Image source: White House on Flickr.
The Patient Protection and Affordable Care Act has been contentious since it was signed into law back in March 2010. Perhaps known better by its shorthand, Obamacare, the PPACA has delivered notable positives in terms of its enrollment figures, but has also generated ample criticisms with regard to how it's achieved its enrollment numbers.
The give and take of Obamacare
On one hand, the number of paying Obamacare enrollees totaled 9.95 million as of June 30, 2015, based on data from Centers for Medicare and Medicaid Services. This is above the 9.1 million-person estimate provided by the Department for Health and Human Services prior to the start of last year's open enrollment period.
Additionally, the Centers for Disease Control and Prevention noted that the uninsured rate in the U.S. tallied just 9.2% in the first quarter of 2015 (inclusive of Medicare enrollees), marking the lowest uninsured rate in history. In other words, Obamacare has done its job in terms of lowering the uninsured rate.
On the other hand, millions of consumers lost their health plans and/or their primary-care physicians in the process. Obamacare's beefed up minimum essential benefit requirements made it unfeasible for insurers to bring some of their bare-bones coverage plans up to spec. Likewise, some physicians simply chose not to accept Obamacare-based insurance, based primarily on the concern that they wouldn't be reimbursed adequately for services rendered to Medicaid-covered patients.
Also, consumers and businesses don't have much love for the mandates associated with Obamacare. The employer mandate -- the actionable component of the law requiring businesses to offer coverage to full-time equivalent employees -- has pushed some business to lay off workers or cut back hours in order to avoid a possible penalty, while the individual mandate has drawn the ire of consumers who now feel "forced" to purchase a health plan or pay a penalty.
Image source: Obamacare.
Obamacare's unwelcome surprise
With Obamacare's open enrollment period set to kick off on Nov. 1, 2015, millions of consumers are once again being presented with an opportunity to select a new health plan or reenroll with their current plan for another year.
The upcoming enrollment period is even more important for millions of additional consumers who chose not to purchase health insurance in 2015. The upcoming enrollment period will offer an opportunity for the uninsured to decide whether or not 2016 will be the year they decide to get covered. If consumers choose not to enroll in 2016, they could be in for an unwelcome surprise.
With each year that passes, the penalty associated with not being in compliance with the individual mandate (i.e., not having health insurance for three or more consecutive months out of the year) rises. In 2014, the first year Obamacare was officially the law of the land, the penalty was the greater of $95 or 1% of an individual's modified adjusted gross income, or MAGI. However, after examining tax returns from millions of consumers, tax specialist H&R Block announced that the average penalty paid by consumers for violating the individual mandate was not the $95 that many consumers expected. In actuality, the average penalty was $190 (double the minimum penalty).
Image Source: Social Security Administration.
In 2015, the penalty associated with noncompliance soared to the greater of $325 or 2% of MAGI. We won't have data on the average penalty paid by consumers until May 2016, but rest assured the average penalty is more than likely going to be well over $325.
In the upcoming year, the penalty is set to soar once more to the greater of $695 or 2.5% of MAGI. If there's any consolation, the penalty will rise in 2017 and beyond by the rate of inflation. Still, it's possible many consumers could be caught off-guard when filing their taxes in April 2017 if they don't understand just how quickly the penalties have risen, or that the penalty itself is based on the greater amount, not the lowest penalty total. In sum, going uninsured in 2016 could very well lead some consumers to tally penalties of $1,000 or more for noncompliance when filing their 2017 return.
Individual mandate exemptions and the mandate's shortfall
The good news is that just as consumers may not be fully prepared or understand the penalties they could face if they choose not to buy health insurance in 2016, they also may be unaware that there are a laundry list of exemptions that could get them out of paying any fines.
For instance, being a member of a federally recognized tribe or religious group, having to pay more than 8.05% of your household income to the lowest-priced plan available in your state/area, or experiencing a specific type of economic hardship may exempt you from the penalty. These hardships include everything from filing bankruptcy to experiencing the death of a close family member or facing eviction from your primary residence.
Image source: Flickr user Reynermedia.
Of course, the big question mark that will be answered in 2016 is whether or not the individual mandate is really doing its job of coercing enough healthy Americans to enroll for health insurance. Insurers are counting on younger, healthy adults to enroll because their premiums and generally low medical care costs are needed to help offset the high costs of treating elderly and terminally ill patients who were among the first to enroll in Obamacare in late 2013.
Whether it's successful to this end remains to be seen, but I personally have my doubts. Even with the individual mandate penalty rising to the greater of $695 or 2.5% of MAGI, the cost to obtain insurance for a nonsubsidized consumer is often times going to be higher. An individual with a MAGI of $50,000 could face a $1,250 penalty for noncompliance on their calendar year 2016 taxes, but would find that the national cost of a silver plan in 2015 was $307 a month, or $3,700 annually. Unless the penalty is markedly higher, or premium costs come down substantially, the cost of having health insurance may handily outweigh the penalty associated with not having insurance -- even with the tax benefits that could come with having insurance.
Needless to say, you'll want to keep a close eye on how consumers respond to substantially higher penalties for not being insured in the upcoming enrollment period.
