Obamacare's Disappearing Insurance Mandate

Story Stream
recent articles

House Republicans have called the White House's bluff on Obamacare's mandate that requires everyone to buy health insurance. And Democrats are mad.

On Friday, House Republicans approved a bipartisan deal to end the threat of a 24 percent pay cut for physicians treating Medicare patients. After a decade of delaying ever-increasing reductions called for by the sustainable growth rate (SGR) formula, it is clear that Congress will find some way to avoid hitting doctors this hard in an election year.

Republicans propose to offset the $138 billion cost of the SGR fix by putting off for five years the penalty the individuals would pay if they are not covered by health insurance that meets federal specifications. The vote was overwhelmingly partisan, with only a dozen Democrats supporting the bill.

Rep. Frank Pallone (D-NJ) said this move "poisoned" the negotiations and "stomped on months...of hard work." It certainly made the politics of health care more difficult for Democrats, who were compelled to vote against eliminating the unpopular Medicare cut to save the unpopular insurance mandate.

The irony is that the mandate was never that strong, and President Obama has been chipping away at it for months. Not much of the mandate is likely to remain in place by November no matter how many loyalty votes are taken on the Hill.

By driving more people-particularly the young-into health insurance, the mandate was supposed to achieve near-universal coverage at a "reasonable" cost. But that assumes individuals believe that the tax penalty they would pay for failing to buy insurance is large enough to force compliance.

That's not likely. First, many Americans do not understand the health law and may not realize that buying health insurance is not just an option -it is required. More than half of the respondents to a recent survey of job seekers by Beyond.com, a career services network, said they are confused by the legislation. Over 60 percent of unemployed job seekers have not yet signed up for health insurance coverage, and don't plan to. For these people, getting a paycheck is more important than obeying the mandate to get insurance.

Second, it costs more to buy insurance than to remain uninsured and pay the tax. The tax penalty for this year is $95 or 1 percent of one's income. For a single person with an income of $100,000, the tax is $899 this year-considerably less than the $3,600 average cost of basic bronze-level coverage. That person would have to earn $370,000 for the tax to equal the cost of insurance.

Even for low-income individuals whose premium on the health insurance exchange is heavily subsidized, the tax penalty is too small to matter. A single person with an income of $11,500-just at the poverty level-would pay $230 a year on average for silver-level coverage after several thousand dollars of subsidy. The tax penalty for not buying that coverage is $95.

Of course, by remaining uninsured, that person also loses the value of the coverage. For a poor family with children, buying subsidized insurance is a wise decision. A young, unattached, healthy person with lots of other bills is more likely to roll the dice and remain uninsured.

Third, the law neuters the Internal Revenue Service's ability to collect the tax.

Although the threat that the IRS might come after you if you don't buy insurance looks real at first glance, it is not. In writing the Affordable Care Act, Democrats put themselves in a box by supporting the idea of a mandate without supporting effective enforcement.

The Affordable Care Act requires the IRS to enforce taxpayer compliance without resorting to the power of liens, levies, and jail. The IRS is left with two ways to extract the payment. It can ask nicely-that is, send the scofflaw a bill without any real enforcement authority-or it can keep part or all of any tax refund that may be due.

But the IRS cannot reduce your refund unless you overpay. Avoiding the mandate tax is another reason to cut your withholding and stop giving the government an interest-free loan.

Fourth, the law exempts many from having to pay the tax penalty-and President Obama has expanded those exemptions even further.

In Washington, as in life, some rules are made to be broken. The individual mandate is no exception. The ACA recognizes that it is impractical or politically unwise to require everyone to buy health insurance, even if the government does not enforce the mandate.

The ACA exempts illegal aliens, Native Americans, prisoners, those with a religious objection to aspects of the ACA, members of health care sharing ministries, persons living outside the U.S., those who don't have to file an income tax return, those who are uninsured for less than 3 months, and anyone who faces a hardship or cannot find affordable coverage. This being a government program, there are forms to fill out-including a special form if you are incarcerated, although I suspect anyone in jail has more important problems to worry about.

There are a wide variety of hardships that could exempt a person from the mandate, including being evicted, experiencing the death of a close family member, and a flood or other natural or man-made disaster. Interestingly, you are exempt if you had medical bills you could not pay over the past 2 years-something that health insurance is supposed to protect you from.

This is a virtual shopping list for anyone who does not wish to buy health insurance. It also gives the administration broad discretion to avoid imposing the mandate on anyone who might pose a political problem.

A case in point is the administration's decision to exempt anyone whose insurance had been cancelled. The President's November decision to let people buy their old individual policies if insurers and state regulators agreed fell flat. The new exemption was added in December when it was clear that many blue states were not going along.

The exemption was slated to expire at the end of this year, but on March 5 it was quietly extended to October 2016. In the hope of dampening the adverse publicity surrounding policy cancellations, the administration put off imposing the unpopular mandate.

Although the individual mandate will not be repealed as long as President Obama remains in office, it is unlikely that the tax penalty will ever be collected. The administration has repeatedly changed the rules when technical or political problems needed to be addressed, and the mandate penalty is waiting its turn.

Given the problems with the health insurance exchange websites, look for an announcement in the next few months that the tax will not be imposed on anyone this year. The mandate penalty for 2015 will also be put off, probably late next year when Democrats realize that the IRS would be sending out bills in the months leading up to the 2016 election.

House minority leader Nancy Pelosi criticizes Republicans as wanting to destroy the Affordable Care Act by delaying the individual mandate. One can only wonder what her reaction will be when the President takes the same action himself.


Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI).

Show commentsHide Comments

Related Articles