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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