Debate over how to define "affordable" in the health care law could have expensive consequences for family coverage.
WASHINGTON - The new health care law is known as the Affordable Care Act. But Democrats in Congress and advocates for low-income people say coverage may be unaffordable for millions of Americans because of a cramped reading of the law by the administration and by the IRS in particular.
Under rules proposed by the service, some working-class families would be unable to afford family coverage offered by their employers and yet they would not qualify for subsidies provided by the law.
The fight revolves around how to define "affordable" under provisions of the law that are ambiguous. The definition could have huge practical consequences, affecting who gets help from the government in buying health insurance.
Under the law, most Americans will be required to have health insurance starting in 2014. Low- and middle-income people can get tax credits and other subsidies to help pay their premiums, unless they have access to affordable coverage from an employer.
The law specifies that employer-sponsored insurance is not affordable if a worker's share of the premium is more than 9.5 percent of the worker's household income. The IRS says this calculation should be based solely on the cost of individual coverage for the employee, what the worker would pay for "self-only coverage."
Critics say the administration should also take account of the costs of covering a spouse and children because family coverage typically costs much more. In 2011, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,430 a year for single coverage and $15,070 for family coverage. The employee's share of the premium averaged $920 for individual coverage and more than four times as much, $4,130, for family coverage.
Under the IRS proposal, such costs would be deemed affordable for a family making $35,000 a year, even though the family would have to spend 12 percent of its income for full coverage under the employer's plan.
The debate pits the administration against its usual allies. Many people who support the new law said the proposed rules could leave millions in the lower middle class uninsured and frustrate the intent of Congress, which was to expand coverage.
"The effect of this wrong interpretation of the law will be that many families remain or potentially become uninsured," said a letter to the administration from Democrats who pushed the bill through the House in 2009-10. The lawmakers include Reps. Henry Waxman of California and Sander Levin of Michigan.
Bruce Lesley, the president of First Focus, a child advocacy group, said: "This is a serious glitch. Under the proposal, millions of children and families would be unable to obtain affordable coverage in the workplace, but ineligible for subsidies to buy private insurance" in state exchanges.
Businesses dislike the idea of insurance mandates and penalties but said the IRS had correctly interpreted the law. "Employers who offer health coverage do so primarily on behalf of their employees," said Kathryn Wilber, a lawyer at the American Benefits Council, which represents many Fortune 500 companies.
The IRS issued rules for the health insurance premium tax credit in May, but deferred its final decision on the affordability of family coverage. The administration is trying to strike a balance. If the rules allow more people to qualify for subsidies, it would increase costs to the government. If the rules require employers to provide affordable coverage to dependents as well as workers, it would increase costs for many employers.