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The Unaffordable ACA
Let’s Try the Stick: ACA Penalty to Double

The ACA penalty for Americans that remain uninsured will more than double in 2016, and supporters hope the increase will lift enrollment rates. WaPo:

That means the 2016 sign-up season starting Nov. 1 could see penalties become a bigger focus for millions of people who have remained eligible for coverage, but uninsured. They’re said to be squeezed for money, and skeptical about spending what they have on health insurance. […]

But in 2016, the penalty for being uninsured will rise to the greater of either $695 or 2.5 percent of taxable income. That’s for someone without coverage for a full 12 months. This year the comparable numbers are $325 or 2 percent of income.

The math is pretty clear. A consumer would be able to get six months or more of coverage for $695, instead of owing that amount to the IRS as a tax penalty. (That example is based on subsidized customers now putting in an average of about $100 a month of their own money.)

Increasing the non-compliance fine was always part of the plan: A higher penalty provides a greater “stick” for those inclined to choose the penalty over the cost of insurance. But even though an increase was planned from the start, recent circumstances make a higher penalty vastly more important for the law’s sustainability. As Brian Blaise details in Forbes, coverage rates have fallen short of the levels that the law’s supporters predicted (h/t Reihan Salam):

On October 15, the Obama administration significantly downgraded its estimate of how many people will enroll in exchange plans next year. The administration now expects only 10 million exchange enrollees at the end of 2016. Charles Gaba, a statistical expert who closely tracks Affordable Care Act (ACA) enrollment and who made fairly accurate projections for 2014 and 2015, is somewhat more optimistic. He projects enrollment at 12.2 million people by the end of next year.

These low estimates should rock the health policy community. The Congressional Budget Office only four months ago projected there would be 20 million exchange enrollees next year. This CBO estimate was 3 million people fewer than its estimate issued just after the 2012 Supreme Court case that preserved the law and 1 million fewer than its March 2010 estimate, produced days before the law was passed by the House of Representatives.

At least a part of this story is that the fine has been too low—in 2014 it was set at only $95—but it’s unclear whether a higher fine will significantly narrow this gap between prediction and reality. For a fine really to be effective, it would need to be close enough to the cost of insurance to motivate people to get coverage—and if it were to become that high, the same households that currently find the insurance unaffordable would find the fine unaffordable, too. Anyway you look at it, the best way to attract people to insurance is to make it cheap enough so that they can afford it, and for many people the ACA has not done that. 

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  • Jim__L

    “Anyway you look at it, the best way to attract people
    to insurance is to make it cheap enough so that they can afford it, and
    for many people the ACA has not done that. ”

    Amen.

    At some point the GOP is going to pick this up as an election issue. Tarring the Democrats as the “Do what we want or we’ll fine you” party is going to resonate pretty deeply.

    • Fred

      It would except that the Republicans (who I’m beginning to believe really are the party of stupid) are once again organizing a circular firing squad. From Trump’s insanity to the brouhaha over the speakership to the threat to shut down the government over Planned Parenthood in an election year when if they won they’d have the Congress and the presidency and could then defund PP, the Republicans are pulling out all the stops to lose next year.

  • Fat_Man

    The Republicans should forget repealing Obamacare as a campaign promise. It is just too diffuse. They should focus on repealing the fines. If the fines are repealed, the rest of it will collapse of its own weight, sooner, not later.

  • circleglider

    Of course, once the ACA non-compliance tax becomes “close enough to the cost of insurance to motivate people to get coverage,” it ceases to be a tax and becomes an unconstitutional penalty. At least according the Supreme Court in NFIB v. Sibelius:

    [F]or most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the “prohibitory” financial punishment in Drexel Furniture… Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance. We would expect Congress to be troubled by that prospect if such conduct were unlawful. That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws. It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.

    • Andrew Allison

      Or, since the tax is to all intents and purposes voluntary (the IRS can only withhold it from a refund, not demand it), lawfully choose not to pay it.

  • Andrew Allison

    The WaPo “analysis” assumes that the uninsured are making $34,750 (of which $625 is 2%). At that income level, the individual probably qualifies or Medicaid and doesn’t need insurance. I suspect that the real problem is people making quite a bit more than more than $35K and looking at $250-$600/mo premiums and a $5K deductible. Pretty tempting to self-insure if you are healthy. It would be interesting to know why people are dropping coverage — because they can’t afford the premium and the deductible maybe?

  • Jacksonian_Libertarian

    Socialized medicine is the worst. What it really means is giving the Government Monopoly the authority to administer everyone’s healthcare. And the Government Monopoly like all Monopolies suffers from the same disease, the lack of the “Feedback of Competition”. It is the “Feedback of Competition” that provides both the information and motivation which forces continuous improvements in Quality, Service, and Price, in free markets. So now not only is the healthcare declining in Quality and Service, but the price is increasing at a faster pace than before the Socialist intervention of Obamacare. This all could have been avoided by a Free Market solution, rather than a Government Monopoly solution.

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