- The Washington Times
Sunday, April 8, 2012

It’s been squarely at the center of the policy and constitutional debates over President Obama’s health care law, but some are arguing that the mandate to buy health insurance — and the penalties for people who don’t — aren’t hefty enough to matter in the real world anyway.

The individual mandate, and whether Mr. Obama’s law can survive if the mandate is ruled unconstitutional, were at the center of the Supreme Court clash last month during three days of oral arguments.

But some analysts argue that the economics of the mandate and the penalty make the focus of the debate misguided.

Starting at $95 per person, the penalty is scheduled to gradually increase by 2016 to either $695 for individuals and $2,085 for families or 2.5 percent of total taxable income — much less than what many can expect to pay for the cheapest plan on the new insurance exchanges.

And few Americans are expected to even have to face that choice: A report by the Kaiser Family Foundation says that almost everyone else will be covered by Medicare, Medicaid, individual insurance or employer-sponsored coverage in 2014 when the penalty goes into effect.

Others will be excused because of financial hardship, leaving only about 10 percent of Americans weighing whether to buy insurance or pay the penalty.

“You add all those together, you really have a narrow band of population,” said Ron Pollack, director of Families USA. “At the end of the day, the number of people likely to be affected by this penalty is very small.”

A balancing act

For the Obama administration, the key is not how many people the penalty will motivate to buy insurance, but who they are.

In order for new insurance reforms to work without premiums becoming prohibitively expensive, healthy young people must buy insurance to help mitigate the costs incurred by older, sicker Americans, the government has argued.

But problems could arise if the penalty isn’t a strong enough incentive to push those healthy young people to buy coverage instead.

While no one knows for sure how it will all play out, most of those choosing to forgo insurance and pay the penalty will be moderate- to high-income earners, according to the Congressional Budget Office, which estimated that 75 percent of those paying the penalty will have incomes more than twice the federal poverty line and a fourth will earn at least 500 percent of the poverty level.

And a March study by the consulting firm Milliman found that the higher the income bracket, the less effective the penalty will be.

The less Americans earn, the more insurance subsidies they can receive, making it cheaper to buy coverage than pay the penalty. But higher-income earners won’t qualify for enough subsidies to make insurance the most cost-effective option, with the cheapest plans on the exchanges expected to cost $4,500 to $5,000 for an individual and $12,000 to $12,500 for a family, according to the CBO.

Insurance carrots and sticks

“There are reasons to think the penalties are not strong enough and we just don’t know,” said John McDonough, who advised the Senate Health, Education, Labor and Pensions Committee while the Affordable Care Act was being written and also helped forge the 2006 Massachusetts reform spearheaded by then-Gov. Mitt Romney. “We’ll just have to sort of keep a close eye.”

But Mr. Pollack said the credits could provide incentives to precisely the population that the administration is targeting.

Younger adults presumably earn lower salaries, making the insurance credits a tougher offer to refuse, he said.

And Mr. McDonough pointed to Massachusetts, where the penalties for being uninsured are even lower and yet the uninsured rate has shrunk to around 5 percent.

But he also warned that it’s impossible to extrapolate directly from Massachusetts to how the penalty will affect the uninsured population throughout the whole country.

The big unknown is the point at which the penalty is high enough to be effective. Larry Levitt, senior vice president for the Kaiser Family Foundation, suggested that even the healthy young folks who don’t want to pay for coverage will still want to feel they’re getting some bang for their buck.

“There’s uncertainty about how people will respond,” Mr. Levitt said. “But even with the modest penalty, many people will look at it as the penalty is money down the drain, whereas if I pay a little more I can get insurance.”

The individual mandate debate

So far, data from the CBO indicates that relatively few Americans will opt to pay the penalty, with its most recent calculation in April 2010 putting the number at 4 million in 2016.

But two years after Mr. Obama signed the law, there’s still a heated debate over the individual mandate and accompanying penalty, with the administration and challengers wrestling through three days of oral arguments before the nine justices late last month.

While the plaintiffs disputed the administration’s claim that the other insurance reforms won’t work without the individual mandate, they also argued that if the mandate is struck down, the rest of the law must fall, too — an apparent contradiction that infuriates supporters of the law.

“There are some people who would have us believe the individual mandate part is the heart of the legislation,” Ron Pollack said.

“Those people who say it’s an important part of the act, they’re right. Those say it’s the most controversial part, that, too, is correct. To say it’s the most significant part of the legislation, that is way off base.”