Tag Archive: tax penalty

Concern arises over effectiveness of ACA’s individual risk pool integrity mechanisms

To restore the dysfunctional individual health insurance market, the Patient Protection and Affordable Care Act took risk pooling and medical underwriting away from health plan issuers and created single statewide individual risk pools. The law also put in place mechanisms to ensure the reforms work as intended.

Two of those mechanisms are designed to preserve the spread of risk in statewide individual risk pools and ward off adverse selection that crippled the pre-2014 market so the pools contain enough people who don’t use a lot of medical services to pay in premium dollars to cover the care of those who do. One such device is limiting enrollment in individual health plans to a set time of year to reduce churn and keep the pool population relatively stable. There are exceptions to these limited enrollment periods such as when people lose employer-sponsored coverage, change their place of residence or their family status such as getting married for having a child.

Health plan issuers are concerned these exceptions are being gamed in the majority of states where the federal government operates health benefit exchanges to effectively enable people to obtain short term coverage of less than a year to cover needed medical care – contrary to the Affordable Care Act’s policy intent to require continuous annual enrollment. That degrades spread of risk and increases the likelihood of adverse selection, which in turn will require higher premiums. That was the fundamental, fatal problem facing individual health plan issuers before the law overhauled the individual and small group health insurance market segments. In response to their concerns, Andy Slavitt, acting administrator of the Centers for Medicare and Medicaid Services, told a J.P. Morgan health-care conference in San Francisco this week that CMS will tighten up its rules on exceptions for enrollments outside of the annual open enrollment period, The Wall Street Journal reported.

Another device to ensure the integrity of the state risk pools is federal income tax penalties assessed on those who opt to go without health coverage, particularly if they believe they are unlikely to need medical care over the near term. They act as a stick to nudge people into the pools if they don’t have coverage through an employer or government program. As with the limited open enrollment periods, they are designed to ward off adverse selection and preserve the risk spreading function of the pools. Here too, there are concerns they may not be working as intended. Some individuals – especially those earning more than 400 percent of federal poverty and thus ineligible for tax credits to offset individual health plan premiums – are doing back of the envelope calculations and opting to go uninsured and pay the penalty if their annual premium exceeds the penalty amount, according to The New York Times.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Many Low-Income Workers Say ‘No’ to Health Insurance – The New York Times

The Affordable Care Act requires employers with more than 50 full-time workers to offer insurance, but many find few low-income employees will buy it.

Source: Many Low-Income Workers Say ‘No’ to Health Insurance – The New York Times

The New York Times reports on a major weakness of the Patient Protection and Affordable Care Act. Even if low wage hourly employees work for large employers as defined under the law, contributing to coverage that costs them nearly 10 percent of their earnings simply isn’t economically viable with other household budget items competing for scarce dollars. The Affordable Care Act’s individual shared responsibility mandate that includes tax penalties for not enrolling in employer-sponsored coverage will only add to their financial pain, particularly as the penalty increases for not having minimum essential coverage in 2015 to the higher of $325 per adult or two percent of household income. That’s likely to result in another Times story in April 2016 on hourly workers complaining that their 2015 income tax refunds have been significantly diminished by the penalties.

The irony is the Affordable Care Act is designed to increase access to affordable coverage, which it clearly isn’t doing here. As the story notes, uninsured low wage hourly employees have access to low cost primary care via community health centers and retail outlets. But they’ll continue to contribute to the burden of uncompensated care — another problem the law was intended to address — for costlier forms of medical care.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

We are the 401%: Middle class households ineligible for exchange subsidies could reignite health reform

A little more than three years ago, steep premium increases in California’s individual market sparked outrage from Sacramento to Washington, providing a political tipping point for the enactment of the then-moribund Patient Protection and Affordable Care Act (PPACA). This fall and into 2014, those without government or employer-sponsored health coverage who earn more than 400 percent of the federal poverty level (FPL) ($45,960 for singles; $92,200 for a family of four) may find themselves outraged yet again by sharp double digit premium increases.  Under the PPACA, those earning in excess of 400 percent of FPL are ineligible for income tax subsidies available for qualified health plans purchased through state health benefit exchanges.  They will bear the full amount of higher premiums on their own.

Projections of the impact of the PPACA individual market reforms issued this week by the Society of Actuaries (on the medical cost impact of those newly insured under the law) and the actuarial consulting firm Milliman (on premiums in California) suggest premiums for plan year 2014 will rise significantly for these relatively higher income middle class households.  The Society of Actuaries estimates the PPACA individual market reforms will drive up claims costs by an average of 32 percent nationally by 2017 and by double digits in as many as 43 states.  The Milliman study commissioned by the California exchange, Covered California, estimates those currently insured with incomes exceeding 400 percent of FPL purchasing the lowest cost “bronze” rated plan covering 60 percent of expected costs can expect a 30.1 percent premium hike for 2014.   “Currently insured individuals with incomes greater than 400% of FPL will experience the largest increases,” the Milliman study notes.

Those in this income range likely to be hit with the biggest increases are middle class people in their 50s and 60s – the large Baby Boomer demographic not yet Medicare eligible and not covered by employer-sponsored plans.  A major potential implication of higher premiums on top of the already relatively high rates paid by this age group (new age rating rules under the PPACA will provide some relief) is many of them may find even bronze-rated coverage unaffordable and go uninsured, contrary to the policy goal of the PPACA to increase affordability and access to coverage.

If 2014 rate increases for 401+ percent FPL households boost the price of the cheapest plans too high, tax penalties built into the law for those without public or private coverage won’t provide incentive for these individuals to purchase coverage.  The PPACA’s individual mandate expressly exempts those who have to spend more than eight percent of their incomes to purchase the cheapest bronze plan offered in their geographic rating region. The law also provides for a financial hardship exemption.

Because of the sheer size of the Boomer demographic and Boomers’ willingness to seek political redress of their grievances, if the premium increases for the 401 percenters predicted indirectly by the Society of Actuaries and directly by Milliman materialize, it could create impetus for further reforms in 2014.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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