Obamacare forces the question: how should universities treat graduate students?

The University of Missouri (Mizzou) just gave its graduate students one hell of a surprise quiz: go find your own health insurance, we’re done helping. This broadside reduction in benefits left hundreds of students without healthcare insurance and was swiftly billed as another “outrageous” effect of Obamacare. The university acted as the victim of a surprise attack by the IRS.

One strategy the students came up with dismayed me: to petition the IRS to amend it’s rule. This strategy lets Mizzou off the hook for its negligent lack of planning and more importantly will very likely fail. The students have swallowed Mizzou’s lie that this IRS rule was a surprise that they could not avoid.

Here’s why: the writing was on the wall for Mizzou long before July 1. The lay business press was aware of this issue, and the Department of Labor was crystal clear that reimbursements like Mizzou provided were in violation of the ACA and would be severely penalized. From the Department of Labor’s web site November 6, 2014:

Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?
No. [it goes on the explain in detail]

I strongly suspect that the Mizzou administration fervently believed the sturm und drang of the King v Burwell case would cripple Obamacare and somehow rescue them from this provision of the act. From the chancellor:

Why did you wait until the last minute to tell us?

We became aware of this issue on July 21, 2015. We hoped the national groups lobbying on our behalf would motivate the IRS to issue an alternate ruling or exception for graduate employees. At the same time, we were working very hard to create an alternative plan to ensure all current and new eligible student employees would have additional resources at the start of the year for such additional expenses. We knew we absolutely had to have this in place by Aug. 15. [emphasis added]

Mizzou was most certainly aware of this issue prior to July 21, 2015. What they mean perhaps is that in July their lawyers told them that wishful thinking was no longer going to help and compliance with the law was unavoidable.

A petition to the IRS will likely not work because the rule is not an accident of some kind or an unintended consequence of Obamacare. The IRS is deliberately putting an end to the practice of employer subsidies. Why? The Congressional Budget Office explains, “The favorable tax treatment of employment-based health insurance is the largest single tax expenditure by the federal government.” And secondly, “..the open-ended nature of the tax exclusions has increased health care spending..

Some students have expressed confusion. What is Obamacare demanding of them and their university? It’s confusing because Obamacare is not dictating one solution, it’s forcing a decision. The university can decide to save money and let students fend for themselves or they can step up and provide health insurance for their employees. But reaping the benefits of the old tax structure is no longer an option.

Mizzou has the chance to step up and pay graduate students a wage that allows them to buy insurance on the exchange, or they can provide healthcare coverage outright, or they can throw the students out into the street. Frankly, the best option would be to throw the students out in the street…but only if the stone age Missouri legislature can be convinced to expand Medicaid. The Obamacare plan in this situation was to provide a broad net via Medicaid expansion for people like graduate students unable to afford health insurance. This would be much cheaper for Mizzou because some students are still eligible to be on their parent’s insurance and there would be no penalty at all for the university not to provide them insurance. But MO has adamantly refused the Medicaid deal, and so the graduate students are screwed.

I support the students planned walk out to protest the administration, as does some MU faculty. The law makers in Jefferson City have been spending their time recently worrying about what their interns are wearing, and they could certainly help students here if they wanted to. There are millions of federal dollars available to solve the students’ healthcare problem if the MO legislature would allow Medicaid expansion. I’d like encourage the students to view this debacle as a team screw up between the University and Missouri lawmakers and keep protesting until they are satisfied that Mizzou is a good place to learn and work.

Additional link: The Chronicle of Higher Education published a good piece on this situation here.