The official enrollment period for the Affordable Care Act, known better as Obamacare, came to a close on Feb. 15 and wound up handily galloping past reduced expectations.
Before the start of this year's open enrollment, the Department of Health and Human Services had forecast just 9.1 million enrollees would be signed up for health insurance through an Obamacare exchange by the end of the year. Based on figures supplied by the White House, more than 11.4 million people actually wound up enrolling for health insurance via the exchanges. And this figure could head even higher as a special enrollment period of March 15, 2015-April 30, 2015 was added for states using Healthcare.gov, and a few other select states such as California, for people who learned about the individual mandate penalty after Feb. 15, 2015.
Key takeaways from the 2014-2015 enrollment period
As reported by the Department of Health and Human Services, through Feb. 22, 2015, some 8,838,291 people on the federally run health exchange, Healthcare.gov, which served 37 states, had selected a plan out of 12.41 million submitted applications. Utilizing simple math and the White House's figures, another roughly 2.6 million people signed up for health insurance in states which chose to develop their own online marketplace.
What's particularly intriguing about these figures, at least from the standpoint of Healthcare.gov's enrollees, is that 53% were completely new to the exchange this year. Of the 47% that reenrolled, just 22% were automatically reenrolled in the plan they had last year, while the remaining actively sought out a new plan.
There are two key takeaways from this data. First, there are likely fewer people uninsured now than there were at the end of the last enrollment period since there was a strong showing of new enrollment. It's also a potentially positive sign that younger, healthier adults may have enrolled, since they represented a sizable chunk of the uninsured prior to the start of 2014-2015's open enrollment period.
Secondly, it also implies that consumers were being especially thrifty in 2015, changing plans willingly to either meet their health needs or fit their budget. Americans had the capacity to save hundreds of millions of dollars, or perhaps even billions, if they simply shopped around for the best deal. These figures would imply that a majority of consumers did just that in 2014-2015.
An unintended consequence takes shape
But, Obamacare has also led to a few unintended consequences -- perhaps none better documented than the individual mandate tax penalties.
The individual mandate is the actionable component of Obamacare that essentially requires a person to purchase health insurance or face a penalty. The penalty in 2014 was the greater of $95 or 1% of an individuals' modified adjusted gross income. In 2015 this penalty is set to soar to the greater of $325 or 2% of an individuals' modified-AGI. The reason the individual mandate was even put into law was to help encourage younger adults, who are generally healthier and who are critical to offsetting the higher costs of treating the sick and the elderly, to sign up for health insurance.
In the 2013-2014 enrollment period, there were millions of people who chose not to enroll in Obamacare. Some will get a reprieve and not be subject to the individual mandate penalty because of their low income, religion, or perhaps one of more than a dozen different hardship exemptions. But, the Obama administration has estimated that approximately 6 million individuals could be on the line to pay the penalty for not having health insurance during 2014.
Although the headline figure of $95 is what many consumers who didn't buy health insurance may have been expecting to pay, the vast majority of people who didn't have health insurance in 2014 are staring down penalties equal to 1% of their modified-AGI.
According to tax specialists H&R Block, the average tax penalty for not having insurance through the first six weeks of the tax season was nearly double the expectation of consumers, ringing in at $172. For individuals due a refund, the IRS will simply remove what would have been owed via the penalty and send the taxpayer their remaining refund. In instances where the taxpayer owes the IRS things could get tricky.
The IRS has previously stated its intention not to seek criminal action against, or put liens on wages or the property of, individuals who owe an Obamacare penalty but don't pay it. So, if consumers begin to shift their tax liability from getting a refund to always owing at the end of the year, it's possible the revenue expected to be collected from individual mandate penalties could be much lower than expected, and the IRS may have to rethink its game plan.
Additionally, H&R Block notes that a majority (52%) of enrolled clients that completed Form 8962 to get marketplace subsidy credits for the 2014 enrollment year underestimated their household income. Remember, some people applied for subsidy credits in October 2013, but were estimating their full-year income more than a year in advance. H&R Block stated that the average Advance Premium Tax Credit paid back to the government totaled $530. H&R Block states this is reducing the average tax refund by 17%.
A potential double-whammy
Reduced tax refunds and rising individual mandate tax penalties (the penalty will move even higher in 2016 to the greater of $695 or 2.5% of an individuals' modified-AGI) mean potentially bad news for both the insurance and retail sectors.
On one hand, insurers are very grateful for the individual mandate being in place since it encourages younger adults who are less likely to run up high medical expenses to sign up for insurance. But, there's a flipside to this equation. If uninsured consumers are paying tax penalties for not being insured, the penalties they pay, or their reduced tax refund, could keep them from enrolling for health insurance. Likewise, enrolled individuals could struggle to meet their payments if they have to repay an average of $530 in premium tax credits. With UnitedHealth Group (NYSE:UNH) having the greatest exposure nationwide, it would be the company that could feel the biggest sting if consumer enrollment slowed or even fell.
By a similar token, retailers such as Wal-Mart (NYSE:WMT) could feel a pinch this year if tax refunds are down considerably. Retailers like Wal-Mart rely on tax refunds to drive high-margin discretionary purchases. If consumers see their returns fall because they owed money for not buying insurance, or for underestimating their income and having to repay a portion of their subsidy credits, it's probable that they'll cut their discretionary spending as well. Wal-Mart could see some benefits, as it does operate a large pharmacy business, but the loss of sales in other departments could be too great to overcome.
Keep your eyes and ears open
As in previous instances with Obamacare, this is just another learning experience for the public and for lawmakers. It's possible we could see changes made to the individual mandate in the coming years, and it's also possible that things could continue as they are, with UnitedHealth and Wal-Mart excelling all the same. I'll be eagerly awaiting upcoming quarterly commentary from insurers (and Wal-Mart), as well as keeping my eyes and ears peeled for the June Supreme Court decision on the legality of federal subsidies.
Just because Obamacare's open enrollment period is closed doesn't mean things are going to settle down any time soon.