Should ObamaCare’s individual mandate penalties, subsidies increase?

Crafting the law’s subsidies to help individuals afford coverage was a potential key to its success. Coupled with the individual mandate to purchase coverage or pay a penalty, the decisions involved hand-wringing over the fee and subsidy structure that could strike just the right chord, yet remain economically feasible, and most importantly, passable by Congress.

Six years later, the debate over ObamaCare hasn’t ceased. Critics say the law is fundamentally flawed and nothing short of repeal is needed. But for some policy wonks, the debate is more nuanced. They have analyzed what would make the law work better, and wonder if a higher individual mandate penalty or more generous subsidies would help drive more Americans into the exchanges. 

Avoiding a ‘political deadweight’

When it comes to health plans, many Americans are driven by their purse strings. 

Enter: ObamaCare’s subsidies, designed to make health coverage more affordable but also entice consumers into the marketplace. Tax credits help reduce premiums for those who are lower income (incomes between 100 and 400 percent of the federal poverty level). Cost-sharing reductions can add further financial support, lowering how much enrollees pay in deductibles, copays and coinsurance. 

But there needed to be a carrot for the stick, which was found in the individual mandate, a concept already in use in Massachusetts.  

The matter wasn’t taken lightly. Department of Health and Human Services, Treasury Department and White House officials huddled roughly 50 times on both issues from 2009 to 2010, Bob Kocher, the former special assistant to President Obama for healthcare and economic policy, told The Hill Extra. 

The conversation played out vigorously in Congress, where the two chambers and five committees worked to shape the legislation. 

“It was both is it fair to people, can people afford this, and it was also, this is going to be a political deadweight around our necks going forward into implementation,” John McDonough, then-Senate HELP Committee’s senior adviser on national health reform, told The Hill Extra. “In the political respect, yeah, this was the issue that brought this matter to the U.S. Supreme Court.”

Democrats were trying to ensure the subsidies were high enough to provide affordable coverage — and that wasn’t cheap, according to Cathy Koch, tax chief for the Senate Finance Committee. 

“So it took a lot of thinking to be able to design the subsidies in a way that worked,” Koch wrote in an email. “Discussions about the mandate were sometimes difficult — again, no one wanted to impose a burden.” But, she wrote, the fee was crucial to ensuring young, healthy adults signed up to balance out the cost of older, sicker Americans. 

What ultimately passed was a byproduct of various iterations of proposals. And it was the result of adhering to other considerations, such as trying to make the law fully paid for and the cost of reform in the neighborhood of $1 trillion over 10 years, sources said.

“It was a political judgment call,” McDonough said, “that if it went over $1 trillion that that would just be too big to be able to achieve the 60 vote threshold [in the Senate] necessary to win.” 

Bolstering the law

Fast forward six years, and the law’s supporters say it’s still in a period of adjustment. Markets are fluctuating. Carriers are determining how to price their plans. Three major insurers have left the majority of their marketplaces. And efforts are still underway to bring young and healthy Americans into the exchanges. 

Democrats don’t claim the law is perfect — rather, they made tough calls in the thick of a politically charged situation. Even Obama himself admitted the law has “real problems.”

There isn’t a perfect solution, nor is there a consensus when it comes to the law’s carrot and stick.

Some argue the individual mandate should be higher. Others say tax credits, cost-sharing subsidies or both should increase. And there’s the notion that it’s simply too soon to tell, in part because the penalty was phased in over a three-year period with the maximum fee coming when Americans file their taxes this April.

Massachusetts’s health reform plan was closely examined as those in Washington tried to hammer out a national reform plan. The state was a test case in how making coverage mandatory, coupled with affordability standards, could impact human behavior and drive the uninsured rate lower. 

“I think what we’re learning is that the national piece is different than Massachusetts,” Jonathan Gruber, an architect of both ObamaCare and Massachusetts’s health reform, told The Hill Extra, “because of all the political opposition and lack of support for ObamaCare.”

To Gruber, the law could benefit from a higher penalty for going without insurance. But others say increasing the law’s subsidies should come first. Of marketplace visitors who ultimately didn’t purchase a plan, roughly 85 percent noted they couldn’t find one that was affordable, according to a 2016 survey by The Commonwealth Fund. 

“If we made the coverage more affordable by improving the subsidies for some of these still low-income people,”  Linda Blumberg, Urban Institute senior fellow, said, “then I think you’re in a better position to say, ‘OK, listen what’s being offered to you here is objectively a really good deal, even better than what was being offered before, and now we’re going to put a little bit more pressure on you to take advantage of it.’ But I don’t think we’re quite there yet.” 

Gruber opts for beefing up the cost-sharing subsidies. Others, such as McDonough, say both cost-sharing and tax credits should be more generous. 

“The bottom line for me,” McDonough said, “is that the issue is far less the magnitude of the individual mandate penalties and much more the size of the subsidies to make the purchase of insurance genuinely affordable for people who need to buy it.” 

And there’s a slew of other opinions on how to help the marketplaces, ranging from better outreach to fewer exemptions, increasing enrollment assistance to stabilizing the risk pools.

An unpredictable future 

The future of ObamaCare could lie in the election’s outcome. Just because some health experts see raising the individual mandate and the subsidies as a way to improve the law doesn’t mean there’s a political will to do so.

In a Health Affairs article, Joseph Antos and James Capretta, of the conservative American Enterprise Institute, wrote the individual mandate failed to effectively bring consumers who don’t receive large subsidies into the exchanges.

“The market might be stabilized by imposing a heavier penalty on the uninsured, and strictly enforcing it,” the two wrote. “But the individual mandate is already among the law’s least popular provisions; an effort to further strengthen it will only narrow the political coalition in favor of the law.” 

Yet, the exchanges shouldn’t be ignored, the two argued. Both parties should work to fix the marketplaces, viewing it as an opportunity to “move health reform toward a broader political consensus.”

Though they noted some of the political contention surrounding the law stems from how it was passed — without a single Republican vote.

If the GOP takes the White House and Congress, they’ll focus on repealing and replacing the ACA. But if Hillary Clinton wins the presidency, ObamaCare will remain the law of the land. That means talk of strengthening it will be here to stay and, in a September New England Journal of Medicine article, the Democratic nominee put enhancing tax credits on the table. 

But passing health legislation through Congress won’t come easy. And that means how a potential debate to improve the ACA might play out next year is “highly unpredictable,” according to Larry Levitt, a Kaiser Family Foundation senior vice president.

“Increasing the subsidies and penalties would help to increase coverage and improve the risk pool,” Levitt wrote in an email. “But, it would seem that the idea of increasing the subsidies is likely to have much more support than increasing the individual mandate penalties. It’s possible that tweaks to the individual mandate, like minimizing exemptions or increasing enforcement, could be part of a broader ACA improvement agenda, though even those will be controversial.”