Penalty for Not Getting Insured to Hit Tipping Point in 2016

The Affordable Care Act's individual mandate will reach a point when the price of a bronze plan will cost less than paying the penalty of not being insured for many Americans.

The Affordable Care Act (ACA) has always operated with a combination of carrots and sticks—subsidies for those with low incomes to make insurance more attractive, and penalties for those who chose to stay uninsured.

Come next year, that second part will hit a tipping point that may push many more into the ranks of the insured, according to an analysis published today by the Kaiser Family Foundation.

Under the ACA, the cost of staying uninsured rises each year; until now, for many, it could be argued it was cheaper to pay the tax than buy insurance. But that ends in 2016, when the tax hits a level at which it makes more sense to buy at least the cheapest plan on the federal exchange.

Kaiser found that the average penalty for remaining without coverage next year would be $969 per household, 47% higher than this year, when the average cost was estimated to be $661.

Those without insurance who meet the terms for ACA subsidies face an average penalty of $738 per household if they do not obtain health coverage next year, while those not eligible subsidies due to higher incomes would pay an average of $1450.

Penalties for failing to buy health coverage in 2016 are the greater of 2 amounts: a flat dollar amount of $695 per adult plus $347.50 per child, up to a $2085 per family, or 2.5% of family income in excess of 2015 income tax filing thresholds. Any penalties are capped at an amount equal to what the family would pay for a bronze plan, the minimum coverage under the ACA, which has the highest out-of-pocket expenses if one uses the coverage.

The Kaiser analysis found that the bronze plan would cost nothing in premium, or less than the penalty, for 3.5 million people who are currently uninsured but who are eligible for premium subsidies. Another 7.1 million people would pay more for a bronze plan than they would for the penalty.

Promotion of the individual mandate to get more people to sign up for coverage has been controversial, since separate Kaiser Health Tracking Poll found that it is the least popular part of the ACA. However, it is the part that is essential to making the law work because without the premiums paid by younger, healthier workers, health insurance would only be selected by those most likely to use it, creating a “death spiral” that would make it impossible to afford.