Connecticut is considering a proposal to create a super-charged individual mandate — one that could charge state residents a big chunk of their income for not carrying coverage.
The plan would raise the fine for not carrying coverage from 2.5 percent of income (the fine under Obamacare) to as high as 9.6 percent for the highest earners.
A Yale economist first proposed the idea in February. Now, some of these fees have worked their way into a bill pending with the Connecticut legislature. It comes at a moment when states that support Obamacare are grappling with how to deal with the fallout of Republicans repealing the federal requirement to carry health coverage.
Maryland was first out of the gate with its own unique twist on the individual mandate. Now, Connecticut is exploring much steeper fines — meant to encourage those without insurance to enroll in a plan instead.
“Connecticut currently has 120,000 people in the marketplace and 60,000 who pay a fee to the IRS instead of buying health insurance,” says Fiona Scott-Morton, a health economist at Yale University who is the author of this new plan. “That is partially because the fee is so low.”
Under the Affordable Care Act, uninsured Americans could face a penalty of $695 or 2.5 percent of their income (whichever is larger) for not carrying health insurance. This was in line with similar penalties that Massachusetts pioneered in its 2006 health care overhaul.
The Obamacare penalities were meant to nudge those on the fence about purchasing coverage into buying a plan. But, for many, it was often cheaper to pay the penalty instead of enrolling in coverage — leading to a critique from health economists that the mandate was a weak incentive.
Enter Scott-Morton’s plan: She proposes making the penalty for not buying health insurance the exact same price of enrolling in a plan. In this scenario, there would be little point in going uninsured — for the exact same money, someone could enroll in health insurance instead.
Understanding how this would work requires understanding the structure of the Affordable Care Act’s premium structures — so let’s dive into that part of the law for a moment.
Right now, the Affordable Care Act has income-based limits for how much someone needs to spend on premiums for a mid-level insurance plan, before subsidies kick in. A family of four that earns $50,200 (200 percent of the poverty line) is only expected to spend about 4 percent of their income (roughly $2,000) on premiums — the federal government covers the rest. A family that earns $75,300 (300 percent of the poverty line) is expected to spend 9.66 percent of their income on premiums (about $7,273).
Scott-Morton suggests an individual mandate that is set the exact same way: that family at 200 percent of the poverty line would be expected to spend 4 percent of their income on premiums for a mid-level plan, or they would have to pay 4 percent of their income as a fine for not carrying health insurance coverage.
”You’re going to pay [4 percent] to get nothing, or get health insurance,” Scott-Morton says. “So it’s a pretty simple decision for people who are subsidized.”
Obamacare’s subsidies do eventually cap out for higher-income Americans. People who earn more than 400 percent of the poverty line (about $100,000 for a family of four) get no help from the government — they have to pay their entire premium out-of-pocket.
Those people would, under Scott-Morton’s proposal, have two options. The first would be paying a very large fine, one equivalent to 9.66 percent of their income or $10,000, whichever is smaller.
The second is a pretty novel idea: These people could choose to remain uninsured but contribute the same amount of money to a tax-advantaged Health Savings Account rather than paying a fine to the government. Scott-Morton walked me through what this might look like for a family of four that earns $110,000 — just slightly too much to qualify for federal help.
”This is the trickiest group because a family plan for them might cost $18,000, which is about 18 percent of their income,” she says.”This plan says, you have to put some money in an HSA, about $9,000 [roughly 9 percent of income]. That’s a big amount, 9 percent of income, but then you have $9,000 in this HSA. You can get vaccines, you can take your kid to the doctor if you need to.
”That would let people access the health care system in a routine way.”
Scott-Morton’s ideas have ended up in a new bill pending in front of the Connecticut legislature, House Bill 5379, which you can read right here.
Does a super-charged mandate have a chance at becoming law in Connecticut?
Policy-wise, it isn’t a huge lift to use different-sized penalty fees for a state-level individual mandate.
Changing the size of the penalty is “the kind of thing that is not too hard, from the standpoint of, ‘Is it workable to get there quickly?’” says Jason Levitis, a senior fellow at the Yale Law School Solomon Center for Health Policy. He previously worked on ACA implementation for the Obama administration. “It’s not something that insurance companies need to take into account in designing their plans. It’s all done by calculation in tax software.”
Adding in the new health savings account provision — which doesn’t show up in the ACA — might be a bit trickier. But the biggest hurdle may be the politics of a really big mandate penalty, one that could rise up to nearly 10 percent of income, or $10,000. It’s really hard for me to imagine that type of fee ever being discussed at the national level. But whether it could happen in a deep-blue state — one that clearly supports the Affordable Care Act — is a different question.
”Given that the whole ACA has gotten more popular over time, maybe you can sell this — but the mandate is still not the most popular piece,” says Levitis. “Are you going to be able to sell a larger penalty? I think that will be a lift, and depends on the politics of the state.”
I don’t know Connecticut politics well enough to know whether it is the type of state that could get on board with this kind of plan (but if you do, shoot me an email!).
It is worth noting that there is a second, competing bill offered by Connecticut Gov. Dannel Malloy that would replace the individual mandate with even lower fees than the federal government historically charged — essentially moving in the opposite direction of Scott-Morton’s idea. Connecticut’s legislative session runs through mid-May, so they do have a few months to sort out where they want to land between these two different proposals.
Connecticut doesn’t have to go all the way to a really big penalty either. Scott-Morton put these numbers in her original draft, but says she could see slightly smaller fines working in Connecticut — anything larger than the penalities in the original law would do more work to push those 60,000 Connecticut residents paying the penalty to sign up for coverage instead.
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