in 2014, “the exchanges and the IRS will not be able to verify whether someone’s coverage is unaffordable” and thus whether the person is eligible for subsidies, said law professor Timothy Jost of Washington and Lee School of Law in Lexington, Virginia.

That leaves it up to individual consumers to be honest about what they do, or do not, qualify for.

“The shift of employees to the exchanges could cost (the government) a boatload,” said Nicholas Bagley, a law professor at the University of Michigan. “Some people who are ineligible for subsidies, because their employer offers affordable insurance, may attempt to get subsidies on the exchanges. The IRS will have a hard time policing that sort of conduct.”

States running their own Obamacare exchanges are scrambling to figure out how to deal with the delay in the employer-reporting requirement.