Will enough people buy into Obamacare?
Earlier this week, I concluded that the Affordable Care Act鈥檚 tax on those who do not have health insurance will be both modest and difficult for the IRS to collect. But will it be enough to encourage people to buy coverage? 聽If not, healthy people may opt out until they get sick, a decision that could drive up premium prices for those who do buy coverage.
If past experience is any guide, the vast majority of people will get insurance鈥攎ostly because, well, having health insurance is a good idea. Besides, government will subsidize聽premiums for many. But will this mix of subsidies and taxes be enough to avoid the sort of adverse selection problems that some economists fear could wreck the system?
They were in Massachusetts, where 86.6 percent of people were insured just before that state鈥檚 health reform passed in 2006 (under the leadership, of course, of then-governor Mitt Romney) but聽94.2 percent were covered in 2010. 聽聽
There are some differences between the environment in Massachusetts and the nation at large. For one, the Bay State was starting from an uninsured rate of about 13 percent prior to its health reform law鈥攁bout one-fifth lower than the national rate, which was 16.3 percent in 2010.
The Romneycare tax is roughly similar to 聽Obamacare鈥檚鈥攖hough the two levies are not directly comparable. In Massachusetts, the tax is adjusted for both age and income but maxes out at $1,260-a-year. The ACA tax聽is only $95 for an individual in the first year but聽due to rise to $695 ($2,085 per family) or 2.5 percent of adjusted gross income in 2016. The maximum penalty under the ACA is equal to the price of the low-cost insurance option under the law鈥攎uch higher for wealthy households than the Massachusetts tax. 聽
Btw, notwithstanding Romney鈥檚 latest rather convoluted explanation of why the federal levy is a tax while the Massachusetts penalty is not, this distinction eludes the Bay State itself. The state鈥檚 own website describes it this way: 鈥淩esidents without health insurance face a tax penalty.鈥�
Other jurisdictions also use penalties/taxes to enforce an individual mandate for the purchase of health insurance. Switzerland and the Netherlands, for instance,聽have achieved聽99 percent enrollment that way. However, both countries impose far more onerous penalties than either the ACA or Massachusetts.
In the Netherlands, for instance, the tax penalty is a steep 130 percent of premium cost. 聽In other words, it costs much more to reject coverage than to聽buy the insurance.聽
My best guess is the ACA鈥檚 combination of subsidies and聽tax penalties聽will drive significant enrollment. But there are some weak links in the law.
The first is the relatively modest tax and the constraints on the IRS鈥� ability to enforce it. 聽
The second was created by the Supreme Court, which made it possible for states to reject Medicaid expansion鈥攁 mechanism that The Urban Institute鈥檚 Health Policy Center projected would cover about 8 million low-income people who are currently uninsured.聽Many聽could not聽afford聽insurance even with the ACA鈥檚 subsidies, though some may be subject to penalties for not buying.
I also suspect that some tea party-types may organize protests against the ACA鈥攅ncouraging people to refuse to buy insurance or pay the tax. And imagine commercial products aimed at the same goal: 鈥淟earn the Secret of聽 Beating the Obamacare Tax. Send $29.95 now.鈥�
Would such a movement drive enough people to reject insurance so prices for the rest of us would rise significantly? Probably not, but it is hard to know. Still, it will be yet another challenge to this far-reaching, but controversial, law. 聽聽聽聽聽聽聽
