In 2013 there were 41 million uninsured Americans and today, thanks to Obamacare (PPACA) that number has been reduced to 27 million. These uninsured do not have access to employer-sponsored and government-subsidized health insurance programs so Obamacare expanded Medicaid for the poorest among the uninsured and created the Health Insurance Marketplace (also called the Exchange), a transparent (non-group) marketplace offering standardized insurance plans, for the rest. The individual mandate (officially called the Individual Shared Responsibility Payment) was Obamacare’s way to “encourage” the uninsured to spend their hard-earned money on health insurance plans on or off the Exchange instead of remaining uninsured. If a person remained uninsured during the year, he was required to pay the penalty ($695 per adult or 2.5% of income, whichever is larger in 2016). Polls have repeatedly shown that people hate the Obamacare individual mandate more than any other provision of the law. Let’s explore why people hate the Obamacare individual mandate and whether they have a good reason to do so.
Republicans have interpreted Americans’ dislike for the Obamacare individual mandate incorrectly generalizing that it is an indictment on all of Obamacare. This interpretation suits their political agenda and leads them to erroneous conclusions. Just because Americans hate the Obamacare individual mandate, it does not mean they hate the improvements in health insurance offering under Obamacare. (like guaranteed issue, community ratings, standard set of essential health benefits, subsidies, and single risk pools). Many people with pre-existing conditions couldn’t even get health insurance before Obamacare and are grateful for any insurance they can get. Americans do not hate the Obamacare individual mandate because they want to remain uninsured. Even for the young and healthy, being without health insurance in the high cost U.S. healthcare system is a frightening proposition. By law, only hospital emergency rooms are required to treat the urgently ill regardless of the ability to pay and once a person is stable, out they go. No money–no health care!
Americans who must buy their health insurance on the non-group marketplace (on and off the Exchange), hate the Obamacare individual mandate because it makes them pick between two undesirable choices—buy high cost, health insurance products that go up in price every year to feed the unchecked greed of for-profit health businesses (which I collectively call HICUP) OR pay a penalty for staying uninsured. People who must buy health insurance in the non-group marketplace are therefore caught between a rock and a hard place.
For the vast majority of Americans, the individual mandate penalty does not personally affect them because they have health insurance through their employers or through various government programs (including those who only have VA health care, which is not technically “insurance”). Through various employer and/or government subsidies, the vast majority of Americans are insulated from the high costs of health care. This is not the case for people who must buy their health insurance in the non-group health insurance marketplace. Those financially impacted by the individual mandate penalty are the 27 million Americans who remain uninsured (2016) for various reasons (e.g., 2.6 million poor Americans in states that did not expand Medicaid).
People who buy health insurance on the Exchange are eligible for two government subsidies that help with healthcare costs; namely, the premium subsidy (for those with household income less than 400% FPL) and cost sharing reduction subsidy (for those with household income less than 250% FPL). The premium subsidy reduces the cost of the monthly premium and the cost sharing reduction subsidy lowers the amount the insured has to pay for deductibles, copayments, and coinsurance when they seek care.
In the table below, I have identified the lowest cost silver plans from the Exchange in two cities (Alburquerque, NM and Charleston, SC) for a 27 year old and for a 55 year old males. Although bronze, gold, and platinum plans are also sold on the Exchange, the vast majority of enrollees buy silver plans to take advantage of subsidies. Because premium and cost share subsidies are tied to income, I have also included health insurance costs (premiums and deductibles) for three different incomes:
- $24,000 (200% Federal Poverty Level (FPL))–gets both subsidies
- $30,000 (253% FPL)–gets only premium subsidy
- $55,000 (463% FPL)–gets no subsidy.
In the table below, I have also included pertinent information from several other plans for comparison.
A Good Reason to Hate the Obamacare Individual Mandate
When you compare the premiums and deductibles for non-group and other plans, you can see why the people who buy insurance in the non-group marketplace hate Obamacare’s Individual Mandate. (highlighted in the table above). Compared to other insurance group plans, the Exchange plans require beneficiaries to pay a higher percentage of the premium costs, AND expect beneficiaries to pay higher cost share (deductibles, etc.) when they use medical care. The difference is most obvious for households with income greater than 400% FPL, who get ZERO subsidy and therefore feel the full impact of high healthcare costs and insurance company administration/profit demands. While plans sold on the Exchange are slightly cheaper than the same plans sold off the Exchange, both show that 70% of the premium increases come from growth in medical costs and 30% from insurance overhead and profits.
While we hear a lot about the rapidly rising premiums in the Exchanges, it is interesting to note that the total monthly premiums for the other plans given in the table above are appreciably higher than those in the Exchange plans. These higher premium prices are the result of higher plan generosity (higher actuarial value) or in the case of Medicare, the risk pool contains many more people who are high health spenders. Increases in premiums for these other plans are subject to the same medical costs (and insurance company take) that plague the Exchange plans. Many of the Exchange plans keep premiums down by severely reducing the number of medical providers in network (the one in Charleston is an EPO) or by selling an HMO plan (the one in Alburquerque). Most of the other plans listed above are not as restrictive with in network providers.
The Exchange plans are particularly bad when you consider that some people may actually have to seek medical care. While I have not included all cost sharing components (maximum out-of-pocket, copays, and coinsurance details) for the Exchange plans above, the deductibles alone tell us how inferior these plans are to the other plans identified. A deductible is the amount that the insured must pay before the insurance plan pays a dime (except for Obamacare-defined preventive services that are free to all Americans with insurance).
Even with cost sharing reduction subsidies, the two men making $24,000 (200%) in both cities are expected to spend up to $5700 before their insurers start paying. The 27 year old in Charleston, SC pays $1572 for the year in premiums (7.8% of after-tax income) and much more if he needs to get any medical care ($5700 is an additional 28% of after-tax income). A person making $24,000 year does not have anything near $5700 to spend if he gets sick and may delay needed care as a result.
Without any subsidies, people with household income above 400% FPL come face-to- face with the high cost of health care in the United States when they pay their premiums and when they seek medical care. The men making $55,000 in my table above pay the full premium cost–$7836 in Charleston and $5028 in Alburquerque, (19% and 12% in after-tax income). If the men used a lot of medical care and incurred the full $7150 deductibles, then they would have to spend an additional 17% each in after-tax income. Although these men have more disposable income to weather a costly sickness, the high costs they are responsible will surely eat into basics like saving for retirement.
It is small wonder that these people, who do not have generous employer-sponsored or government subsidized coverage and must buy in the non-group marketplace, hate the Obamacare individual mandate. They hate the unaffordable insurance they are offered also, but know that it is better than what was on offer before Obamacare. The individual mandate is like rubbing salt into the wound.