How the penalties will work

by on December 22, 2009 at 4:31 am in Medicine | Permalink

This has changed a number of times and I've been wondering where it was at.  Ezra Klein now reports:

If you don't have employer-based coverage, Medicare, Medicaid, or anything else, and premiums won't cost more than 8 percent of your monthly income, and you refuse to purchase insurance, at that point, you will be assessed a penalty of up to 2 percent of your annual income. In return for that, you get guaranteed treatment at hospitals and an insurance system that allows you to purchase full coverage the moment you decide you actually need it. In the current system, if you don't buy insurance, and then find you need it, you'll likely never be able to buy insurance again. There's a very good case to be made, in fact, that paying the 2 percent penalty is the best deal in the bill.

1 Andrew December 22, 2009 at 6:06 am

Oh thank God! It’s a great deal. I was worried they were just trying to f#@& us.

“Moreover, it’s simply not true, as Ross says, that the people paying the $750 individual mandate penalty get nothing in return. Far from it, in fact. For one thing, they get access to emergency care, as happens now.”

That’s funny stuff.

2 Andrew December 22, 2009 at 6:14 am

“Having chosen not to buy insurance when they didn’t need care, they can’t buy it now that they do need care. They become the priced out or, in some cases, locked out.”

I just don’t understand why the fact that these people don’t know what they are talking about isn’t good enough reason to send them packing.

Being priced out of the insurance market is not about the people who free ride. It is about the healthy people who can’t afford to pay for the free riders to get the same level of care as the people willing to pay and plan ahead for their care.

And, they wouldn’t have to without the government mandate to give free care to the free riders, but Ezra et. al. can’t get this straight in their minds.

If the penalized got their money back or could sign a waiver to pay a penalty rate when they need emergency service, this would actually be a move in the right direction. But, some blind squirrels can’t even recognize their nuts when they find them.

3 superdestroyer December 22, 2009 at 7:02 am

I wonder how quickly a market for fake insurance documents will be created so that people can get out of paying the 2%. Look at the problems that states that require car insurance have had with fake documents. You can be sure that such a market for fake health care credentials will develop.

4 dearieme December 22, 2009 at 8:06 am

“There’s a very good case to be made, in fact, that paying the 2 percent penalty is the best deal in the bill.” For whom?

5 Allan December 22, 2009 at 8:36 am

What is described, it seems, is a backdoor to a single-payer system…

6 libert December 22, 2009 at 8:41 am

Personally, I have a cheap plan that costs less than 2% of my income, but covers more than the so-called “2% plan.” So no, I don’t plan on dropping my health insurance. The penalty is high for me, but maybe it isn’t high enough for others.

7 Noah Yetter December 22, 2009 at 9:38 am

My insurance premiums for myself and my wife are about 2% of my income now (for a fairly generous plan). My non-dental medical expenses for 2009 are zero. So for now keeping the insurance is a better deal, but if I lost it for some reason and was stuck in the individual market, paying the penalty would be a no-brainer.

I’ve been hammering this point in blog comments for weeks. Yet still the supporters of these abominations-of-law continue to believe that the mandate will solve the free-rider problem. It will not, and guaranteed issue will make that problem much, much worse.

8 Allison December 22, 2009 at 9:48 am

Again, we have an HSA: we pay 12k a year for the privilege of paying 5k more before one dime is covered.

That 17k is more than 10% of our income.

If I weren’t still in childbearing years and interested in more children, it would be a no brainer to punt that insurance now. But each year that I have a child I have a C-section, and that costs (after they negotiate) 20k. So it basically balances out in years where I have a child.

Paying the penalty will be the obvious thing to do in every other situation, and signing up for insurance only when pregnant (which of course I cannot do now through individual insurance–pregnancy is not covered without a 12 month window) will be prudent thing to do.

But honestly, if this were just about the money people wouldn’t be so angry. It’s about power.

9 Johnson85 December 22, 2009 at 10:24 am

My insurance cost over 10% of my salary and is much greater than 10% of most of the people I work with. Granted, I only pay directly ~3%, so it might take time for employers and employees to reach an agreement on splitting the savings from dropping the coverage, but unless I’m missing something, I can’t imagine who wouldn’t be better off paying the 2% penalty and getting insurance when they need it (at least until the whole system comes down).

10 Jay December 22, 2009 at 11:18 am

What are the CBO’s assumptions of the number of people that will pay the 2% penalty until they get sick, and then signing up for the government health care? How sensitive is the CBO cost/benefit analysis to this behavior? And if people do game the system in this way, will Obama stand at the pulpit and scold these people like he has the bankers?

11 Yancey Ward December 22, 2009 at 11:36 am

The penalty will ultimately have to be as large as the amount the person would have to spend out of pocket to purchase the mandated insurance. In other words, eventually, to plug the new hole being created, the government will have to institute a direct withholding/purchase of policies for recalcitrantly rational actors. As now envisioned, I would certainly game the system relentlessly, and I am certain many others would as well (not all, or even most of us are as completely clueless as pundits for The Washington Post), including those today purchasing individual policies.

12 ZBicyclist December 22, 2009 at 11:53 am

In the future, someone will make up a list of “Top 10 unintended consequences of the Health Care Reform bill of 2009”. There will be many candidates.

13 Random Professor December 22, 2009 at 12:07 pm

What’s the penalty for not paying the 2% penalty for not buying insurance? And how will it be enforced?

14 astonerii December 22, 2009 at 1:25 pm

A fee of 2% sounds like a good rate. How does it work for married couples and families, Still just 2%?

In reality, almost all health insurance should be catastrophic insurance. When you buy insurance, it should not be paying out for scheduled procedures. Car insurance does not replace tires, do oil changes, tune ups or any other scheduled maintenance. Just like home insurance does not cover painting, remodeling, lawn care or snow removal. The fact that health insurance has actually been turned into health maintenance coverage has led to a large proportion of the problems in the health care industry.

15 asg December 22, 2009 at 2:37 pm

I don’t understand the part about the minimum premium cost — does Klein mean that if your premiums WOULD exceed 8% of your income, you’re exempt from the penalty? Or that the whole thing just doesn’t apply and you’ll still be uncovered? I assume the former, but…

16 Michael Cain December 22, 2009 at 3:39 pm

So, you’re in an auto accident and taken to the emergency room, where they set the bones, stop the internal bleeding, and admit you to the hospital. Some days later you finish an application for insurance. 30 days after that you receive notice that you are covered. The insurance company says, “That $50K you racked up before the policy issued? Your problem, not ours.”

Not denying coverage because of pre-existing conditions would not seem to be the same thing as back-dating a policy to cover that kind of expenses.

17 mulp December 23, 2009 at 12:04 am

The 2% penalty raises the cost of going uninsured with the expectation of free government funded health care if the dice come up snake eyes.

And if too many people exploit 2% free ride, as the insurers are claiming is happening in Mass, then as in Mass, the penalty will be increased and a requirement to maintain health insurance after being forced by unaffordable medical expenses to buy it will be instituted.

If you hope the 2% payment to free ride is sustained, then you need to hope very few free riders actually incur medical bills they can pay out of pocket.

After all, if the free riders in today’s system weren’t costing all those carrying the load, the number of uninsured wouldn’t matter because everyone would get all the care they need by buying insurance or paying for it out of pocket, with the insurers setting premiums so that the poor could get the same coverage as the rich by figuring out how to charge them less, while charging the rich more.

18 DWAnderson December 23, 2009 at 3:12 am

I agree that Slocum has it right. I made the same point about two months ago here: http://www.willwilkinson.net/flybottle/2009/09/29/unholy-trinity/#comment-17797642

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