Penciling out an insurance coverage mandate

By Lisa Mascaro

Saturday, Oct. 24, 2009 | 2 a.m.

Economists figured out long ago that if only people who need insurance buy it, then coverage becomes prohibitively expensive.

What economists have had more difficulty figuring out is how to get everyone — especially the healthy and young — to buy insurance and thus lower the costs for all.

Health care bills being considered in Congress attempt to address this issue by requiring that all Americans, with just a few exceptions, carry health insurance or face fines in the range of about $750 a year.

The legislation calls for subsidies to help those on the lower end of the income scale pay premiums, and the final bill may include a government-run health insurance plan — the so-called public option — to provide an alternative to high-priced private policies.

If citizens, including the 470,000 Nevadans now without insurance, fail to obtain policies, they will be hit with fines that would be assessed when they file their annual income tax returns.

Writing in the policy journal Health Affairs, Susan Jaffe said the country has long entertained the idea of mandating individual coverage. It was part of the Clinton administration’s health reform proposal that died in 1994.

On the presidential campaign trail last year, Democratic candidates differed on the issue. Hillary Clinton argued that an individual mandate was a critical element of health care reform, and Barack Obama favored requiring only that parents insure children. Obama has since supported the individual mandate.

The heart of the debate over this piece of health care reform is whether a requirement to carry insurance is government intrusion into a private financial decision or a necessity to ensure universal coverage and push down rising health care costs by spreading the risk.

For supporters of the requirement, the thinking goes like this.

Aside from the moral premise that everyone should have access to care, they say having more people covered has economic benefits.

Younger and healthier people who may not yet see the importance of insurance are dubbed “free riders” because they tend to buy insurance only once they need care.

But to bring overall health care costs down, the risks insurance covers need to be spread across as broad a population as possible. If the free riders and others without insurance enroll in health insurance plans, even bare-bones plans, they would help cover the costs of providing care for the older and sicker.

But that argument is a tough sell to advocates of smaller government, including some libertarian-leaning Nevadans who are less inclined to support a government telling them what they can and cannot do.

Jaffe acknowledges the opposition’s concerns in the September paper at healthaffairs.org, writing that “some who are or lean libertarian consider the proposal a coercive move by government.”

Some critics also say the fines would amount to tax hikes — and violate Obama’s pledge not to raise taxes on those with incomes of less than $250,000 a year.

When ABC’s George Stephanopoulos asked the president how the fines are not taxes, Obama said they are part of one’s personal responsibility to have health insurance. The truth-squaders at PolitiFact.com sidestepped whether Obama was breaking his no-tax pledge. But as to the claim of that the fine is a tax, they judged: “There’s no doubt it’s a form of a tax.”

So what will it cost you to go without health care and buck the system?

The House and Senate bills take different approaches, and there have been successful moves during Senate committee debates to lower the fines over worries by some that they are too punitive.

In the House bills, those who go without insurance would be hit with fines of 2.5 percent of their adjusted gross income above the minimum income necessary to file a tax return.

For example, individuals with incomes of more than $9,350, or married couples with incomes of more than $18,700, must file 2009 tax returns with the IRS (the amounts are slightly higher for those older than 65). Any amount above that would be taxed. A family with a $50,000 income that fails to get health insurance would be hit with a 2.5 percent fine on the amount above $18,700 — a fine of about $780.

The Senate takes a different approach, establishing a flat penalty of $750 for those who go without insurance for more than three months during the year. The fine would take effect in steps — it would be zero in 2013, the first year health reform would take effect, rising to $200 in 2014, $400 in 2015 and $750 by 2017.

Senators on the Finance Committee twice knocked the fine down — originally, the penalty would have been as high as $3,800 on families at higher income levels.

There are exceptions in the House and Senate bills: No penalties would be applied to people with religious objections to health care, illegal immigrants, Native Americans and those living outside the country. There are also exemptions for hardships.

Part of the challenge as the final legislation takes shape will be to ensure that subsidies are adequate to buy insurance policies so Americans are not digging deep into their pockets to pay health care premiums and then being hit with fines if they cannot afford them.

The House and Senate bills establish subsidies that would be given on a sliding scale to individuals with incomes of less than $43,320 a year and families of four with incomes of less than $88,200 a year.

Poorer households would qualify for Medicaid, which would be expanded to care for larger numbers of the uninsured.

A large piece of the nearly $1 trillion price tag of health care reform pays for subsidies to help the uninsured buy policies and to expand Medicaid.

Elise Gould and Alexander Hertel-Fernandez at the liberal-leaning Economic Policy Institute write that although much of the debate has focused on reaching universal coverage, “equally important, however, is providing affordable coverage, or subsidies, to those who cannot currently afford it.”