Four Million New Fines For Declining to Purchase Insurance

Since taking office, President Obama hasn't missed an opportunity to remind voters of how many individuals his health care reform law is projected to cover. But he's talked a lot less about how many people the law would fine for choosing not to purchase insurance. Earlier today, the Congressional Budget Office put out an estimate. The office's guess is that, in 2016, two years after the mandate kicks in, about 4 million individuals will face fines for going without health insurance. Here's the gist:

Among those who are subject to the penalty, many will voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid making payments. Therefore, the estimates presented here account for likely compliance rates, as well as the ability of the Internal Revenue Service (IRS) to administer and collect the penalty. In total, about 4 million people are projected to pay a penalty because they will be uninsured in 2016 (a figure that includes uninsured dependents who have the penalty paid on their behalf). CBO and JCT estimate that total collections from those penalties will be about $4 billion per year over the 2017–2019 period.

Obama's frequent promise that "if you like your health care plan, you will be able to keep your health care plan" has always been a whopper. It's also been a convenient way to avoid talking about all the individuals who either do opt out of coverage or would like to. What the CBO is saying with this letter is that, each year, millions of people can be expected to opt out, and they'll be required to pay billions in penalties as a result. Expanding choice this is not.

The CBO letter says nothing about the collection process, but given that there's a dollar figure attached to the revenue projections, I suppose we can presume this is the number of people who are expected to actually pay. But with the IRS seeming to lack any significant ability to enforce the mandate, it's not clear how the provision's penalties will actually work in practice.  Some people will likely pay the fine because it's a better deal. Others will likely game the system—hopping on and off of insurance plans in order to get coverage for big expenses without paying in long term. And if that's the case, we could find ourselves in an insurance death spiral, with a shrinking insurance pool and premium prices rising faster than ever. All of which is to say that no matter how the mandate works, or doesn't, the possible outcomes don't look good. 

I wrote about the madness of the mandate here and noted a constitutional case against the provision here.