By DAVID NATHER | 3/1/11 4:25 AM EST
Forget all the shouting you’ve heard about the new mandate to buy health coverage. Forget the lawsuits, the cries of “Big Government” from Republicans and the Democrats’ claims that the new health care law would fall apart without it.
What if it just plain doesn’t work?
That’s a real possibility, according to health care economists and analysts across the political spectrum. They’re warning that the penalties in the law are actually so low — despite all the protests they’re causing — that a lot of people may decide it’s cheaper to pay the fines than to buy coverage.
If that happens, the “individual mandate” might not bring in enough healthy, uninsured people to cover the costs of sicker people and keep everyone’s insurance premiums stable. And those goals are the whole point of including the mandate in the law in the first place.
It’s not a topic that has gotten a lot of attention, except in quiet conversations in Washington health policy circles. And you won’t hear much about it as long as the focus is on the state lawsuits, the GOP attempts to repeal or defund the law and the Obama administration’s insistence that Americans have a responsibility to get health coverage.
But some of those who have looked at the law closely believe there’s a good chance that, when the mandate begins in 2014, it will still be more expensive to buy health insurance than to stay uninsured and pay the tax penalty. That means the law won’t work as designed to cut health care costs. Since everyone with pre-existing conditions can get coverage starting that year, insurers will need healthy people to pay premiums to help cover their costs. If the mandate doesn’t bring enough of them into the system, premiums could shoot sky-high for everyone else.
A failed mandate would mean that Republicans and other opponents of the law have spent a lot of time and money fighting a requirement that has no real power. It would also mean that President Barack Obama and congressional Democrats are spending a lot of political capital defending an unpopular mandate that won’t even do what it’s supposed to do.
“The mandate is a disaster politically,” said Robert Laszewski, a health care consultant who has written about its weaknesses. “It doesn’t work politically. It might not work constitutionally. And it sure doesn’t work in terms of preserving the integrity of the health insurance market.”
The problem becomes clear when you do the math.
Under the law, the penalty for not having coverage is phased in. When it starts in 2014, the penalty will be $95 or 1 percent of an individual’s income, whichever is greater. And when it’s fully in place, starting in 2016, it will cost either $695 or 2.5 percent of income.
What does that mean in real terms? A family making $55,125 a year — 250 percent of the federal poverty line — would face a $1,378 fine if it didn’t have health insurance (that’s 2.5 percent of its income). But it could pay up to $4,438 in premiums if it bought health insurance. And that’s after the tax credits the law would give it to make the insurance cheaper.
Critics on the right, including analysts at the conservative Heritage Foundation, have pointed out the problem. But so have analysts on the left, including Paul Starr, co-editor of the liberal American Prospect. Uwe Reinhardt, a respected health care economist at Princeton University, has written that the penalties are so low that young and healthy people might just decide to pay the fine.
“Where are the incentives? The incentives are going to be for millions of Americans to go bare,” said Robert Moffit, a senior fellow at The Heritage Foundation. “You can save thousands of dollars each year. Why would you be insured?”
Not everyone sees it that way. Administration officials point out that the Congressional Budget Office decided the mandate was strong enough that 94 percent of Americans will end up with health coverage, compared with 83 percent now.
That’s only a bit lower than Massachusetts, 98 percent of whose residents have health insurance — and with a weaker individual mandate than the federal law, according to Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University.
Massachusetts might not be a good model to predict how the rest of the country would react to the mandate, though, because it started with higher health coverage rates than red states such as Texas and its political climate might have been more receptive to an individual mandate, Nichols said.
There are other reasons the federal mandate’s weaknesses might not decide its fate. For one thing, it’s not clear how many Americans will actually whip out their calculators, figure out what 2.5 percent of their income is and decide that health insurance is more expensive.
And some health care analysts argue that most people will make their decision based on a gut feeling — how much is health care worth to them at that moment — rather than weighing all factors in a completely rational way. “People could save money by not buying health insurance even with the individual mandate. That much is clear,” said David Kendall, a senior fellow at Third Way, a centrist Democratic think tank. But “if purchasing health insurance was an entirely rational exercise,” Kendall said, “we wouldn’t need to require people to buy it.”
Finally, some analysts say the generosity of the tax credits to help people buy insurance — rather than the mandate itself — will push people to go ahead and buy coverage.
“The subsidies are more important than the mandate by far,” said Gary Claxton, director of the Health Care Marketplace Project at the Henry J. Kaiser Family Foundation. “Given that most people want to have health insurance, and the subsides are pretty good, there’s already a pretty strong incentive to get coverage.” The mandate, he said, is just “another impetus that pushes you over the top.”