ACA penalty is dead, and it may not matter

Fine for not getting insurance was considered too small by analysts

The penalty for not having health insurance — the most controversial and unpopular part of the Affordable Care Act — is dead.

Yet it may no longer matter.

“From a practical matter, it won’t have much of an impact,” said Marty Anderson, chief marketing officer for Security Health Plan, an affiliate of Marshfield Clinic.

The penalty was repealed as part of the tax reform and tax cut that was signed into law Dec. 22 by President Donald Trump. The change goes into effect in 2019.

The fine is a minimum of $695 for an adult or 2.5% of income, above the federal tax filing threshold of roughly $10,650 for one person.

It was considered too small by many policy analysts and was far less effective than projected.

“Certainly I would prefer to keep it in place,” said Cathy Mahaffey, chief executive officer of Common Ground Healthcare Cooperative in Brookfield. “But I really do think the impact of repealing the penalty will be minimal.”

The decision to buy health insurance has instead been influenced more by the cost, whether people receive federal subsidies and whether people value health insurance.

Having a value for health insurance — more than the penalty — has driven enrollment, said Coreen Dicus-Johnson, president and chief executive of Network Health.

More than 40% of Network Health’s members, for instance, are 50 or older.

In addition, most of the people who have bought health insurance on the marketplaces set up through the Affordable Care Act receive federal subsidies to help offset the costs.

As of February, 83% of the 216,355 people in Wisconsin who bought health plans on the marketplaces received subsidies that cap the total cost to a percent of income, according to the Kaiser Family Foundation. And 51% of the total received additional subsidies to help offset deductibles and other out-ofpocket expenses.

They have a strong incentive to continue buying health insurance, even without the penalty, for the simple reason that they are getting a good deal.

“The penalty and mandate is not as big a driver as the subsidies,” said Anderson of Security Health.

The marketplaces account for roughly 40% to 50% of the market for health insurance sold directly to individuals and families as opposed to getting coverage through an employer.

Ending the penalty could have a bigger effect on that segment of the market. And the health insurance executives agreed that a weak penalty was better than no penalty at all.

The mandate to have health insurance or pay a penalty is tied to one of the most popular provisions: requiring health insurers to cover people with pre-existing health problems.

The penalty was designed to prod healthy people to buy health insurance to help offset the cost of covering people with health problems and to discourage people from waiting until they were sick before buying health insurance.

But if people were going to be required to buy health insurance, the cost would need to be subsidized for people with low incomes who could not afford insurance on their own.

That was the underlying idea, and it didn’t work as well it was intended.

Insurers ended up covering too many people with high medical bills and not enough healthy people — in part because a disproportionate share of the costs were allocated to people who are young, and the subsidies in past years were considered too small for people with middle-class incomes.

“You have to have carrots and sticks that keep people in the market,” William Custer, who oversees the Center for Health Services Research at Georgia State University, said this summer. “And one of the criticisms of the Affordable Care Act from the insurers is those carrots and sticks weren’t powerful enough.”

Without a strong penalty, some people have had the option of waiting until they need medical care before buying health insurance.

Mahaffey of Common Ground Healthcare Cooperative cited the example of someone who has a torn meniscus, a common knee injury.

He or she can wait until the open enrollment period to buy insurance, pay the higher premiums, have the surgery, go through rehabilitation — and then drop the coverage.

Instead of paying a penalty each year, he or she would only have to pay higher premiums for several months.

“That is not going to work for insurance companies,” Mahaffey said.

Not having any penalty will make it easier — or at least less costly — to game the system.

The Affordable Care Act allows a 90day grace period for people to pay back premiums and be re-enrolled in a health plan. That enables someone to stop paying their monthly premiums in November, knowing that if something happens, they still can get coverage.

“If they don’t, they just saved themselves three months of premiums,” Mahaffey said.

Common Ground Healthcare Cooperative sees a drop in its membership near the end of the year.

The Obama administration also was criticized by health insurers for its lax enforcement of the mandate and for allowing too many people to sign up for coverage through special enrollment periods.

CBO projections

Wisconsin health insurers’ take on the penalty conflicts with projections of the Congressional Budget Office.

The CBO projected that the repeal of the penalty would result in 4 million more uninsured by 2019 and 13 million more by 2027, Timothy Jost, an emeritus professor at Washington and Lee University School of Law, wrote in a blog post for the journal Health Affairs.

It also projected that premiums would increase by 10%.

However, its projections also assume that fewer people will sign up for coverage through Medicaid, which has no or minimal cost, without a penalty.

The CBO was overly optimistic on the effectiveness of the mandate when the Affordable Care Act was passed. And it reportedly is reassessing the model it uses for projecting insurance coverage.

The CBO projected that the repeal of the penalty would reduce expenditures by $318 billion over 10 years because fewer people would receive subsidies or get coverage through Medicaid.

If Wisconsin health insurers are right and ending the penalty has relatively little effect on the market, the savings to the federal government could be less than projected — and the projected increase in federal budget deficits from the tax cut could be larger over the next decade.