Straight talk on health care reform: The Supreme Court and the individual mandate
Perhaps the most important decision regarding the Affordable Care Act (ACA) will be made over the next three months. That decision by the Supreme Court will address the constitutionality of the most controversial provision of the law, the minimum-coverage provision, also known as the individual mandate.
When opponents of health reform call it a government takeover, the individual mandate is the lead talking point. So it is especially important to understand what this provision would do, who would be affected by it, how it would be enforced and why Congress put it in the health care law in the first place.
We'll start with an important point: The mandate does not apply to the millions of Americans who have private or employer-sponsored health insurance.
However, most American citizens and legal residents who do not have insurance will be compelled to purchase a minimum level of health insurance coverage from a private insurance company, or pay a tax penalty. (The mandate does not apply to undocumented immigrants.) This provision will take effect on Jan. 1, 2014. Initially, the penalty for not purchasing coverage will $95 per adult, $285 per family, or 1 percent of family income, whichever is greater. Beginning in 2016, the penalty will be increased to $695 per individual, $2,085 per family or 2.5 percent of family income, whichever is greater. (1) Even at its maximum, the penalty may be less than the cost of purchasing insurance. (Mandate in chart form.)
While it may seem like a technical distinction, the mandate does not force Americans to purchase health insurance. And if they want to pay out of pocket for medical treatment, they can do so.
What the mandate really does is offer voluntarily uninsured Americans a choice.
Those who choose to stay out of the health insurance risk pool could potentially incur significant medical costs that will be passed on to others. The tax penalties are a method of recovering some of those costs; they are collected in anticipation of medical expenses because, in many cases, people may not have enough money to cover extensive medical care.
On the other hand, those who choose to be part of the risk pool will not incur costs that are passed on to the rest of us.
The law allows for a number of exemptions. If your income is under the federal income tax filing threshold (these amounts are adjusted annually, but for tax year 2011, the threshold for taxpayers under age 65 is $9,500 for individuals and $19,000 for couples), you are exempt from the mandate. (2) If the price of the lowest-cost plan is more than 8 percent of your annual income, you are exempt. Exemptions are also allowed for financial hardship, religious objections, Native Americans, military families or persons living overseas, persons who have been without coverage for less than three months, persons enrolled in Medicare or Medicaid, or, again, those who already have insurance. Given the non-punitive nature of the penalty and these exemptions, the mandate is largely directed toward those Americans who are most able to afford insurance coverage but simply choose to go without.
If you do not qualify for any of the exemptions and choose not to purchase minimum coverage, you will be required to pay the tax penalty. If you choose not to pay the penalty, you will receive a notice from the IRS. If that notice is ignored, the IRS can collect the penalty by reducing the amount of your future tax refund.However, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty, and no federal agency can file a notice of lien or levy on any property. (3) In Colorado, an estimated 88,000 people are expected to remain uninsured by 2016, even though they are subject to the mandate. (4)
The individual mandate is not a radical new idea imposed by the Affordable Care Act. It has been discussed and debated for more than 20 years.The concept was first introduced in 1989 and was included in five pieces of national legislation introduced between 1993 and 2009. (5) Many of these initiatives had the support of both Republicans and Democrats in Congress. An individual mandate was implemented in Massachusetts in 2006, and it has been in operation for more than five years. The bipartisan Colorado Blue Ribbon Commission on Health Care Reform recommended an individual mandate in January 2008.
As with these past proposals, the policy reasons for including a minimum-coverage provision in the ACA are both essential and compelling. This provision builds upon the existing private and employer-based health insurance system and does not require a fundamental restructuring of the health care market. It is also critical to increasing the number of insured Americans, as well as adding millions of new Americans to the health insurance market. Increased access to coverage will improve financial security for families by reducing bankruptcies related to medical expenses.
By reducing the number of uninsured, the mandate will also significantly reduce cost shifting. In 2008, the uninsured were unable to pay for about 63 percent of the cost of their treatment. That meant that some $43 billion in uncompensated costs were passed on to insurers, who in turn passed them on to customers. (6)
The minimum-coverage provision will help create more effective health insurance markets. It does so by making it possible to implement new coverage reforms such as guaranteed provision of coverage, the elimination of pre-existing condition exclusions, the elimination of coverage rescissions because of health status and the elimination of annual and lifetime benefit caps. These new reforms will significantly reduce the amount of underwriting that is needed, which will reduce administrative costs.
Finally, without expanding the health insurance risk pool to include healthier individuals, premium costs would certainly rise and would likely become unaffordable over time. Seven states have tried to implement guaranteed provision of coverage without a mandate, and none was successful. In every case, premium costs increased at an unacceptable rate. Without the mandate, many of the most popular and needed reforms of the Affordable Care Act will be very difficult to implement.
The Supreme Court will hear oral arguments on the constitutionality of the individual mandate and other provisions of the Affordable Care Act on March 26, 27 and 28, with the final ruling to be delivered the last week of June. In future Straight Talk emails, we will look at the legal and policy arguments both for and against the mandate.
1) FY2012-13 JBC Staff Budget Briefing, Dec. 15, 2011, page 43.
2) Kaiser family Foundation, Summary of the New Health Reform Law, page 1.
3) Congressional Research Service, Private Health Insurance Provisions in PPACA (P.L. 111-148), April 15, 2010, page 7.
4) Jonathan Gruber, presentation to COHBE Board of Directors, Sept. 16, 2011, Figure 15.
5) History of the Individual Health Insurance Mandate, 1989-2010, Republican Origins of Democratic Health Care Provision, Health Care Reform, ProCon.org, Feb. 9, 2012.
6) Families USA, Hidden Health Tax: Americans Pay a Premium (2009), pages 7-8.