END OF 2018 OPEN ENROLLMENT PERIOD (Connecticut & Maryland)

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KFF estimates $969 avg. mandate tax in 2016; 3.9 million uninsured can #GetCovered for less than penalty

A few weeks ago, I attempted to figure out at what point the cost of paying for healthcare policy premiums would start to outweigh the Shared Responsibility Mandate Penalty for not having ACA-compliant coverage for 2016. For my own experiment, I was looking purely at the "young invincible" target market: Single, childless individuals between 26-35 years old, earning between $20K - $40K. I ran "real world" checks across 10 major U.S. cities. My conclusion was that for this market in particular, signing up through the ACA exchanges was obviously the smart play up until they hit around $25,000/year in income. After that it started to become more of a judgment call depending on their circumstances and how much of a gamble with their health they're willing to take.

The Kaiser Family Foundation, of course, has far greater resources than I do, and was able to run the numbers far more comprehensively for all currently uninsured individuals who are eligible to enroll via the ACA exchanges. Here's what they came up with:

  • Around 78% of those who are currently uninsured and are eligible to enroll via the exchanges would be subject to the mandate penalty if they don't get covered (75% of those who are eligible for tax credits, 84% of those who aren't).
  • Based on an earlier KFF analysis, I believe this breaks down to around 5.3 million who are eligible for credits plus 7.3 million who aren't, or 12.6 million people nationally.
  • The other 22% (around 3.5 million people) presumably qualify for an exemption of some sort.

They also ran the numbers for just how much those 12.6 million people would owe. Remember, the actual penalty is either a flat $695/person ($347.50/child) or it's 2% of your taxable household income...whichever is greater. As a result, the penalty is actually considerably higher than $695 for many people. According to KFF:

  • For the 5.3 million who are eligible for tax credits, their average penalty will be $738 apiece this year
  • For the 7.3 million who aren't eligible for tax credits, their average penalty will be $1,450 apiece this year
  • Combined, the overall average penalty would be around $969 per person for not getting covered in 2016.

Finally, looking at the question I ask at the top of this entry, KFF compared the average penalty for not having coverage to the lowest-priced Bronze or Silver policies available. Here's what they concluded:

About 7 million uninsured people are eligible for marketplace premium subsidies and are a key target group for increasing marketplace enrollment. Almost half (48%) of them could, in fact, buy a bronze plan for a zero premium contribution or for less than the penalty they would owe for remaining uninsured, including 28% who could buy a bronze plan using their premium subsidy for a zero premium. In other words, 3.5 million subsidy-eligible uninsured people could either get coverage for free or end up paying less by enrolling in marketplace coverage than by remaining uninsured and paying the individual mandate penalty. However, bronze plans come with high deductibles and low-income enrollees may be better off financially enrolling in silver plans that have higher premiums but are eligible for cost-sharing subsidies.

They broke this out between tax credit-eligible and non-eligible as well, and concluded that:

In total, out of almost 11 million uninsured people who are eligible to enroll in marketplace coverage either with or without financial assistance, 7.1 million would pay less for any penalty than they would to buy the least expensive insurance available to them.

You can read this from either direction:

  • 3.9 million of those currently uninsured are absolutely better off signing up for 2016 coverage via the exchanges, regardless of any concerns about deductibles, co-pays, network coverage and so on.
  • What about the other 7.1 million people, for whom even the least-expensive policy option would end up costing them more than the penalty for not signing up? Well, that really depends on the individual. Here's how I put it in my own experiment:

Most people, when faced with paying $X for nothing vs. paying somewhat more for something will go ahead and choose "something". The question here is just how much more they're willing to pay before they decide that they're better off receiving nothing for the lesser amount. For purposes of this study, I'm assuming that the cut-off for most people is twice as much...that is, that most people are willing to pay up to twice as much as the penalty for a healthcare plan before they decide to pay the tax penalty instead. I have no idea whether this has been proven to be the case or not, but it "feels" about right to me.

At the time, I was looking at the 26-35 crowd only. Kaiser says that the overall average penalty for all ages will be around $969/person next year.

IF my "up to twice as much" theory is accurate, this means that the average currently-uninsured person would be willing to pay up to $1,900/year in premiums rather than pay the $969 tax penalty and receive nothing...but after $1,900 they'd decide to take a pass and just pay the penalty instead.

It'll be interesting to see if that proves to be the case or not...