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The Undecided: A Closer Look at the Decision To Enroll

Fewer than two weeks remain in the initial open enrollment period for the Affordable Care Act’s health insurance exchanges, and the Obama administration is nearing the Congressional Budget Office’s enrollment projection of six million. What’s keeping procrastinators from signing up? Perhaps they’re still questioning whether it makes more sense to enroll in coverage or just pay the penalty for not complying with the law’s individual mandate.

According to a recent Gallup poll, uninsured U.S. residents remain fairly evenly split on the issue. The poll found that 55% of the uninsured plan to purchase coverage this year and a significant minority (37%) will likely opt to pay the penalty.

Obviously, individuals’ personal politics come into play when deciding whether to comply with the ACA’s individual mandate. However, for many others — particularly young adults — the decision comes to down a purely financial one. This edition of “Road to Reform” explores the factors behind the decision.

How Much Is the Penalty?

There’s been much attention paid to how much individuals will pay for not complying with the individual mandate. Many people believe it’s a simple $95 fee. The reality, however, is far more complex.

One way to find out how much the penalty would be for different individuals is to consult the ACA Tax Penalty Calculator from the Urban Institute and the Brookings Institution. In 2014, the penalty is the greater of either 1% of a person’s taxable income or $95 per adult and $47.50 per child up to a maximum of $285 per family.

The penalty increases to 2% of income in 2015 and 2.5% in 2016 and beyond. At the same time, the dollar penalty rises to:

  • $325 per adult and $162.50 per child, with a maximum fine of $975 per family, in 2015; and
  • $695 per adults and $347.50 per child, with a max of $2,085 per family, in 2016.

It is indexed to inflation beyond 2016.

What few consumers seem to know is that the penalty amount is capped at the average cost of a bronze level health plan in the health insurance exchanges. According to the calculator, the cap would be $3,600 per adult plus $1,900 per child in 2014.

For an example, we’ve chosen, at random, our test case: a single, childless 27-year-old Manheim, Pa., resident with an annual income of $35,000 in 2014 (and who receives 3% annual raises). The 27-year-old would pay:

  • $249 in 2014;
  • $515 in 2015; and
  • $665 in 2016.

How Much Are Premiums?

Premiums for plans through the health insurance exchanges vary widely, depending on various factors, including age (to an extent), geographic location, insurer competition and whether a person smokes. Further complicating the calculation is that the federal government offers subsidies to help U.S. residents with annual incomes of up to 400% of federal poverty level.

We used the Kaiser Family Foundation’s ACA Subsidy Calculator to discover that our 27-year-old exemplar — with a $35,000 annual salary — would pay an annual premium of $1,920 for a silver-level plan through the federal health insurance exchange and would not receive a subsidy. The plan covers about 70% of health costs and features a deductible in the $3,000 range, though that can vary plan to plan.

Why Someone Wouldn’t Get Coverage

Although the cost of the individual mandate penalty is far lower than the cost of coverage — oftentimes even when the subsidies are factored in and even after the penalties increase in the coming years — deciding not to get coverage is far more complex than looking at just those two factors.

Another reason why an individual might opt out of health insurance is a previous history of no or few health care expenses. In 2010, for instance, about one-quarter of people ages 18 to 44 had no medical care expenses, according to HHS’ Agency for Healthcare Research and Quality’s Medical Expenditure Panel Survey. Further, half the population in that age group spends less than $875 annually.

Meanwhile, the National Institute for Health Care Management indicates in a July 2011 data brief that 15.6% of the “civilian, non-institutionalized population” had no health care expenses, according to the 2008 Medical Expenditure Panel Survey.

Why Someone Would Get Coverage

Looking the issue from a purely financial standpoint, as above, it would seem that many of the people with histories of low or no medical expenses would choose to forgo coverage altogether. However, it is impossible to predict whether someone will have no health care expenses. Insurance in any form is about mitigating risk, protecting oneself from bills that could lead to bankruptcy.

Calculating the chances that one will encounter large enough medical bills to justify purchasing coverage is not just about the black and white numbers. Austin Frakt — a health care economist, associate professor at Boston University and creator, co-manager and primary author of The Incidental Economist — tells California Healthline that while people should factor in the probability of encountering those costs, they should also “look at … the size of the risk.” He adds, “Risk is not about the average. Risk is about getting the sense of the distribution, thinking about everything, including the worst case.”

The “worst case” is perhaps the best argument for purchasing coverage. Take, for instance, Steven Brill’s eye-opening look at medical expenses from last April’s Time. In it, Brill chronicles how a single tablet of Tylenol can cost $1.50 when “you can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power,” or another case where a patient is charged $77 for each of the four boxes of gauze used in his care.

With prices like that for seemingly small items, the charges for more complex procedures — like setting a broken arm or treating a burst appendix, which are not uncommon among young adults — escalate quickly. Frakt says, “With some probability, there’s a chance of expenditures of $10,000, $50,000, $100,000.”

Costs like that are a sure-fire path to serious economic hardship. With an estimated 1.7 million living in households in 2013 that will declare bankruptcy because of an inability to pay medical bills, protecting against that hardship seems to make sense.

Even opponents of the ACA acknowledge that getting coverage is important. For example, Generation Opportunity (remember those “Creepy Uncle Sam” ads?) has been aggressive in urging young adults to opt out of the health insurance exchanges, but the group doesn’t want young adults to opt out of health coverage altogether.

In a statement on its website, GenOpp, as it is called now, says young adults should “instead find alternatives outside of the exchanges that are safer, cheaper, and more appropriate.” GenOpp encourages young adults to find “plans that offer competitive prices and services so all may have access to health care insurance that best suits their individual needs,” adding, “We simply know a bad deal when we see one, and Obamacare is just that.”

Will the Stragglers Get Coverage?

Put simply, there is no easy answer as to whether someone will purchase health insurance. For the significant portion of young adults who will have no annual health care expenses, it’s hard to justify spending thousands of dollars of a limited budget for coverage. However, it’s also hard to justify taking the risk that a sizable hospital bill — and quite possibly financial insolvency — could be a coin flip away.

Around the nation

Here’s a look at what else is making news on the road to reform.

Bash away: TIME notes that although Republicans as of late have begun discussing an alternative to the ACA, GOP pollsters insist that the party’s best strategy — at least in terms of winning elections — is to continue to criticize the law.

What do those numbers mean? Paul Waldman, writing for the Washington Post‘s “The Plum Line,” takes a deeper look at the exchange enrollment figures the Obama administration announced on Monday.

Vamanos, vendor: The Springfield Republican chronicles the divorce between Massachusetts’ state-based exchange — the Massachusetts Health Connector — and CGI, the vendor that built the Connector website.

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