Critics: Even sky high Obamacare fines won't get people to sign up!

Washington Examiner ^ | 12/6/15 | Paige Winfield Cunningham 

The piece of Obamacare designed to make the entire law work is scheduled to reach full strength starting next year, when the penalty for remaining uninsured will increase for a third and final time.

But even when the fine reaches its steepest point, it's not clear how effective it will be in prodding roughly 30 million Americans lacking health coverage to actually buy plans.

"People are smart about this stuff," said Joel White, president of the Council for Affordable Health Coverage. "If I'm going to pay $300 a month in premiums and then a $10,000 deductible to avoid a $695 penalty, which choice am I going to make?"

The "individual mandate" to buy coverage has long been the most controversial part of President Obama's healthcare law, leading to the 2012 Supreme Court case in which the justices upheld the mandate on the basis that the rest of the law would fail without it.

Those who lack coverage in 2016 will face a fine of $695, or 2.5 percent of taxable income, whichever is greater, up from $95 or 1 percent of income two years ago. It's up to the IRS to collect the penalty when people file their tax returns.

Many experts agreed that the penalty was too small in the first two years to push people who didn't want or couldn't afford health insurance into buying it.

Advocates for the healthcare law hope the penalty now is large enough to serve as an effective tool to get people to sign up for Obamacare. That's likely to be the case for many of the lower-income people eligible for subsidies that would make their plans more affordable. But for the ineligible who must pay hundreds of dollars each month in premiums and still more toward their plan's deductible, it still may not be high enough.

"For these people, Obamacare is a really bad deal," White said. "They're not signing up."

As the monthly premiums for Obamacare plans have risen more this year than in previous enrollment seasons, the Obama administration has emphasized the availability of the subsidies for an estimated 70 percent of people buying coverage through the online marketplaces.

And even as the penalty increases next year, officials are talking somewhat less about that part of the equation. Health and Human Services Secretary Sylvia Mathews Burwell recently told reporters her agency will "make clear" about the penalty, but it also plans to focus mainly on the tax credits.

"We're going to put a deep focus on the affordability," Burwell said. "But we need to make clear about [the penalty] and we are going to continue to make sure people know 2.5 percent or $695. That is a difference, I think, in terms of people's minds and how they view those numbers."

Even if the administration does broadcast the penalty, Congress' official scorekeeper has projected that the majority of the uninsured can get exemptions. Of an estimated 30 million uninsured people in 2016, just 7 million will be subject to the penalty, according to a 2014 projection by the Congressional Budget Office.

Many low-income people living in states that haven't expanded Medicaid under the Affordable Care Act are exempt from the fine since federally assisted coverage isn't available to them. And if the cheapest plan costs someone more than 8 percent of taxable income, that person is off the hook.
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Other people will qualify for a hardship exemption if, for example, they experience a life-changing event such as bankruptcy or domestic violence.

Republicans don't like the individual mandate, since they say it forces people to buy a product they might not want or might not be able to afford. To them, all the exemptions prove that the Obama administration is trying to lighten the most unpopular part of the healthcare law.

"Obamacare was a historic mistake and its unpopularity will only increase as penalties go up — including the individual mandate penalty, which forces Americans to buy insurance they may not want or need at a time when Obamacare has outlawed so many plans that fit families' budgets," said Sen. Lamar Alexander, R-Tenn.
But Linda Blumberg, a health policy fellow at the Urban Institute, argues that the penalty was intended to do more than just incentivize people to buy health coverage. It was also meant to keep already insured people, who tend to be healthier than those without coverage, from dropping their healthcare plans as premiums rose.

"What the penalty did in part was not only bring in people who hadn't been insured before, but it was also helping to hold people who already had coverage in place because a lot of those folks were healthy, and having them exit was not going to be good in the long run," she said.

Still, Blumberg and other experts admit the penalty might not hold much sway over a certain pool of people. Americans earning above 400 percent of the federal poverty level, about $47,000 for a single person and $97,000 for a family of four, will have to pay the full cost of plans they buy on the Obamacare marketplaces.

A family buying even the cheapest bronze plan can face monthly premiums of $500 and $600. Add to that deductibles of around $12,000, which must be met before benefits kick in, and some people may prefer paying a $695 fine.

Jon Gabel, a healthcare economist at the University of Chicago, said while he doesn't believe it's rational for those people to forgo insurance, since it can save them from bankruptcy, he understands why they might view the penalty as a better option.

"If they think they are healthy and won't use insurance ... I think in that group it's going to be less effective," he said.