The Obamacare tax is set to hit particularly hard this year, and federal and state officials are hoping the threat of a $1,000 tax bill will finally be enough to prod reluctant Americans to sign up for the president’s controversial health law.
California officials spotlighted the “individual mandate” in particularly blunt terms Wednesday, saying time is running out before Uncle Sam asks them to pay “their fair share” for the health overhaul.
The minimum penalty in 2016 will be $695, and the average penalty will be $969, the government estimates, as wealthier taxpayers who exceed the minimum must pay a 2.5 percent tax on their income above the filing threshold.
In 2015 the minimum tax was just $325, and the tax rate for wealthier families was only 2 percent.
“For 2016 that penalty is going up, and it’s going up a lot,” Covered California Executive Director Peter V. Lee said in a conference call devoted to the “costly gamble” that consumers take by remaining uninsured.
Pro-Obamacare officials once shied away from highlighting the tax, instead trying to entice support by highlighting Obamacare’s benefits. But backers now are eager to talk about the tax, saying it’s a critical part of their push to get folks to sign up and make the controversial health law work the way Democrats intended when they wrote it.
“The rise in penalty has been integral to our messaging and that of our partners throughout this enrollment season,” said Maura Collinsgru, program director at New Jersey Citizen Action, a grass-roots group that promotes Obamacare.
“While we can’t say if the penalty is the cause, we do know that enrollment activity is up in New Jersey over last year,” she said.
Now that it’s poised to inflict real pain, the mandate is becoming hard to ignore.
“It’s a tough balancing act for the administration, because they’re trying to get people signed up but also play good politics,” said Larry Levitt, senior vice president at the nonpartisan Kaiser Family Foundation, a prominent health policy nonprofit.
Democrats included the mandate in the law to drive healthy people into the marketplace and force them to buy insurance to balance out the flood of sicker customers who leapt to sign up after the law guaranteed they couldn’t be denied coverage anymore.
Without the healthy customers, economists said Obamacare could face a “death spiral” of spiking prices that chase people from the health insurance market, leading to still higher prices that cause even more people to cancel their policies and pay the tax instead.
Mr. Lee argued the “bigger penalty” for those who forgo insurance in California would be “showing up in an emergency room, and walking out with a bill in the tens of thousands of dollars.”
Yet besides that possibility, there are few economic incentives for holdouts to enroll. More than 7 million Americans would still have to pay more for the cheapest plan available to them than they will owe in taxes if they defy the mandate, according to a recent Kaiser Foundation analysis.
By contrast, about 3.5 million people could acquire an inexpensive bronze plan and pay nothing in premiums, or at least less than the mandate tax.
For them, “paying the penalty is money down the toilet,” Mr. Levitt said. “You don’t get anything for it.”
The Department of Health and Human Services has said that, unlike last year, it will not extend the open enrollment period for people who find out they owe a penalty. The sign-up period ends Jan. 31, and those who miss out would face both a penalty on their 2015 tax return and a more powerful hit next year, so the administration is pushing people to enroll now.
About 8.7 million customers had selected a plan on the federal HealthCare.gov exchange as of Jan. 9, according to a government update Wednesday that showed only a slight uptick in consumer interest between crucial deadlines to get covered under Obamacare in 2016.
Last week, HHS reported that 11.3 million customers had selected plans nationwide, which includes enrollment from the 12 states, plus D.C., that are running their own exchanges.