With enrollment for the Affordable Care Act, also affably known as Obamacare, now closed for 2014, I believe it's fair to say that it's been a learning experience for all parties involved.
Obamacare, in a nutshell, is a complete transformation of how citizens in this country receive and pay for health care. There have been few precedents in history where such sweeping reforms have been implemented in the health care sector, so a learning curve was to be expected. Consumers had to learn how the law would affect them personally and understand how to make smart decisions by choosing a plan in an open marketplace. Businesses are also still in the process of understanding how part-time and full-time employees will be accounted for and affect their bottom-line. Even insurers have needed time to fully understand the demographics of their enrollees in order to price their premiums properly to both attract consumers and generate profits.
However, with a year under the belt so to speak, uninsured citizens who made the choice not to enroll for health insurance in 2014 may find that the smooth transition into Obamacare feels less like a slap on the wrist and more like a thud in 2015.
Obamacare penalties set to soar
Overall, more than 8.1 million people enrolled in a federal or state-run health exchange for 2014. Yet, according to initial estimates from the Urban Institute's Health Policy Center from early March -- which claimed that 5.4 million enrollees in Obamacare were previously uninsured – the uninsurance rate of 18 to 64 year-old persons in this country is still over 15%, or approximately 48 million using current Census figures. Of course, not every uninsured person will face a penalty under the individual mandate due to a number of circumstances including low-income and hardship exemptions, but it does mean that millions of Americans are facing a tax penalty on their 2014 return when they file by April 15, 2015.
For 2014, the first year where the Affordable Care Act and individual mandate went into effect, uninsured persons who aren't exempt will face a penalty equal to the greater of $95 or 1% of their annual income, not to exceed cost of a bronze health-insurance plan.
In 2015, this gentle nudge toward signing up for health insurance is going to turn into something that resembles a push as Obamacare penalties are set to soar. Keeping with the idea of paying the greater of the two penalties, citizens who choose to go without health insurance for more than three months during the course of 2015 will face a penalty that's the greater of $325 or 2% of your annual income, not to exceed the annual cost of a bronze health plan. In other words, the minimum penalty will rise a not-so-subtle 242% while the top-line percentage penalty will double!
Although the IRS is using its "trust-but-verify" approach to discern which individuals did and did not have health insurance during the prior year, it's clear that the IRS is going to take mandate collection very seriously with the agency requesting in 2012 to hire an additional 1,269 employees, at a cost of $473.4 million according to the Treasury Department, specifically to assist with the Affordable Care Act's implementation. Even though the IRS can't garnish your wages, seize your possessions, or throw you in jail for not paying your Obamacare penalty, if you're owed money (and more than 80% of taxpayers are owed a refund at year's end) it can withhold your penalty amount from your refund.
Will this be the result?
While the penalties themselves might not be overwhelming for many citizens, they could provide the impetus needed to persuade a number of currently uninsured individuals to sign up. As ACA penalties for non-compliance with the individual mandate continue to rise, the result will likely be an improvement in favorable enrollments for our nation's largest individual insurers such as UnitedHealth Group (NYSE: UNH ) and WellPoint (NYSE: ANTM ) . Remember, those unlikely to go to the doctor in the first place are probably among the healthiest (i.e., young adults). Getting these individuals signed up represents a key target for both UnitedHealth Group and WellPoint in their efforts to pay the higher costs associated with signing up sicker individuals. And given that UnitedHealth Group is showing signs of expanding their exchange footprint, it seems that they may recognize this opportunity (WellPoint is already competing aggressively for exchange lives, and estimates over 500,000 new members from the exchanges for this year).
But, the impetus to sign up may go beyond just the fact that the penalty for not having insurance is growing.
Part of the Obamacare learning curve also likely included uninsured individuals who chose to wait out a year to see how successfully the new health reform law was implemented. Following a year of better-than-expected enrollment and, thus far, primarily modest premium price increase requests from insurers, I would suggest that these modest cost increases could entice some on-the-fence uninsured individuals to sign up in 2015.
Another point to consider is that as the penalties for non-compliance with the individual mandate increase, the value proposition of potentially being able to claim tax deductions from health-care premiums paid versus paying a penalty which has no tax benefits may begin to flip in favor of signing up for health insurance.
I can speak from experience that, having signed up for Obamacare in my home state of Washington back in October, my penalty and the cost of enrolling in a health plan were fairly equal. In other words, I was going to pay a similar amount whether I chose to get health insurance or not. For me it made sense to both obtain coverage (I'm not getting any younger folks), and be able as a self-employed individual to claim my health-care premiums as a deduction. If I chose to simply pay the penalty I would receive no deduction and, worse still, would pay all medical costs out-of-pocket were they to arise. Obviously everyone's situation is unique, but I'd be surprised if there aren't other citizens out there that come to a similar realization next year.
Combined, all of these factors could spell a scenario conducive to higher quality enrollments in 2015 for both UnitedHealth Group and WellPoint.
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