Ignoring the Penalty for Not Buying Health Insurance
Obamacare’s big stick doesn’t seem to be scaring many people into buying health insurance.
The health law includes many inducements for people to obtain health insurance — including free Medicaid coverage for many low-income Americans and subsidies for those with moderate incomes. But it also includes the notorious “individual mandate,” a fine for those who can afford insurance but don’t buy it.
Because the law, and the fine, are new, many policy experts expected that some people would decline to sign up for insurance until they were hit with a penalty at tax time. Forecasters have estimated a big bump in marketplace enrollment next year, the first sign-up period after people have been fined. The Congressional Budget Office, for example, estimates 10 million more people will have Obamacare plans next year. The law’s structure relies on even healthy and otherwise disinclined consumers to enter insurance markets to help stabilize prices.
Certainly, some people who might otherwise go uninsured have been persuaded by the penalty. Polls have shown that it is a well-known provision of the law. And studies of the uninsured have shown that mentioning the penalty changes some people’s thinking about health insurance. At the end of the normal enrollment period in February, about 11.7 million people had selected marketplace health plans or renewed their plans from 2014, according to the federal government.
But the Obama administration just conducted a small experiment into how much the penalty would affect the behavior of the remaining uninsured. And the results leave some experts concerned that next year’s sign-ups will come in below expectations.
To be clear, the number of people eligible for the special sign-up period was probably quite a bit less than 6 million. Some who paid fines for 2014 may have gotten insurance with a new job in the intervening year. And some may have signed up for Obamacare insurance during the normal
sign-up period, which ran from mid-November through mid-February. The Department of Health and Human Services has provided no estimates on how many people might have been eligible for the special sign-up period.
Some advocates have criticized the way the special period was set up, saying the low sign-ups merely reflect the last-minute nature of the decision to extend deadlines. Given more time to prepare, tax preparers might have been able to help enroll more people in health insurance, said Brian Haile, a former senior vice president at the tax preparation firm Jackson Hewitt. “H.H.S. refused to provide any information until the very last minute,” he said in an email. “As a result, the companies were not able to plan effectively.”
But several close watchers of the law say that the special enrollments look low enough to raise more substantial questions about whether the health law’s penalty will have the intended effect of increasing sign-ups for insurance in the coming years.
“It makes me more pessimistic,” said Caroline Pearson, a vice president at the health care consulting firm Avalere Health. When the government announced the special enrollment period, she estimated that between half a million and a million people would take advantage of it. “All the evidence is enrollment is not going to be where people thought.”
Ms. Pearson pointed out that people earning higher incomes, who would have to pay a higher proportion of their premiums, have been less eager to sign up than those whose low incomes qualify them for substantial government help with their health premiums. She recently published an analysis describing the penalty as “too low” to move many higher earners.
Mike Perry, a partner at the polling firm PerryUndem, says focus groups he’s held with the uninsured are consistent with Ms. Pearson’s theory. “A lot of them seem to be making calculations throughout the year what their premium would be versus this fine,” he said.
Behavioral economists who study incentives like the mandate penalty say it may just take time for people to learn about the incentive structure set up by the penalty. It is set to increase for the next several years, so people who remain uninsured will face not just repeated but rising bills for doing so.
Some people who learned about the fine late may not have had enough time to make room in their budgets for an insurance premium, said Brigitte Madrian, a professor at Harvard’s Kennedy School who has studied how incentives affect 401(k) plan sign-ups. Next year, uninsured people may have more time to plan ahead, and may remember the unpleasant experience of paying a fine.
“People learn from their mistakes, and this is true in the financial domain,” Ms. Madrian said. “The learning may be more effective a few years in as they see the penalty going up.”
Category: Buy Insurance