• ACA Penalty for Lacking Health Coverage Will Be Effective, Analysis Says

    Posted on February 12, 2013 by in Breaking News


    California Healthline –

    January 22, 2013

    The federal penalty for failing to buy health insurance under the Affordable Care Act’s individual mandate will be high enough to be effective when it is fully phased in, according to an analysis published in the Journal of the American Medical Association, The Hill’s “Healthwatch” reports (Baker, “Healthwatch,” The Hill, 1/18).


    Some economists have argued that the individual mandate in the federal health reform law might be unsuccessful because its penalty likely would be less costly than health insurance premiums. As a result, those economists say, many healthy individuals might choose to forgo insurance.

    Penalties for failing to abide by the law’s individual mandate will begin in 2014 but will not fully be phased in until 2016. At that point, U.S. residents who have not purchased coverage will be fined $695 or 2.5% of their household income, whichever is greater. After 2016, the fines will increase according to annual cost-of-living adjustments. U.S. residents will be exempt from the penalty if the most inexpensive plan costs more than 8% of that individual’s income (California Healthline, 9/20/12).

    Analysis Details

    In the analysis, Austin Frakt, a health care economist at Boston University, examined the effectiveness of the penalty enacted under Massachusetts’ 2006 health reform law. He found that once Massachusetts’ $537 penalty took effect, the state’s health care system offset the cost of every sick person with three healthy people.

    He noted that the “federal penalty will eventually be more aggressive” than Massachusetts’ and concluded that the ACA’s penalty — which starts low but gradually increases until it reaches $674 — also will incentivize people to purchase insurance.

    However, Frakt acknowledged that the ACA’s initial low penalties might not be enough to encourage young, healthy people to buy insurance (“Healthwatch,” The Hill, 1/18).

    OMB Reviewing Regulations

    In related news, the Office of Management and Budget is reviewing regulations that deal with exceptions to the ACA’s individual mandate, The Hill’s “Healthwatch” reports.

    Under the ACA’s individual mandate, taxpayers are penalized if they fail to buy health insurance unless they:

    • Have incomes low enough that they are not required to pay taxes;
    • Meet certain religious exemptions; or
    • Would spend more than 8% of their income on health insurance.

    According to OMB, the rules will clarify the process for verifying whether individuals are able to purchase employer-based health insurance and discerning if they are eligible for federal subsidies to help buy private coverage. According to “Healthwatch,” the rules likely will be released this month (Baker, “Healthwatch,” The Hill, 1/21).

    Source: John & Rusty Report via Choice Admin

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