Time: D H M S

REMINDER: The Individual Mandate Is Still In Effect for 2018!

Michael Bertaut is a conservative healthcare economist in Louisiana. He and I disagree on most political issues, and he's obviously not a fan of the ACA, but he seems to be intellectually honest about his positions, and he and I have found some common ground over ACA-related stuff in the past.

Case in point: The individual mandate. Bertaut may not care for the ACA overall, but he does recognize, as I do, that if you're going to utilize the "3-legged stool" model for individual market enrollment, it has to include both a positive and negative inducement to encourage (or goad) people into enrolling...aka the Carrot and the Stick. More to the point, if you're going to have a Stick (i.e., the Individual Mandate), it has to be large enough and well-enforced enough to be effective.

I've written and spoken many times before about the Individual Mandate penalty being too small to be properly effective; it's $695 per adult + $348 per child or 2.5% of your household income. The problem is that Silver ACA policies are allowed to cost anywhere from around 2% - 9.6% of your household income depending on your income level...or even higher if you earn over 400% of the Federal Poverty Level. For many people, even the least-expensive Bronze policy might cost 2-3x as much as the penalty, which means that many people deliberately choose to eat the penalty seeing it as being less expensive than the alternative (of course, if they get seriously sick or injured they may regret that decision later, but it's too late by that point).

However, there's a second issue surrounding the mandate which I haven't written much about...but which Betraut is pretty focused on: Enforcement. According to the IRS and CMS, there are a whole slew of exemptions you can claim to get out of having to pay the penalty. The best-known ones are things like the least-expensive coverage being unaffordable (i.e., costing more than around 8% of your household income). This is what would happen in a "bare county" scenario, where not a single insurance carrier chooses to participate in the ACA exchange--since off-exchange policies don't qualify for ACA tax credits, a whole bunch of people would automatically see their least-expensive option shoot up to well over 8% MAGI, exempting them from the penalty.

However, there are other exemptions allowed as well...and Betraut is of the opinion that there's too damned many of them:

  • Original: Unaffordable Coverage (over 8% MAGI)
  • Original: Member of Native American Tribe
  • Original: Member of Healthcare Sharing Ministry
  • Covered for at least 9 months of the year (i.e., you're allowed a 3-month grace period per year)
  • Income below the federal income tax filing threshold
  • Out of the country for 330 days (~11 months)
  • Dual citizenship
  • Resident of a U.S. Territory
  • Citizen of country the US has an income tax treaty with
  • Undocumented immigrant
  • Non-resident alien
  • Anyone who files a 1040 NR
  • Incarcerated for at least part of the year
  • Members of certain religious sects
  • Employer coverage cost (combined) for 2+ family members exceeds 8% MAGI
  • Hardship: Homeless, evicted, foreclosed on, victim of domestic violence, death of close family member, unpaid medical bills
  • Coverage unaffordable based on NEXT year's projected income
  • Ineligible for Medicaid due to living in non-expansion state
  • Income below 138% FPL
  • Prior year plan unrenewable which triggered affordability problems
  • Working for Americorps, VISTA or NCCC
  • Resident of disaster areas

Now, I'll quibble with him on some of these: The "8% MAGI cost for employer coverage" is really just a variant of "Unaffordable coverage" in my opinion, and some of the exemptions added later on seem entirely reasonable to me. For instance, expatriates (someone living outside of country for 11 months of the year) are unlikely to be clogging up the U.S. healthcare system. Residents of a U.S. Territory (Puerto Rico, the USVI and so on) don't have ACA exchanges or subsidies available, so it's unreasonable to require them to comply with the coverage requirement parts of the ACA.Those caught in the Medicaid Gap (nonexpansion states) certainly shouldn't have to pay a financial penalty for not being on Medicaid, and so forth.

However, he does have a point on others. If you were in jail for 6 months last year, fine...you shouldn't have to pay the penalty for those 6 months, but what about the other half of the year? The "religious sect" exemption makes me roll my eyes as well; if your religion doesn't "recognize" insurance, fine...but they had better provide 100% of the costs for your treatment, then. I can understand a 1 or 2 month grace period on coverage, but 3 months might be pushing it, and so on.

HOWEVER, the LARGER point of his I want to emphasize is this:

I want to make one thing abundantly clear up front: the change of the penalties in the Individual Mandate from the current level to $0 does not happen until the 2019 tax year and is NOT retroactive. The penalties still apply for the 2018 tax year, so you are still at risk of having to pay a tax penalty if you do not have healthcare coverage for this year.

I already knew/suspected that the vast majority of the public at large didn't know that the mandate repeal doesn't kick in until 2019, but this part blew my mind:

Surprising number of calls from professionals in health insurance (agents, brokers, company benefit managers, Navigators) who think the INdividual Mandate Penalty is gone for '18, maybe even '17! NO! https://t.co/nD9PMfZNlg

— Michael Bertaut (@MikeBertaut) January 10, 2018

Now, there's a lot of skepticism as to whether or not the IRS will actually enforce the mandate next spring; it's possible that they'll blow it off with a wink and a nod, with the new HHS Secretary (presumably Alex Azar if he's confirmed, which seems likely) handing out hardship exemption approvals like candy. Then again...perhaps they will enforce it after all, as they recently stated they'd do this year.

Remember, the IRS won't be actually enforcing (or not enforcing) the 2018 penalty until April 2019, 15 months from now. A lot can change in 15 months. Do you really want to take that risk?

If you're OK paying the penalty and are really confident that you won't have any catastrophic medical problems in the next 12 months, fine. If you're not sure about either of those, however...I'd strongly advise that you #GetCovered if at all possible.