Monday, March 24, 2014

What Individual Mandate? It is Looking More and More Like the Obama Administration Will Not Enforce the Individual Mandate

It looks to me the Obama administration will claim at least 6 million enrollments by the end of March. But that will mean 75% of subsidy eligible people will not have bought a plan.

Will the 2014 mandate to buy health insurance be enforced come tax time?

It sure doesn't look like it.

To be sure, the administration is not making any major announcements prior to the close of open enrollment on March 31 the better to get as many people to sign-up as possible.

When asked about waiving the individual mandate at a recent Congressional hearing, HHS Secretary Sebelius said, "That's what the law says and that is what will happen."

Well sort of.

A Treasury Department spokesperson (the IRS is charged with enforcing the mandate) said, "the rules are clear and taxpayers should be able to determine whether they had coverage for 2014, or if not, whether they owe a fee." But the spokesperson then pointed out the fee will be imposed only on those who don't have a valid exemption.

What's a valid exemption?

The administration just published a list of 14 valid exemptions with the first 13 including such things as having suffered from a flood or other disasters, the death of a close family member, and not finding an affordable alternative for a cancelled policy.

Then there is the 14th exemption: "Another hardship in obtaining health insurance." That is all number 14 says.

That's pretty broad. But, am I reading too much into this 14th exemption?

Here is what President Obama said last week when he was asked about the individual mandate in an interview with WebMD.com, "What I think is important for people to understand is that if, in fact, they still can't afford it, there is a hardship exemption in the law. That means they may not be subject to a penalty. The penalty really applies to folks who clearly can afford health insurance but are choosing not to get it."

Under Obamacare, a family of four making $59,000 a year is expected to pay almost $5,000 a year net of the federal premium subsidy (more than 10% of their take-home income) for the Silver Plan that has an average deductible of almost $2,600 a year, or pay a fine of about $400. How many families like this have an extra $5,000 in their family budget to buy a policy with a deductible this high? Would this be a hardship for them?

A family of four making $71,000 a year would be expected to pay $6,700 a year net of the subsidy for a plan with the same average $2,600 deductible, or pay a fine of about $600. Would this be a hardship for them?

An individual making $29,000 a year would have to pay as much as $193 per month for a plan with that average $2,600 deductible––more than 10% of his or her take-home income, or pay a fine of about $200. Would that be a hardship for them?

The fines would double in 2015.

It looks to me like the Obama administration is on the way to enrolling about 6 million people by the March 31 deadline. But adjusting that number for those not paying (15% to 20%), the real net enrollment number will be closer to 5 million.

The Kaiser Family Foundation has estimated that 17.2 million people are eligible to buy subsidized insurance in the exchanges. The most recent administration enrollment report says 83% of those who have enrolled in the exchanges got a subsidy. If the administration enrolls 5 million people who pay for their insurance and 83% of these have a subsidy, that means only about 4.2 million subsidy eligible people will have signed up and paid.

This would mean that less than 25% of the people who were eligible for a subsidy signed up for coverage and paid for it. That is far less than what will ultimately be needed for a sustainable pool.

But only 25% of the subsidy eligible signing up also means that 75% of the subsidy eligible did not sign-up.

There will be an election in November. Does this administration intend to go into that election getting ready to fine 75% of those who were eligible for a subsidy––about 13 million people––and didn't sign-up?

I will suggest that would create a political hardship for the Obama administration.

Will the Obama administration delay the individual mandate? I don't think they will.

Have they found a way not to enforce it? Looks that way to me.
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