IRS warned healthcare law could leave millions without insurance

President Obama's healthcare law will leave millions of families without affordable coverage unless tax officials rewrite the rules on who gets subsidies, advocates warned Thursday.

A dozen consumer advocacy groups urged the Internal Revenue Service to allow workers' spouses and dependents to qualify for tax credits if employer-sponsored family plans are unaffordable. The Treasury Department in August released proposed regulations that grant subsidies to workers and their families in cases when employer coverage costs too much for the employee only, but not when family coverage is out of reach.

The issue risks blowing up in Democrats' face in 2014, when the subsidies for coverage in state-based insurance exchanges become available. House Republicans have already used the glitch, which The Hill first reported in July, as ammunition to hammer the law for allegedly discriminating against marriage.

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Advocates shared their concerns in person with the IRS during a hearing on the tax credits after deluging the agency with comments about its proposed regulation last month. The proposed rule would not penalize families that can't afford insurance, but advocates say that's not enough.

"It's not sufficient not to penalize families — what we want to do is make insurance affordable and get them into coverage," said Lynn Quincy, senior policy analyst with Consumers Union.

IRS officials listened silently for two and a half hours and asked no questions. The Treasury Department has said its hands are tied because of the way the law was written.

Advocates weren't having it.

Criticism of the proposed rule, said SEIU healthcare policy coordinator Dania Palanker, "occurred because (it) is in contradiction with the intent of the law."

Advocates said repeatedly that the Treasury Department has the authority to change the law, as outlined in comments from the liberal Center on Budget and Policy Priorities. 

And they downplayed the cost of fixing the problem, citing a new UC-Berkeley micro-simulation study that concludes it would cost much less than the $50 billion a year suggested in an earlier, less thorough study.

"The legal analysis should be enough to make the case," CBPP Vice President for Health Policy Judith Solomon told The Hill, "but there's that looming cost issue."

Advocates also urged the IRS to strengthen the definition of the minimum value requirement for employer-sponsored healthcare plans. The law requires employers to offer plans that cover at least 60 percent of the cost of the benefit or face a penalty.

The SEIU's Palanker said the law however doesn't define what those benefits should be, creating a "huge backdoor" for employers to continue offering sub-par coverage that the law seeks to eliminate. She called for employer benefits to be indexed to the government-regulated plans that will be offered on the state insurance exchanges.