As promised, I digested the Supreme Court’s opinions on the Affordable Care Act over the weekend. I also read the opinions of several health policy and health law scholars, watched cable news, and a bit of Jon Stewart and the Colbert Report. From all of this, the court’s ruling is quite clear (although CNN and Fox News both struggled with that initially): The Affordable Care Act is being almost entirely upheld. The one thing that didn’t get the okay from the Supremes was a provision related to the Medicaid expansion. More on that later this week. Today, I want to give you a summary of what the court’s ruling means for you as it relates to the individual mandate. After all, this has been the lightning rod element of the law, and the one that, in my interactions with others, is the least understood. My hope is that you’ll share this with everyone you know–especially if they seem to have their facts wrong.
As I (and many others) have said before, the individual elements of the Affordable Care Act are overwhelmingly popular. People like the idea that young adults can remain on their parents’ coverage until age 26. They like the idea that no one can be denied coverage because of a pre-existing condition. They like the reduction in their Medicare Part D costs for prescription drugs. The proof that they like these things is that even Mitt Romney–who is distancing himself from “Obamacare” despite having signed its precursor into law in Massachusetts–has simultaneously gone on record in support of these provisions. You can see the video here.
The catch is the individual mandate. That’s the one part where people’s feelings seem to turn sharply negative. These people will say that this is “socialized medicine” or a “government takeover” although they cannot even begin to accurately describe to you the differences between the Canadian, German and UK health care systems. What is happening, I believe, is that people are scared of the unknown, and are hearing that they are going to be required to spend money to buy something, at a time when our economy is struggling and people are hard pressed to pay the bills they already have. If one looks at this problem from the individual household level, rather than at a system level, it seems a legitimate–albeit still misguided–concern.
I have had people tell me that they had to buy a government insurance plan to avoid being taxed. In fact, quite the opposite is true. This plan was designed to encourage individuals to obtain insurance on the private market. It is, in that sense, the antithesis of socialized medicine. If you doubt this point, you should realize that this is why there was even a court case in the first place. As both sides made clear during oral arguments, if the government wanted to create a single-payer “Medicare for all” insurance program and require you to pay taxes to support it, there was no question that it would be lawful under the Constitution. At odds was the notion of whether the government can incentivize you to purchase a private product. The ruling was that, yes, they can. In fact, they already incentivize behavior to avoid certain purchases. For example, sin taxes on cigarettes and alcohol exist not only to raise revenue, but to discourage the use of these products which are harmful to individuals and the public’s health. However, people are still free to buy these products. Similarly, people are free to NOT buy health insurance. However, the government is encouraging them to do so by implementing a tax for individuals who do not purchase coverage. People don’t like taxes, generally, so it’s worth looking at that in more detail as well.
How much is the tax and who will have to pay it? The best, most concise overview of those details can be found here. Some of the basics are that the penalty will be phased-in beginning in 2014, when individuals who go without coverage will pay a nominal penalty of $95. I’m not sure if you’ve ever purchased insurance, but even in the most generous employer-sponsored plans, you’re likely to spend more than that in 2 months. So this is not a stiff penalty. That said, it does increase to $325 in 2015 and $695 in 2016. This is still cheaper than the cost of insurance in most cases. For families, the minimum penalty is three times the per person minimum, regardless of family size. So, that’s $2,085 per family in 2016. Still, much cheaper than a family insurance policy, which routinely costs more than $15,000 per year, of which the employee pays more than $4,000 according to the Kaiser Family Foundation.
The above amounts are minimums. For those who earn higher incomes, the amount of the tax they pay will be higher–up to 2.5% of their total annual income–although the amount of the tax can never exceed the average national cost of the lowest level of coverage (i.e., “bronze” plans). That means, that it will always be as much, or more expensive to buy insurance than to pay the tax, but with employers picking up the tab in most cases, the tax will be more expensive to individuals than their monthly premiums. Still, paying the tax doesn’t provide you with any tangible benefit in the way that having insurance coverage does, so it makes sense to get the coverage. I do think that if the penalty exceeded the total cost to buy insurance that would be coercive. Fortunately, that’s not the case.
Finally, there are several groups that are exempt from having to pay the tax. These include low-income individuals who do not file tax returns, those who are granted a hardship waiver by the Department of Health and Human Services, those without affordable coverage options (defined as coverage exceeding 8% of household income), and those with certain religious objections.
As a practical exercise, I think it’s worth considering several different groups of people and how they are likely to be affected by the individual mandate. First, there are those of us who already have employer-sponsored insurance. That’s about two-thirds of the U.S. population. For us, very little changes except that our employers will now have an incentive not to drop coverage, because doing so will subject them to a tax of their own. We have coverage, and therefore will not be subject to the penalty. There has been a focus on small employers who say the law will cause them not to hire additional staff, but I think those claims are mostly overblown. With an accountant and a lawyer, it is easy enough to get around the provisions that concern them by simply splitting their single business into two smaller businesses on paper.
For those who are enrolled in Medicaid or Medicare, nothing changes–except that drug coverage and preventive care in Medicare has become more affordable. Moreover, the Medicaid program will be expanding, which leads to the next group, the low-income uninsured. These individuals who are below 133% of the poverty level–many of whom are unlikely to be subject to the penalty anyway–will be able to obtain Medicaid coverage at no cost to them. So to recap, those with insurance through their employers, those who are elderly and/or disabled, and the low-income will keep the coverage they have or be able to newly obtain very affordable coverage.
That leaves those who are not offered insurance through their job and those who are otherwise uninsured. If these individuals aren’t quite poor enough to qualify for Medicaid, but aren’t quite wealthy enough to pay for all of their medical care with cash out of their own pocket, they will have the opportunity to purchase health insurance through the exhanges, which I like to think of as a Priceline.com for health insurance. Private insurance plans will compete with each other in a format that is more transparent and this is expected to rein in costs somewhat. These individuals will have their insurance purchase subsidized through tax credits. So, rather than the old way in which a person who bought individual coverage had to fork out the whole premium with after-tax dollars, they will only be responsible for paying a portion of the premium. It’s kind of like the government is playing the role of the employer in subsidizing the bulk of the cost for coverage for those whose employers can’t or won’t play that role themselves. For this group, it will become an unquestionably better deal for them to buy subsidized coverage than to pay the tax and get nothing in return. Right now, these are the people who are the most likely to decide that they can’t afford and don’t need insurance. They’re also the people who often turn out to be wrong and turn up at the emergency room seeking “free” care that the rest of us subsidize. So, it makes sense that they are the ones most averse to the penalty and most averse to the mandate.
Finally, there is the group of wealthy individuals who pay for their own care out of their pocket. Think Mitt Romney, who refused to enroll in Medicare on his 65th birthday. Why bother when you can just buy the hospital where you’ll be having your surgery if you happen to need it? I have little sympathy for this group, because whether they buy the insurance or just pay the tax, it’s not going to cost them much. Remember, there is a cap on the penalty not to exceed the national average for bronze plans. So Mitt pays an extra $15,000 in taxes each year. I don’t think he’ll go hungry.
So how many people does the individual mandate and the accompanying penalty really hang out to dry? Very few, I would argue. The low-income are exempt from the penalty and will be covered by Medicaid anyway. The very wealthy have it covered either way. The elderly and disabled have Medicare coverage and won’t have to worry about the penalty. The majority of us in the middle, who have insurance through our work won’t have to pay a penalty, and those of us who don’t have insurance through our work will find that, thanks to generous government subsidies, we will be able to buy insurance through the exchanges that is rather more affordable than it has been in the past.
Of course, if we don’t want to take advantage of that opportunity, it only seems fair that we should be penalized for our irresponsible decision-making. It just isn’t right for people to make a decision not to buy insurance knowing that there will be a safety net to catch them if they happen to need it. It’s called personal responsibility, and if that sounds like a Republican concept, it’s because it is. After all, they’re the ones who came up with the individual mandate in the first place. They just stopped liking it when the Democrats agreed with them. So you see, partisan politics have played to Americans’ emotions and have construed the individual mandate as something that it is not. It is not a burden on those who can least afford it to have to purchase yet one more thing. Rather, it is an incentive to motivate those who can afford it to stop acting irresponsibly.