It’s been squarely at the center of the policy and constitutional debates over President Obama’s health care law, but some are arguing that the mandate to buy health insurance — and the penalties for people who don’t — aren’t hefty enough to matter in the real world anyway.
The individual mandate, and whether Mr. Obama’s law can survive if the mandate is ruled unconstitutional, were at the center of the Supreme Court clash last month during three days of oral arguments.
But some analysts argue that the economics of the mandate and the penalty make the focus of the debate misguided.
Starting at $95 per person, the penalty is scheduled to gradually increase by 2016 to either $695 for individuals and $2,085 for families or 2.5 percent of total taxable income — much less than what many can expect to pay for the cheapest plan on the new insurance exchanges.
And few Americans are expected to even have to face that choice: A report by the Kaiser Family Foundation says that almost everyone else will be covered by Medicare, Medicaid, individual insurance or employer-sponsored coverage in 2014 when the penalty goes into effect.
Others will be excused because of financial hardship, leaving only about 10 percent of Americans weighing whether to buy insurance or pay the penalty.
“You add all those together, you really have a narrow band of population,” said Ron Pollack, director of Families USA. “At the end of the day, the number of people likely to be affected by this penalty is very small.”
A balancing act
For the Obama administration, the key is not how many people the penalty will motivate to buy insurance, but who they are.
In order for new insurance reforms to work without premiums becoming prohibitively expensive, healthy young people must buy insurance to help mitigate the costs incurred by older, sicker Americans, the government has argued.
But problems could arise if the penalty isn’t a strong enough incentive to push those healthy young people to buy coverage instead.
While no one knows for sure how it will all play out, most of those choosing to forgo insurance and pay the penalty will be moderate- to high-income earners, according to the Congressional Budget Office, which estimated that 75 percent of those paying the penalty will have incomes more than twice the federal poverty line and a fourth will earn at least 500 percent of the poverty level.
And a March study by the consulting firm Milliman found that the higher the income bracket, the less effective the penalty will be.
The less Americans earn, the more insurance subsidies they can receive, making it cheaper to buy coverage than pay the penalty. But higher-income earners won’t qualify for enough subsidies to make insurance the most cost-effective option, with the cheapest plans on the exchanges expected to cost $4,500 to $5,000 for an individual and $12,000 to $12,500 for a family, according to the CBO.
Insurance carrots and sticks