“Health insurance – ACA mandate / Massachusetts model “;
The current structure of the ACA’s individual mandate states that a person must purchase available, affordable health insurance coverage or face a tax penalty equal to the greater of $695 for individuals/$2,085 for families and 2.5% of household income (Monahan, 2011). The tax penalty is capped in that it can never be more than the cost of a Bronze Plan premium (Monahan, 2011). Affordable health insurance is any health insurance who’s out of pocket cost to the consumer is 8% or less of the person’s household income (Monahan, 2011). The nudge to purchase health insurance is actually very inconsistent across income levels. Depending on the average costs of Bronze and Silver Plan premiums, many individuals and families between 250% of the federal poverty level and 400% of the federal poverty level may be exempt from the individual mandate altogether on account of their out of pocket costs for health insurance exceeding 8% of their household income (Monahan, 2011). There are even some middle income wage gaps where a family makes too much money to receive an ACA subsidy but too little money to be considered to have available “affordable health insurance,” meaning that their out of pocket expenses for coverage would exceed 8% of household income (Monahan, 2011). These middle-income families have no nudge whatsoever to purchase health insurance.
An important component to compliance with a tax enforced mandate is the impact of creating a “social norm” regarding the issue (Monahan, 2011). This refers to the degree to which the individual mandate becomes ingrained in the culture of society due to its consistent, understandable, and predictable application among the population. With the way the ACA mandate is currently structured, the nudge to purchase insurance is a complex moving target. As currently structured, lower income Americans pay the highest percentage of their income in the form of an ACA tax penalty because $695 will be greater than 2.5% of income for those Americans (Monahan, 2011). Many middle income Americans are then not subject to the mandate at all, thus pay no penalty. Higher income Americans then are subject to the penalty, with the penalty representing 2.5% of income until capped at the average cost of a Bronze Plan. Once capped, the ACA tax penalty does not increase, even as income increase. At this point, with the tax penalty equaling the cost of a Bronze Plan premium, the nudge is very strong to purchase insurance because the individual is going to pay the amount of the Bronze Plan premium whether she purchases the insurance or not. Thus, she may as well receive something for her money rather than nothing (Monahan, 2011).
The nudge to purchase health insurance is wildly inconsistent across income levels. It starts out very high at low-income levels, drops to nothing at middle income levels, slowly increases again as income rises from the middle, and then peaks when 2.5% of income equals the cost of the average Bronze Plan premium.
The 2006 health care reform in Massachusetts contains a much simpler individual mandate, not tied to income. It has been much more effective at creating compliance. In Massachusetts, as with the ACA, individuals are mandated to purchase health insurance if it is affordable to them (Monahan, 2011). However, in Massachusetts, affordability is a sliding scale based on income and determined by an independent agency. Generally, those on the lower end of the income scale are deemed to be able to devote a much smaller percentage of their income to health insurance premiums than those on the higher end of the income scale (Monahan, 2011). Using this sliding income scaled, Massachusetts is able to reduce the “affordability gap” that exists with the ACA where middle income Americans are not subject to the individual mandate. Further, those subject to the Massachusetts mandate who do not then purchase insurance are penalized exactly one half of the cost of the cheapest available minimum level insurance coverage (Monahan, 2011). This system provides more predictability in the application of the mandate, thus increasing the creation of the social norm tied to the mandate.
The data suggests that the Massachusetts mandate has been much more successful than the ACA mandate at creating compliance and drawing eligible people into the insurance pools. Whereas as many as 4% of federal tax filers were assessed an ACA mandate tax penalty, recent data shows that fewer than 1% of Massachusetts residents were assessed a tax penalty for failure to comply with the Massachusetts state mandate (Erb, 2015; Monahan, 2011).
The benefit of amending the ACA mandate to follow the Massachusetts model is that evidence demonstrates that Massachusetts has been more effective at nudging compliance with the mandate. Further, the Massachusetts mandate shrinks the “unaffordable gap” and avoids the situation where lower income wage earners are subject to the highest tax penalty as represented by a percentage of income, as is the case with the ACA. The cons to this sort of amendment are that researchers are not exactly sure why the Massachusetts nudge is more effective, be it greater financial incentives or more deeply ingrained social norms (Monahan, 2011). Altering the ACA without fully understanding the impact of the Massachusetts law is potentially risky. Further, these sort of reforms will inevitably cause needed changes elsewhere in the ACA given the differences in the operation of subsidies within the Massachusetts law.