The Individual Mandate and Penalties

By now it is probably apparent to most critical thinkers that the reform law was a hastily constructed hodgepodge of largely academic ideas about what would make an ideal health system (and a poor second choice for most of them to a government-run single payer system) Legislators had no idea what was in the law they were voting on and no one considered various unintended consequences of such a complex effort.  One of the most controversial pieces was the individual mandate, the requirement that all Americans, with few exceptions, have health insurance, whether they thought they needed it or not.  This removal of choice seems odd, to say the least, in a free society, particularly when, unlike car insurance for example, not having health insurance has little direct impact on other members of society.  But rest assured, the ideologues who currently run our country know best and are fully capable of telling all of us how we should and must live every aspect of our lives.

Fortunately, ideologues are often also morons, largely because they are so sure of their own intelligence.  And the morons (excuse me, I mean ideologues) who wrote the health reform law did a spectacular job of writing the individual mandate.  That, coupled with the native shrewdness of the American people in evading idiotic government regulation, means that the penalty for not complying with the mandate is not sufficient to force individuals to comply, according to a recent Avalere report.   (Avalere Report)   The penalty is a fixed dollar amount or a percent of income, whichever is greater.  The IRS enforces it by requiring you to show on your tax return that you are covered by health insurance.  But the only way the agency can collect the penalty, if applicable, is by deducting it from a tax refund you might be owed.  (I have suggested before and suggest again that if you don’t want to get health insurance, make sure you don’t have a tax refund.  No reason to give the government an interest-free loan anyway.)  Looking at Avalere’s analysis, it is apparent that there is a wide gulf between the cost of health insurance and the penalty, for almost every one, even after subsidies that may be available.

Of course, part of why people aren’t eager to buy insurance, especially on the exchanges, is not only that the premiums are costly, but the coverage sucks.  You pay a lot for insurance and then you have a multi-thousand dollar deductible, high copays and maybe even coinsurance.  A person would be forgiven for asking themselves, why would I buy this lousy insurance?  It will be very interesting to observe over the next few years not only how many people don’t buy insurance, but how many who did in the first couple of years of the mandate, decide to drop it in future years.  Americans don’t like to buy things that prove to have little value.