Why Does Obamacare Have an Individual Mandate?
A lot of people have been upset about the individual mandate part of the ACA, and even people who work in healthcare (including yours truly!) will tell you that it’s not their favorite thing. However, it’s necessary to make Obamacare work.
Remember, the ACA *also* made it so that insurance companies could no longer deny you coverage or charge you more if you had a preexisting condition.
Now, the only way that the individual insurance market in the ACA will work as intended — to give people solid coverage for an affordable rate — is if many (mostly healthy) people buy insurance policies. Those healthy people’s premiums are needed to balance out the costs the insurance will have to pay for the sicker people who will also have coverage with them, since they can’t deny those sick people for preexisting conditions anymore.
(Think about it like this: your premium dollars go with everyone else’s premium dollars into a big bucket at your insurance company. When you make a claim, the insurance grabs money out of that bucket to pay your bills. If fewer people are paying into that bucket overall — but those who *are* throwing money in are racking up a ton of claims — you’d eventually have more money being pulled out of the bucket than going in. That is not sustainable.)
So if the ACA had been set up so that no one *had* to have insurance but people could drop and reactivate their coverage whenever they needed it, you’d have a system where people would go uninsured for months or years, but then once they were diagnosed with cancer or needed surgery to repair a torn ACL they’d run out and buy a policy. And the insurance couldn’t deny them!
So you’d have a fair number of people, hypothetically, who would only buy insurance when they needed it, and would then drop it later. That would mean the insurance companies would have fewer dollars in premium money coming in, but a disproportionate amount of money being paid out for all of those sick/injured people. That would likely sink the system.
You need healthy people paying premiums to make the private insurance system work. Unfortunately. (I agree that this is not an ideal situation, but it is the reality we are all working with here in the US.)
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Okay, so, the solution that the Dems came up with was to make this “individual mandate,” where everyone had to have insurance coverage or else they’d pay a tax penalty — to the government — at the end of the year. (There are some exceptions to this penalty rule, but generally it’s true for everyone.)
Currently, if you don’t maintain insurance coverage throughout the year you will incur a tax penalty of 2.5% of your income at the end of the year, with a cap of $2085. (Which corresponds to a family income of $83,400.00.)
So if you went uninsured, at most you’d be penalized $2085 on your taxes at the end of the year. (And most likely less.)
No one is jumping with joy about this part of the law, but hopefully the earlier part of my explanation helps you understand why it was put in.
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So, the Paul Ryan plan. In their proposal, people would be able to drop their coverage, just like they can now under the ACA. But they would not have a tax penalty for doing so.
Their proposed plan also continues to prevent insurance companies from denying coverage or charging you more for preexisting conditions. So the insurance still can’t deny you if you get cancer during an uninsured period and then show back up at their office to buy a policy before you start treatment.
However, if you did decide to go back and buy a policy after a break under the Ryan plan, your insurance company will be allowed to charge you *30 percent more* in premiums, for a year, when you come back in. For the same policy.
Don’t misunderstand this plan — if it passes, people will still have to pay an individual mandate penalty. But under their plan, you’re paying it to an insurance company rather than the government. And there is no cap on how high that penalty can go.
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So my hypothetical situation this time is that I’m a family of four who pays $1200/month for my family’s coverage on the exchange. Let’s say that I lose my job abruptly and have to drop our policy for a few months so we can keep our house.
Under the ACA, I can jump back in and buy a new plan for — hypothetically — about the same premium during the next open enrollment period, and I’d still pay about $1200 a month, minus any subsidies my family would receive for our drop in income. I’d have to deal with that tax penalty, but once I took care of that I’d still only have to pay $1200/month (or less) to cover my family for the foreseeable future.
Under the Ryan plan, I wouldn’t have to do anything special on my taxes, but my insurance company could now charge me $1560.00 a month for my family’s new premiums, even though others would pay $1200 for the same plan.
And remember, under the Ryan plan, you get no monthly subsidy no matter how low your income drops after you lose your job and your insurance for a few months. So instead of paying $1200/month **most likely minus a subsidy** once you get back on your financial feet, you’d be paying $1560 a month for a year, as a penalty.
That would work out to a penalty for noncoverage of $4320.00 per year.
Oh, and you’d be paying that directly to the insurance company.
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Both of these plans have penalties. They just look much different and are paid to different entities.
