Obamacare’s Toothless Stick

The most controversial part of Obamacare — the mandate that people buy health insurance — is also the glue that was supposed to make the whole scheme work.

But mounting evidence indicates that it is failing. Badly.

“Nobody really wants to enforce it … Enforcing the individual mandate is going to hurt politically.”

Congress got insurance companies to go along with the Affordable Care Act in 2010 by striking a grand bargain — private insurers would accept new rules and restrictions in exchange for millions of new customers, many low-cost healthy people who would not break the bank. The government offered subsidies to help lower-income Americans afford the premiums and threatened to fine people if they did not comply.

But the stick was not enough, and critics contend that the Obama administration weakened it further by wielding it with less-than-enthusiastic vigor.

“Nobody really wants to enforce it … Enforcing the individual mandate is going to hurt politically,” said Brittany La Couture, health policy counsel for the American Action Forum.

According to the IRS, in tax year 2014 — the most recent year available — some 7.9 million taxpayers opted to pay the penalty. But the total collected, $1.6 billion, came out to only about $210 per taxpayer. By contrast, 12.4 million taxpayers who did not have insurance got at least one of more than a dozen exemptions. That is roughly 20.5 million people who are not on insurance rolls, which health policy experts said has helped fuel rapidly rising insurance premiums.

Experts said they do not believe those numbers have changed substantially since tax year 2014.

“The size of the penalty is not enough for someone who’s relatively healthy to think it’s worth it for them to pay [for insurance],” said Brian Blase, a senior research fellow at George Mason University’s Mercatus Center.

Limited Enforcement Powers
Although Congress authorized penalties for failure to purchase health insurance, it limited the ability of the IRS to enforce it. The agency cannot sue, file criminal charges, or place liens on bank accounts to collect. It can send a warning letter or withhold money from tax refunds — if the taxpayer is owed a refund.

“Congress took all of the IRS’ enforcement tools away,” Blase said.

[lz_table title=”Obamacare Exemptions” source=”Department of Health and Human Services”]Allowable excuses for lacking insurance
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• Homelessness
• Foreclosure/eviction
• Shutoff notices from utility
• Domestic violence victim
• Death in the family
• Fire or flood or other disaster
• Bankruptcy
• Unable to pay medical bills
• Caring for ill or disabled relative
• Child denied Medicaid/CHIP
• Live in state that didn’t expand Medicaid
• Insurance plan canceled after June 2013
• Experienced “another hardship”
[/lz_table]

The bite from the tax penalty was negligible. According to the IRS, about 39 percent of the payments made by filers were $100 or less; some 94 percent were $500 or less. As a result, 82 percent of those taxpayers still got a refund.

The penalty started out as modest, as low as $95. It now stands at $695 per person or 2.5 percent of household income above the filing threshold — whichever is greater. From now on, that penalty will increase only with inflation, meaning that it seems unlikely that the threat of enforcement will be enough to drive holdouts to buy insurance, Blase said.

The government could crack down. One of the acceptable exemptions, for instance, is simply “another hardship.” But aggressive enforcement could backfire politically, said Drew Gonshorowski, a senior policy analyst at The Heritage Foundation.

“In order to enforce this, it would be pretty ugly,” he said.

Gonshorowski said it is not just the stick of enforcement that has proved inadequate — it’s also the carrot of insurance. He said it has been difficult to persuade young and healthy people “to pay for something they might not want or need … A lot of people value holding onto their own money and eating the mandate.”

The result is much lower sign-up rates than experts initially forecast. The Congressional Budget Office forecast 21 million enrollees by 2016. The Urban Institute projected 23.1 million. The Centers for Medicare and Medicaid Services guessed 24.8 million. And the Rand Corp. estimated 27 million.

The actual number was about 12.7 million. Blase said that with attrition that occurs throughout the year, the number by the end of 2016 is likely to be 10 million to 10.5 million. The people who find the health plans most attractive are those who receive subsidies that cover most of the cost and those who use a lot of medical services.

Good Deal For Poor, Sick
The Urban Institute report from January 2015 projected that 36 percent of enrollees this year would have household incomes below 200 percent of the federal poverty line, $23,540 for a single person. The actual percentage was 66 percent. Customers in that group who buy a “silver” plan or better receive both a “premium tax credit” paid directly to insurance companies and a “cost-sharing reduction” to lower deductible and co-payments.

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But while the Urban Institute projected that a quarter of enrollees would have incomes above 400 percent of the poverty line and thus be ineligible for subsidies, the actual share is just 2 percent.

“If you have a really expensive medical condition, Obamacare made insurance a good deal for you,” Blase said. “If people spend their own money, they don’t value the product.”

The miscalculation has had major ramifications for everyone else.

“We know that insurers have enrolled a much more expensive pool than they expected,” Blase said. “We know that because they’ve had huge losses.”

To make up the difference, insurance companies have jacked up premiums. Gonshorowski’s preliminary research indicates that the average increase was 15 percent to 16.5 percent between 2015 and 2016 and that the increase from this year to next year will be “much worse.”

La Couture, the health policy counsel from the American Action Forum, said even relatively modest premium hikes mask significantly higher overall costs because of increases in copayments and other out-of-pocket costs.

“Even when premiums were not rising significantly, there were increases in other areas … People are still paying, just not in the form of premiums,” she said.