When former President Obama pitched his idea for the Affordable Care Act (ACA) to insurance companies in an attempt to get those companies to offer plans on the federal and state marketplaces, he understood that widespread participation was critical. In order for something like the ACA to be successful, it needed healthy young customers to sign up for coverage to offset the cost of care for older people or those with pre-existing conditions, who typically need more care. The more people who bought into the marketplace, the lower premiums and costs would be.
In an effort to ensure that there would be plenty of enrollees in the new nationwide risk pool, the ACA included a provision that forced just about everyone to have health insurance. Right now under the law, if you don’t have coverage, then you’re subject to a penalty come tax time. It’s called the individual mandate, and it’s been hotly contested – by people all along the political spectrum – since it was introduced.
As Donald Trump campaigned to be president, he promised to demolish Obamacare, including the individual mandate. Just recently, President Trump signed an executive order that may prove to be the killing order for the law itself, since it effectively gives government agencies the ability to choose how they implement certain provisions of the ACA. How will the penalty change under Trump? Let’s take a look.
Penalties for 2017
In 2017, the penalty for not having health insurance is either $695 per adult and $347.50 per child, per household, or 2.5 percent of your household’s taxable income, whichever is greater. There’s a cap of $2,085 per household regardless of how much you owe. For families who count on a tax refund each year, the penalty can take a big bite out of that refund. If you already owe taxes, the addition of a health insurance tax penalty can be especially brutal.
While the penalties sound harsh, they don’t quite stack up against the cost of buying coverage for most people. The average monthly premium for a single consumer buying the least expensive plan from an ACA marketplace insurer is $311.17, which makes the annual cost $3,734.04. That average premium represents a 21 percent increase over the premium for the same policy in 2016.
The average deductible for a single individual using the least expensive plan for 2017 is $6,092. That means that a single person has two options: pay a penalty of just under $700 (for most people), or health insurance premiums plus a deductible that total nearly $9,900 for the year before an insurer kicks in its portion for care. This disparity in costs is one of the reasons why so many young and healthy people are choosing to not buy insurance and pay the individual mandate instead. Of course, these numbers don’t take into account the benefit of having health insurance, but from a purely numbers-based argument, it’s easy to see why the mandate hasn’t been effective so far.
Not everyone pays the mandate, either. People who fall below a certain income level, those who have had financial hardships throughout the year and people who have had devastating personal issues during the calendar year may be exempt from the individual mandate.
Obamacare remains the law of the land at the time of this writing, which means that the individual mandate is still in place. If you don’t enroll in an ACA-compliant major medical plan by January 31, then you may owe money to the government when you file your taxes next April. To avoid the risk and get yourself covered, it’s time to sign up if you haven’t already.
Trump’s Plans for the Mandate
President Trump has indicated that he will take the necessary steps to repeal the individual mandate as soon as possible, further explaining that he hopes to have the mandate removed for the 2016 tax year filings that are due next year. For President Trump, only a full repeal of the individual and employer mandate will suffice, and that stance has gained him a large number of supporters. But Trump may find out that while unpopular, the individual mandate serves a specific purpose.
Unraveling the ACA
The individual mandate is designed to keep costs down because it encourages – or would encourage, if it were high enough – young and healthy people to buy health insurance. Without the mandate, coverage for people with pre-existing conditions might revert back to pre-ACA standards, including high-risk pools and astronomical costs.
Insurance companies across the country are afraid that getting rid of the individual mandate will cause a lot of young and healthy people to opt out of buying insurance until they really need it. Since Trump has said that he wanted to still make it illegal for companies to deny coverage to people with pre-existing conditions, young people who suddenly experience a health crisis could very easily buy insurance whenever they needed it instead of having it throughout the year.
President Trump cannot repeal any part of the ACA by executive order alone. He must run all of his repeal actions through Congress, and he may have a hard time getting the two-thirds majority he needs for full repeal. But as more insurance companies express concern about losing the individual mandate, more members of Congress are starting to have doubts about a full repeal. Remember that the mandate funding is divided up among the insurance companies to help offset losses. If that money disappears, then more insurance companies might get out of the marketplace altogether.
Signing away the individual mandate is easy enough, but practically speaking, an executive order leaves a lot of questions on the table. If Trump and Republicans in Congress fail to come up with an adequate replacement plan as they chip away at the ACA, the healthcare system in America could start to crumble once more.
Other Repeal Problem
The other issue President Trump may have in repealing the individual mandate is that there is strong evidence to support the idea that the mandate works. Between 2014 and 2015, the number of people under the age of 35 who purchased insurance on the ACA marketplace grew from 670,000 to 980,000. Poll numbers generated by the polling company PerryUndem shows that the individual mandate is becoming more effective on consumers aged 18 to 29, which is a targeted demographic for the healthcare law.
Trump campaigned under the promise that he would repeal the ACA in its entirety. This message resonated with a lot of voters, especially those who felt that being fined for not having health insurance was antithetical to being American. But since the Supreme Court ruled that the individual mandate was constitutional, the penalty was put into effect despite widespread opposition to this particular feature of the law.
But as President Trump starts to address the issue of repealing the individual mandate, he’s getting a lot of feedback from the insurance industry. Many insurance carriers say that the individual mandate is holding the ACA together, and there is plenty of data to suggest that the individual mandate is working. Since Trump has not indicated whether he has any kind of replacement ideas for the individual mandate, it’s unclear how he will address the problems with repealing it.