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Why Healthcare.gov Doesn't Collect Payments Directly

One of the ongoing problems with Obamacare is that people who "enroll" aren't actually enrolled until they make their first payment. But those first payments have to be made to the individual insurer, not to healthcare.gov. Here's what HHS's "What you need to know" webpage says about that:

Although you compare and choose a plan using the Health Insurance Marketplace, once you select a plan, you must pay your premium to the insurance company directly – not to the Health Insurance Marketplace.  If you select a plan on Healthcare.gov, you will see an orange message indicating you must make payment to be covered on January 1.  Insurers handle payment differently, so follow the instructions from the insurer you select about what forms of payment are accepted and the due date of your first premium – which will be on or before December 31, 2013, depending on the plan you choose.

Why the extra step? There are some good reasons for that, at least good political reasons.

Back in May 2009 the Congressional Budget Office published an issue brief about proposed changes to the nation's health care system. This was obviously before a final plan was passed, so the brief looks at a range of possible options. One subsection of the document is headlined "The budgetary treatment of insurance exchanges." It discusses whether or not premiums paid to exchanges should be considered receipts to the federal government. Here's what CBO had to say:

The question arises as to whether payments by individuals and employers that pass through exchanges should be considered receipts of the federal government and premiums paid through exchanges to insurance companies as outlays of the government...In CBO’s view, the answer partly depends on whether individuals and firms would direct their payments to exchanges that in turn would pay insurers, or whether individuals and firms would make their payments via the exchanges to the insurers themselves. In the former case, the answer would also depend on whether the exchanges were considered to be federal entities (either federal agencies or nonfederal parties acting as agents of the federal government) or not.

If payments were made to and by exchanges, and if the exchanges were effectively federal entities, then the payments should be included in the federal budget. 

So there were two basic options: Payment to the government or a pass-through set up in which payments were made to insurers. Obamacare went with the latter option. The CBO issue brief gives us a good idea why.

First, a direct payment system would have been single-payer for every person who purchased insurance on the site. That would have raised some eyebrows. While it might have garnered the plan a little more support from the left, it would have been strongly resisted by the right. Remember, conservatives were already concerned (with good reason) that the proposed public option was an attempt to move the nation to single-payer over time. A direct payment system would have exacerbated that argument.

The second problem with a direct payment system is that premiums would constitute a new government fee or tax. The size of that tax, adding up all the premiums paid by millions involved, would have been considerable. If you assume an average price of $250 a month for 7 million buyers, that's roughly $20 billion dollars a year and $200 billion over the budget window. The White House would have had a much harder time selling the ACA as a new $200 billion tax. Remember, the White House even tried to deny the mandate was a tax. Lucky for them, Chief Justice Roberts disagreed.

So that's why healthcare.gov sends people to insurers to pay (pass through) rather than collect the money directly and distribute it. It's also why some percentage of those who are "enrolled" right now aren't actually enrolled and will likely have their policies voided in the new year. The administration chose to face these alternate challenges rather than take a more direct, and politically risky, route back in 2009.


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