On Dec. 20, the new GOP tax bill signed into law repealed the individual mandate for the Affordable Care Act.
The individual mandate puts a tax penalty on individuals who do not have health insurance. For 2017, the penalty is $695 per adult, $347.50 per child, or 2.5 percent of household income, whichever is greater.
The major fear that comes with repeal of the individual mandate is that since there will be no penalties for being uninsured, healthy individuals would stop buying insurance and throw off the entire market. This would mean much higher premiums for those who do buy insurance and insurance companies would take losses due to fewer healthy people paying into the system.
Although this makes logical sense from an academic perspective, it’s far from what my observations have been on the ground level.
My prediction: not much is going to happen. Here’s why:
After getting my medical degree and unenchanted by the health care system we have in the U.S., I started a company helping retirees navigate the maze of Medicare. The reason for starting the company was Obamacare. Waves of patients started asking their doctors what plans to choose because of the Obamacare exchanges. A good portion of those individuals confused were older, so the company ultimately pivoted toward Medicare.
However, I first started to look at how we can better educate individuals about Obamacare. That’s when I realized there were intrinsic flaws in how Obamacare was set up.
As a provider, I believe everyone should have access to a basic level of care. Unfortunately, access to health insurance is not the same as access to health care.
Obamacare gave individuals better access to insurance. The removal of pre-existing conditions allowed individuals who were sick to sign up for health insurance. From a society perspective, I think it was a good thing. It allowed individuals with chronic conditions to receive help.
The downside for the system was utilization went up and hence costs. Also, Obamacare ultimately expanded subsidies and Medicaid, which pays a fraction of what even Medicare pays providers. This resulted in fewer providers accepting these new plans due to lower payments for sicker patients.
The original logic behind Obamacare was: more individuals having access to health insurance meant that the overall cost of insurance was supposed to go down, because now we had all these young, healthy individuals coming in to the system. Reality was just the opposite. Most states saw double-digit increases to individual premiums year after year.
The higher cost of administration, anticipated taxes to plans, as well as more mandatory coverage, resulted in skyrocketing prices. A good percentage of individuals signing up for health insurance really needed services.
On top of all this, the individual mandate was ineffective as the “stick” in motivating healthy individuals to sign up. It was pay a few hundred dollars a year to risk it or literally thousands of dollars to buy insurance with deductibles so high that medical emergencies were unaffordable anyway.
The penalty in 2014 was $95 per adult and $47.50 per child, up to $285 per family. Take that versus the average cost of health insurance without subsidies for a family of four: about $1,200 a month or approximately $14,000 per year. Even with the increased penalties for 2017, a family would have to make $576,000 a year before the 2.5 percent penalty would outweigh the cost of health insurance. That’s not including the cost of high deductibles and copays that come with almost all plans on the exchange. If someone’s making that kind of money, chances are they have a group plan through their company (which they probably own).
Therefore, sick individuals and folks with subsidies signed up and the healthy people with means did not. Out of the four years that we’ve been guiding individuals on Medicare, we have seen plenty of people under 65 who have Obamacare. Very rarely did we see someone sign up for health insurance to avoid the penalty.
The real reason healthy individuals who sign up for insurance is obvious: I’m healthy today, I don’t know what’s going to happen tomorrow. I’d rather know that I am protected against catastrophic bills.
Dr. Johnny Luo is president of Warwick-based Doctor’s Choice.
