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Individual mandate: Is it for everyone?

March 14, 2011 - Mary Ann Heath
The only aspect of the health care bill I’ve been a tad on the fence about is the requirement all individuals have insurance.

Is it constitutional?

Can you make “everyone” carry insurance?

Does everyone really mean everyone?

After reading the section of the bill outlining the requirement, I am prepared to say I understand why it’s in the bill and that it’s necessary to make any sort of change to our broken health care system.

Yes, individuals will be required to carry health insurance by 2014, or face a penalty. But, before we get carried away, lets consider the whole argument. There are several exemptions to this requirement.

Belonging to a religious sect that does not believe in health care, being a member of a health care sharing ministry, not being able to afford coverage, incarcerated individuals, or those not legally present in this country make up groups that are not considered “applicable individuals” and therefore will not face a penalty for failing to carry health insurance.

The penalties imposed for not carrying health insurance will be phased in. In 2014, those not carrying health insurance will be fined $95 — for the entire year. This $95 — as well as future penalties, should they incur — will be added to taxes (or deducted from your return). But, the penalty grows each year. In 2015, it rises to $350, in 2016 it jumps to $750 and each year after, it will be adjusted with the cost of living.

This section of the bill also defines what it means by “affordable” health insurance. If coverage for an individual in any month exceeds 8 percent of that person’s total income for the year, then it is not considered affordable. This not only means you would be exempt from the penalty imposed by the individual requirement, but it might also mean you are eligible for tax credits. Tax credits are designed to help the middle class afford insurance. Those with income between 100 and 400 percent of the poverty line not eligible for other affordable coverage, qualify for tax credits. According to, these credits are advanceable, so it can be used to lower premium payments each month or saved for tax time. (For more on tax credits, please see my earlier post: “Tax credits and cost-sharing reductions”)

So, when it is said “everyone” must have health insurance, it isn’t really “everyone” — it’s those people that should (and probably already do) have health insurance. And if reform works the way it is intended, those that do pay will pay less.

Lawmakers had several reasons for adding this requirement. It is assumed that many people will fail to get insurance until they really need it — after car accidents, for major surgeries or terminal illnesses. These people end up costing everyone else money. How? They seek medical help when they need it, are rejected from almost every insurance company because of their pre-existing condition and have a tough time paying medical cases. In such cases, it’s not hard to see how someone could declare bankruptcy, which is tragic for them, but means incurred expenses go unpaid (half of all personal bankruptcies are caused in part by medical expenses). In reaction to this, hospitals bill more to cover all their costs — especially those incurred by individuals unable to pay. In order to provide balance, and make the system work, this risk group must be reduced. The requirement, paired with other provisions in the bill, aim to reduce “high-risk” pools by minimizing adverse selection and broadening the health insurance risk pool so that it includes healthy individuals, which will lower health insurance premiums for everyone.

The requirement also helps achieve near-universal coverage by building and strengthening the private employer-based health insurance system. In Massachusetts — where an exchange already operates and a similar requirement is in place — the requirement has strengthened private employer-based coverage, despite the economic downturn. In fact, the bill points out, in a sour economy, the number of workers offered employer-based coverage has actually increased. A fact sheet supplied by the Henry J. Kaiser Family Foundation indicates the number of those with health care in the state is unprecedented. In 2008, while the state’s exchange was only two years old, 340,000 people had gained coverage — more than half of those that had previously been uninsured.

The requirement also helps reduce administrative costs associated with health care. The bill estimates that administrative costs make up 26 to 30 percent of premiums in the current individual and small group markets. By increasing coverage, as well as the size of purchasing pools, the requirement will help lower administrative costs, like underwriting, which will in turn, reduce premiums. By creating effective health insurance markets, the requirement eliminates the need for underwriting and its associated costs.

When someone says, “the new health care bill is going to force everyone to have insurance,” it’s really only part of the picture. “Everyone” should be replaced with “applicable individuals” — which really includes those capable of carrying their own insurance.

Yet, “individuals” will be required to carry health insurance so that “everyone” can afford it. Perhaps everyone is a little freaked out by this legislation because they think they will be forced to buy the same over-priced, under-delivering insurance that’s sapping our small businesses and local governments dry.

Without all the information, why wouldn’t we think that?

My hope is the new legislation will bring America to a place where insurance really is affordable and attainable for everyone. It may take a little trial and error—but anything is better than what we have now.

Albert Einstein said problems cannot be solved at the same level of awareness that created them.

Maybe it’s time we make ourselves more aware.

Mary Ann Heath has been reading and blogging about the Patient Protection and Affordable Care Act since January. Her goal is to read all 906 pages of the bill in one year.


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