Enrollment for the Patient Protection and Affordable Care Act, which you'll know better as Obamacare, is in full swing through Jan. 31, 2016, and the theme this year is change.
Consumers and businesses continue adapting to Obamacare
We're witnessing a substantive transformation from the perspective of employers, with the employer mandate slated to go into full effect on Jan. 1, 2016. Like the individual mandate, which requires individuals to purchase health insurance or face a penalty when filing their tax return, the employer mandate will require that businesses provide certain health coverage essentials to full-time-equivalent employees, or FTEs. Businesses with 50 or more FTEs will be required to offer health coverage options to these employees, and potentially subsidize a portion of their premium cost if it exceeds 9.5% of an employee's modified adjusted gross income (MAGI). If businesses fail to do so they could be staring down an annual fine of $2,000 to $3,000 per employee.
We're also seeing big dollar differences in the underlying price of health insurance plans. The failure of more than half of Obamacare's approved healthcare cooperatives and an influx of low-cost operators that simply aren't turning a profit or generating enough of a margin buffer are causing premium costs to rise. One report from the Kaiser Family Foundation on 49 large U.S. cities estimated that premium costs for the second-lowest cost silver plan would rise by an average of 10.1% in 2016.
However, the most menacing change in 2016 could be the dramatic jump in the penalty associated with noncompliance with the individual mandate. There are exemptions if you as an individual don't have health insurance, such as low income, select tribal or religious affiliations, and approved economic hardships. But for the millions of uninsured who don't fit these requirements, penalty amounts could soar.
Here's how much the average Obamacare penalty could be in 2016
In 2014, when the individual mandate penalty, also known as the shared responsibility penalty, was first put into action, it ran the greater of $95 or 1% of a person's MAGI. Statistics from tax specialist H&R Block show that noncompliant consumers were in for quite the surprise when they filed their tax returns for 2014 -- the average penalty was $190, double the $95 that many had expected.
In 2015 the penalty rose to the greater of $325 or 2% of MAGI, and in the upcoming year the penalty will skyrocket once more to the greater of $695 or 2.5% of MAGI if you choose to remain uninsured. In 2017 and beyond, the penalty will increase in step with the rate of inflation.
According to a recently released report from the Kaiser Family Foundation, the shared household responsibility penalty for all uninsured individuals is forecast to jump from $661 in 2015 to (I hope you're sitting down for this) $969 in 2016.
According to KFF's analysis, some 7 million currently uninsured consumers could join Obamacare and would be eligible for some level of marketplace subsidies, thus avoiding the shared responsibility payment altogether and gaining health insurance for those "what if" health-related events. Furthermore, KFF details that roughly 48% of these 7 million uninsured individuals could purchase bronze plans with little to no monetary contribution on their own part. In other words, the penalty is actually costing these individuals more than it would to purchase low-cost bronze plans in their states.
Why the shared responsibility penalty may not be working as intended
It's possible the penalty tied to the individual mandate will encourage more people to enroll in 2016. Then again, it may be having the opposite effect.
Although the shared responsibility penalty is indiscriminate in whom it targets, it's primarily a tool to encourage healthier young adults to enroll. Young adults are among a select group of individuals that are resistant to buying insurance, since they're often the healthiest and among the least likely to visit the doctor. For insurers, that's a perfect formula for low medical expenses -- and that's why they need young adults to enroll to balance out the high costs of enrolling sicker individuals. But the penalty may not be doing its job as intended.
For starters, in many instances the cost associated with paying the penalty is substantially lower than it would be to actually enroll for health insurance. As KFF's analysis points out, for some currently uninsured individuals enrolling would be the smarter move; the vast majority of healthier young adults in the middle class, however, are going to it substantially cheaper to just take the penalty and remain uninsured. The average silver plan premium in 2015 was $307 per month according to Bloomberg, or nearly $3,700 for the full year if a person doesn't qualify for subsidies. It's pretty easy to see that the less-expensive option for the consumer is to remain uninsured. Unless the penalty is substantially increased, we may not see a huge bump in young adult enrollment.
Along those same lines, the fact that the IRS has its hands practically tied when it comes to collecting shared responsibility penalties puts the uninsured in an advantageous position. Tax filers who purchased insurance through the marketplace exchange are required to input their premium payment information, found on Form 1095-A, into their tax filing. This is how the IRS confirms whether or not an individual maintained health insurance compliance throughout the year. People not in compliance should be paying the penalty.
Now here's the catch: The IRS can take the penalty amount out of the refund a tax filer is due. If a taxpayer isn't due a refund, however, the IRS has no other recourse to collect the money other than to request payment. The IRS can't garnish wages or seize property in order to collect payment. The IRS could, in theory, take the millions of violators to court if they don't pay, but the idea of millions of individual cases clogging the legal system seems unlikely.
Ultimately, it's still unclear what the effect of the shared responsibility payment will be on enrollment in 2016. I'd expect a slight uptick in young adult enrollment, but personally wouldn't be surprised if enrollment for healthy individuals remains below expectations. That's bad news for insurers that are struggling to turn profitable on Obamacare marketplace exchanges, and it poses an ongoing concern for the longevity of Obamacare.