The irony of the individual mandate

June 26, 2012

There are many ironies in the furor around the individual mandate. The fact that it was originally a Republican idea tends to get the most attention. But here's another: There is no better deal in the legislation -- and there has perhaps never been a better deal in the individual health-care market -- than to go without insurance and pay the mandate's penalty.

Here's what happens now if you decide to wait until you're sick to buy health insurance: Every health insurance company will tell you no, or they'll charge you an exorbitant rate, or they'll offer you insurance that will cover everything except your illness. Insurers, quite rightly, do not want to cover preexisting conditions, and there's little consumers can do to make them change their minds.

Under the Affordable Care Act, here's what happens if you wait until you're sick to buy health insurance: You can buy health insurance and no insurer can charge you more for walking into their office with a lump the size of a golf ball. The catch is that between now and getting sick, if you can afford insurance -- which the law defines as you have access to insurance that costs less than eight percent of your income -- you have to pay a penalty of $695 a year (that's the 2016 number; after 2016, it rises with inflation) or 2.5 percent of your annual income, whichever is greater.

The fact of the matter is that $695 a year or 2.5 percent of your annual income is likely to be a lot less than a decent insurance policy will cost you. In a way, paying the mandate is like buying an option to purchase insurance at some future date, when you need it more, for a price that you could never have gotten before the mandate.

But let's say you try to eke out an even better deal than that: Let's say you don't buy insurance and you simply refuse to pay the mandate. What can the government do to make you pay?

Well, unlike if you refuse to pay your taxes, it can't throw you in jail or put a lien on your home or other property (page 336 of the legislation). It can potentially reduce your tax refund, but that's really it. If you're not getting a tax refund, you're free and clear.

Given these specifics, it's worth asking why anyone thinks the mandate will work at all. And it's worth saying that some don't. “Even as it exists today, the individual mandate is weak and still presents problems because the penalty is so low,” Aetna Chief Executive Mark Bertolini told Reuters. "Obamacare individual mandate unlikely to work" wrote Marrill Matthews of the Institute for Policy Innovation, an organization that opposes the Affordable Care Act.

Most analysts are more optimistic, and for two reasons. First, Americans want health insurance, they want access to care before they get sick, and with the subsidies in place, they're getting help to buy it. Second, Americans tend to follow the rules. In Massachusetts, where the mandate is similarly weak, compliance has been extraordinarily high.

 

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Suzy Khimm · June 26, 2012