Is the mandate penalty large enough?

Reihan offers some discussion.  He also links to the Massachusetts page on penalties, for instance:

2009 tax penalties for adults above 300% of the federal poverty level are based on 1/2 the cost of the lowest-priced Commonwealth Choice plan.  They are:

  • $52 each month or $624 for an entire year for individuals aged 18-26.
  • $89 each month or $1068 for the year for individuals 27 or older.

Those are higher penalties than for the Obama plan, which doesn't go up to $695 for a few years (update: Austin Frakt offers more numbers here).  Still, media coverage may be a bigger issue than the size of the fee.  If national media run stories about people who avoid the mandate and prosper, the practice could spread.  Massachusetts media have not had the same power or influence.  Keep in mind also that "right-wing media" may promote this point for political reasons.

Plenty of people cheat on their taxes.  Plenty of people lied on their mortgage applications.  That all said, I don't know how people will react on this one.

How about businesses?  John Cassidy offers what seems to be the clincher:

Take a medium-sized firm that employs a hundred people earning $40,000 each–a private security firm based in Atlanta, say–and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.

This implies the current version of the plan won't work without stronger penalties.  In principle, I understand that it can be advantageous to dump many more people onto the exchanges, but not if so many of them end up getting such large subsidies.  Cassidy adds:

Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.

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