Sunday, October 27, 2013

The Power of the Individual Mandate

Copyright, The New York Times Company

If and when the Affordable Care Act is executed as planned, it will leave few members of working families uninsured.

About 31 million members of nonpoor working families are without health insurance (according to my calculations from the Census Bureau’s current population survey). An important reason they do not have private health insurance coverage is that, in one way or another, they find it too expensive. Their employer may offer health insurance, but they decline coverage because the premiums are too much.

If their employer doesn’t offer insurance, the uninsured workers are, judging from their behavior, unwilling to switch to an employer that does offer health insurance in exchange for lower cash pay (of course, finding such an employer may not be easy and may require a move across state lines, but that’s my point: getting private insurance is costly).

The Affordable Care Act has at least two provisions to make insurance cheaper to workers who have so far been uninsured, compared with what employer insurance would have cost them in previous years, and these will take effect in the next couple of years (or whenever the federal government gets its systems running, whichever comes later).

The first provision is the “individual mandate penalty” for being uninsured, which will eventually reach the greater of 2.5 percent of husband-and-wife income, or $695 per uninsured family member (up to three, with uninsured children counting half, and the $695 indexed to inflation). Undocumented immigrants are not liable for the penalty.

The penalty effectively makes insurance cheaper because people can avoid it by getting insurance. In effect, all nonpoor legal residents pay the penalty, but people who purchase health insurance get their penalty applied toward their health insurance premiums.

The law’s premium assistance tax credits are another provision that makes insurance cheaper, at least for uninsured nonpoor people living in households below 400 percent of the federal poverty line.

These two provisions are a potent combination — and might be reinforced by the prospect of Internal Revenue Service enforcement of fines due.

I estimate that nine million of those who would have been uninsured without the law will find their own health insurance to be free, or even better, in the sense that their penalty (in the years 2016 and beyond) for being uninsured exceeds the premium that they probably would pay on the law’s new health insurance marketplaces (I use the Kaiser Family Foundation calculator to make these estimates because the marketplaces are not yet operational). As taxpayers, each of these families will be helping to pay for other people’s health insurance; those taxes will be owed regardless of what the family decides about its own insurance.

Without the individual mandate, those nine million people might be tempted to remain uninsured.

Although the remaining 22 million nonpoor workers (and their dependents) will have to pay something to have health insurance, most of them will find insurance to be cheaper than it was before the Affordable Care Act. In addition to the nine million who will find insurance to be free (in the sense defined above), another 13 million will find insurance to be at least 25 percent cheaper than it was to get employer insurance before the law passed, and they are therefore more likely to purchase it.

The individual mandate is politically unpopular, and we don’t yet know how vigorously the Internal Revenue Service will enforce it. The law precludes the I.R.S. from criminally prosecuting taxpayers who refuse to pay their penalty, and on this basis some observers have predicted that the I.R.S. will collect hardly any penalties. Others believe that the I.R.S. can get its penalty revenue if it tries hard enough.

After all, banks and other private-sector creditors cannot criminally prosecute either, yet they still manage to collect from most of their borrowers. Senator Tom Coburn, Republican of Oklahoma, explains how the I.R.S. can add penalties and interest to unpaid individual mandate penalties and establish a lien against the delinquent taxpayer’s property so that, should the property be sold, sales proceeds can go toward paying the I.R.S. The I.R.S. can also press delinquent taxpayers for payment.

The Affordable Care Act prohibits the I.R.S. from filing a Notice of Federal Lien, which would give its lien priority over other liens, but, again, that makes the I.R.S.’s collection toolbox more like the toolbox that private-sector creditors have.

For all of these reasons, the individual mandate can be enforced and thereby help discourage millions of people from going without health insurance.

1 comment:

Veritas said...

One key point that I dont think you addressed is the Employer Mandate provision. In this, the employer must offer both "affordable" and actuarially compliant coverage. So if any of these 31 million non-poor working familes are with an employer that either offers compliant coverage now or begins to do so, then these employees will not be eligible for subsidized coverage on the exchanges. A second point that also bears consideration is: that the least costly coverage in the exchanges is arguably no better than not having any at all when you actually look into the coverage and benefit levels. Have you considered these 2 issues?