The Affordable Care Act: Insurance Mandates and the Exchange

 The cornerstone of the Affordable Care Act, and what makes it most controversial for some people, is the requirement that nearly everyone purchase health insurance. The mechanism by which purchasing insurance is being made simple and affordable is the insurance exchange.  The motivation to purchase insurance - if peace of mind and preventive care is not enough - is provided by the fine for not doing so, which the Supreme Court ruled to be legal under the federal government's power to tax.

What the heck is an insurance exchange anyway?  I'll lead off by saying that it is NOT government-run health care.  The exchange will be made up of private insurance companies (Aetna, Blue Cross, Humana, etc.) offering health plans that consumers will be able to review, compare, and purchase online, similar in concept to Orbitz or Travelocity.  Effective January 1, 2014, each state will establish its own exchange, and consumers will go the exchange's web site to compare plans and their prices and benefits, from modest to generous (the official terms for the benefit levels of health plans are platinum, gold, silver, and bronze). All plans must be approved by the exchange before they can be included.  All plans must include basic comprehensive medical coverage and prescription drug benefits, and no insurer can refuse to sell a consumer a policy.  There will also be annual limits on deductibles and copays.  Consumers are not required to purchase insurance through the exchange, but subsidies to help with the cost for lower-income individuals are only available if policies are purchased through the exchange.  

The exchanges are not only for people who do not receive insurance through their employers.  Businesses with fewer than 100 employees can also purchase coverage for their employees through the exchange. The exchanges will be attractive to small employers in several ways.  Exchanges can offer employers an aggregated bill that covers the premiums of all employees, regardless of the policies they choose. Through the exchange, employers can either pay a fixed percentage of employees' premiums with the employee covering the rest, or charge the employee a premium share based on richness of coverage, and potentially on tobacco use and participation in a wellness program.  Employers also have the option of paying a greater share of the premium for lower-income employees.  The exchange is designed to be flexible enough to attract employers, because the bigger the pool of enrollees, the lower the cost for both the insurance companies, the insured, and the employers. The exchange will also allow small employers to have the same purchasing power as large employers, because it will put them in a much larger pool than just their own workers.

Why should healthy young people be required to buy health insurance?  You may be young and healthy, but that doesn't mean you won't get hit buy a bus, break a leg skiing, or suffer a serious allergic reaction. And to say that "well, it's only hurting my own bank account if I take a chance on getting hurt" is simply not true.  If you are in an accident, you will be brought to an emergency room and treated regardless of your ability to pay.  You will get bills, for sure, but it's impossible to get blood from a stone, so to speak, so if you don't have insurance and don't have the means to pay, the cost of treatment will be written off.  This means that hospitals lose money, and the state and federal government lose money as they partially reimburse hospitals for your uncompensated care.  In the meantime, your credit will take a hit as bill collectors come after you.  Insurance of all kinds is, by definition, something that you purchase and hope never to need, but if and when when you do need it, it can save your financial life.  It is worth mentioning that single people under 30 will have the option of purchasing only catastrophic coverage, which will be cheaper than the "bronze" comprehensive plans, but of course won't include preventive care or prescription drugs. 

So what happens if you don't purchase any insurance?  This is where the penalty kicks in, the "tax" as the Supreme Court refers to it.  In 2016, the penalty is $695 or 2.5% of annual income, whichever is greater, and will rise with the rate of inflation.  Not very punitive, according to many, and it may be tempting to just pay it and go on one's merry insurance-free way.   But purchasing insurance may not even be any more expensive than paying the penalty.   Here is how the insurance cost pans out for a family of four at various income levels: 

 Under $30,000 family income, families qualify for Medicaid and pay nothing for insurance

Under $37,000, most families will receive subsidies that allow them to purchase a bronze policy (basic comprehensive) for free

Under $45,000, the cost of a bronze policy is definitely lower than paying the fine.

Under $50,000, the cost of a bronze policy is slightly higher than paying the fine.

Over $50,000, the cost of the policy is higher then paying the fine, but most families at this income level have access to employer-provided health plans anyway.

The penalty for businesses who don't provide health insurance is more complex, and probably worthy of its own post, but essentially, employers with 50 or more full-time workers must offer "affordable" health insurance to their staff.  "Affordable" in this case means that the insurance must cover at least 60% of covered health care expenses, and the employee must not be made to pay more than 9.5% of their income for coverage.  The penalties for failing to provide coverage start at $40,ooo, plus an additional $2,000 for every employee beyond 50.  If the coverage is not deemed affordable, the fine is even higher: $3,000 per worker.  The penalties are much stiffer than those for individuals who don't purchase insurance, and this is not accidental.  The fines make clear that for a business of over 50 employees, cutting corners with its full-time workers by not offering insurance is not a viable option.

So what's my point? I am going to go out on a limb and guess that most people would like to have health insurance. They don't choose to forgo it because they want to live life one health crisis away from bankruptcy; they are forced to forgo it because the premiums are simply too expensive.  The insurance exchange, and the requirement for businesses to provide health insurance provide less expensive outlets for Americans to purchase coverage.  But the way to get the most savings is to have the largest possible pool of insured people, in order to spread the risk among the most individuals.  The largest possible pool is everyone....ergo the mandate.  The purpose of the mandate is not to control Americans' lives; in fact, having health insurance allows Americans greater control over their own lives, by making their lives longer and healthier.  

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