OAKLAND, CA—When Obamacare’s employer mandate for large employers kicks in next January, workers at companies that self-insure may be in for a shock: They’ll learn that their new policies might not cover hospitalizations, specialist services, CT and MRI scans, and mental health, among other services. Nor, having been offered a plan by their employer, will they be eligible to purchase subsidized coverage for these services through an Obamacare insurance exchange. Instead, they’ll be on the hook for costly healthcare services not covered by their employer’s plan.

The Affordable Care Act was supposed to reduce the costs and uncertainties of healthcare coverage, but this loophole for self-insuring employers (large companies that pay their employees’ medical expenses directly) can leave low-income households worse off than before the employer mandate, according to noted economist John C. Goodman, Ph.D., a senior fellow at the Independent Institute who has been leading the charge for consumer-based healthcare policies for more than three decades.

Dr. Goodman has identified a variety of loopholes in the Affordable Care Act that put employees and their families at unexpectedly high financial risk. Here are a few:

• Employers Can Charge Employees the Maximum Allowable Premium. Whether or not they are self-insured, all employers can charge the employee a premium equal to 9.5 percent of the employee’s annual wage and contribute nothing for dependent coverage. For a worker who earns $30,000 per year, that amounts to $2,850—an “affordable” sum only according to Obamacare. And although the law doesn’t require employers to contribute to insurance for dependents, a worker can be asked to pay $12,150 in premiums for family coverage. If the worker turns down the offer, he or she (and the immediate family) becomes in ineligible for subsidized insurance in the exchange. Had it never received the employer offer, the family could obtain insurance more than 90 percent subsidized by the federal government.

• Employers Can Offer a Minimum Essential Coverage (MEC) Plan. In general, employers who fail to offer affordable insurance to their employees will face a $2,000 fine per worker. However, self-insured employers have another option. As long as they offer insurance with minimum essential coverage (which mainly means preventive care with no cost sharing and no lifetime caps), a self-insured employer can escape the $2,000 fine. The remaining benefits can be quite skimpy. Since this plan does not meet other requirements of the Obamacare mandate, the employer will be liable for a $3,000 fine if any employee goes to the exchange and gets subsidized health insurance. However, the employer may decide that this is a bargain compared to the cost of treating a serious illness.

• Employers Can Offer an MEC Plan with an Opportunity to Upgrade to Obamacare-Compatible Insurance. To meet the affordability test the employee’s premium (again, employee coverage only—not family coverage) must not exceed 9.5 percent of the annual wage. If the employee turns down the offer, the employer is no longer be at risk for a $3,000 fine. And if the employee becomes ill and goes to the exchange for coverage, the family will no longer qualify for any federal subsidy.

“In all these cases, what’s good for the employer is bad for the employee and vice versa,” Dr. Goodman says.

How should these and other problems with Obamacare be remedied?

Dr. Goodman recommends getting rid of the individual and employer mandates completely (measures that would make the loopholes irrelevant) and giving everyone the same tax credit for private health insurance. These and numerous other recommendations of his are elaborations of key principles for sensible healthcare reform that he offered in his “Health Contract with America” and in his 2012 book Priceless: Curing the Healthcare Crisis.

“We need to treat people fairly and then liberate the private sector,” Dr. Goodman summarizes.

Dr. Goodman says his recommendations would correct the problems created by the Affordable Care Act and also greatly improve access, quality, and affordability of healthcare in America.

John C. Goodman, Ph.D., Senior Fellow at the Independent Institute, has been called “the Father of Health Savings Accounts” by the Wall Street Journal. His book Priceless: Curing the Healthcare Crisis was a Grand Prize Finalist, and Winner in the Culture Category, of the Eric Hoffer Book Award, and won the Silver Medal IPPY Award.

The Independent Institute is a non-profit, public-policy research organization based in Oakland, Calif., that offers non-partisan solutions to critical social and economic problems. For media inquiries, please contact Marketing and Communications Director Kim Cloidt at 202-725-7722 ([email protected]).