CHAMPAIGN, Ill. – However the U.S. Supreme Court rules on the constitutionality of a mandate to buy health insurance, the law that imposes the mandate is in serious trouble, says a University of Illinois expert on tax and retirement issues.
Law professor Richard L. Kaplan says even a favorable ruling on the constitutionality of the law’s so-called “individual mandate” from the high court might not save the law if healthy Americans do not obtain health insurance.
“The whole purpose of the individual mandate is to ensure that everyone is part of the insurance pool,” said Kaplan, the Peer and Sarah Pedersen Professor of Law. “The law requires insurance companies to accept everyone regardless of pre-existing medical conditions, but that requirement can work only if healthy uninsured people buy insurance.”
According to Kaplan, the law’s penalty for not buying health insurance is very weak. In 2014, an uninsured person would owe the greater of a penalty of $95, or 1 percent of that person’s adjusted taxable income. The penalty increases over the next several years, but even when fully phased in by 2016, it would only be the greater amount of $695 per year, or 2.5 percent of adjusted taxable income, Kaplan says.
“A single person who earns $40,000 would thus owe $1,000 in penalties,” he said. “By contrast, a qualifying health insurance policy would cost many multiples of that penalty. As a result, that person might choose not to buy health insurance, opting to wait until something medically unfortunate happens. Insurance companies will not be able to refuse her at that point, a situation that might imperil the private health insurance market.”
According to Kaplan, even that hypothetical scenario assumes that the penalty for being uninsured would actually be enforced. Since the penalty is based on income as determined for federal tax purposes, the enforcing agency would be the Internal Revenue Service.
“It’s not clear that the IRS would deploy its limited enforcement resources to go after relatively small penalties, especially when there are difficult interpretive questions such as what constitutes a qualifying health insurance policy,” he said.
Kaplan says political support for the health care reform law is also eroding among a key constituency – older voters, especially since they have already lost one of the significant benefits in the new law, when the Obama administration abandoned efforts to implement its program to cover long-term care last month.
“The Community Living Assistance Services and Supports, or CLASS, program would have paid for less expensive alternatives to nursing homes, including paying family members who provide care to older relatives in their homes,” Kaplan said. “The administrators charged with setting up the program concluded that it could not be made self-sustaining, as the new law requires.”
On the other hand, Kaplan notes that Medicare beneficiaries have begun to see more comprehensive coverage of prescription drugs and annual wellness visits this year. However, other changes brought about by the health care reform law may be unwelcome to seniors.
“The new law reduces fees for all Medicare providers, including hospitals, nursing homes, pharmacies and home health care agencies,” Kaplan said. “If those providers severely limit the number of Medicare beneficiaries that they see, as Medicaid providers already do, the promise of Medicare coverage will be hollow. After all, it’s not much of a benefit if Medicare pays for a particular service but you can’t find someone to provide that service.”
Editor’s note: To contact Richard Kaplan, call 217-333-2499; e-mail rkaplan@illinois.edu.
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