health-ins-300x225-9563457The demise of the Affordable Care Act’s “individual mandate”—which is due to be repealed as part of the GOP tax overhaul—may be less consequential in New York than in most other states.

New York’s insurance premiums are among the highest in the country, making the ACA’s tax penalty a relatively weak deterrent against going uninsured.

For 2017, the penalty—or “shared responsibility payment,” as it is officially known—is $695 or 2.5 percent of income, whichever is greater. For many affected New Yorkers (i.e., those without employer health benefits), that’s still thousands of dollars less than the cost of a typical health plan in the non-group market.

The math is illustrated in the chart below: The blue line shows the net cost of a benchmark “silver” plan at different levels of income, and the red line shows the cost of the tax penalty. (Under the ACA, tax credits are calculated based on the second-lowest cost “silver” plan in each coverage area. In New York, the annual cost of a median benchmark plan for 2017 was approximately $5,600.)

screen-shot-2017-12-18-at-3-10-57-pm-5625163
(Click to enlarge)

For the lowest-income consumers, who qualify for Medicaid or the Essential Plan, coverage is either free or $20 a month—deals too good for many to pass up, whether they face a penalty or not.

But for those buying commercial non-group plans—even with the help of ACA tax credits—the net cost of coverage immediately jumps to double the tax penalty, and rises steeply from there.

In fact, the gap peaks just above 400 percent of the federal poverty level (annual income of $47,520 for an individual), when eligibility for tax credits runs out. New Yorkers in that group can save more than $4,000 a year, or 8 percent of their income, by going without coverage and paying the penalty.

The cost-benefit analysis looks very different in Mississippi, where a benchmark plan is less than half as expensive as in New York. There, the gap between the cost of coverage and the tax penalty never rises above $2,000.

For Mississippians, the tax penalty would start to surpass the cost of coverage at around $108,000 in income. In New York, that wouldn’t happen until an individual’s income reaches around $224,000.

The theory behind the individual mandate is that it was a necessary part of a carrot-and-stick approach to universal coverage. Combined with tax credits to make premium affordable, the mandate would prod younger, healthier people to buy insurance, thus improving the risk pool and keeping costs lower overall.

Arguably, though, both the carrots and sticks in the Affordable Care Act have been too weak to fully work as intended, and Congress has been more inclined to repeal than strengthen them. For many Americans, meanwhile, the tax penalty has added insult to injury: Not only do they live with the risks of being uninsured, but their government is punishing them for not being able to afford high premiums. No wonder it was always the least popular feature of Obamacare.

Taking the mandate away creates some risk of a death spiral—in which healthier people stop buying insurance, pushing rates higher, causing still more people to drop coverage. The Congressional Budget Office has projected that repealing the mandate would cause 13 million fewer people to be covered by 2027, compared to current law.

But if the mandate has compelled relatively few New Yorkers to sign up, then dropping it will cause relatively few to leave and—perhaps—have relatively little impact on premiums.

Some 400,000 New Yorkers reportedly paid a tax penalty for lacking coverage in 2015. For them, the demise of the individual mandate will be nothing but a relief.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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