Choosing penalties or policies

Many uninsured Louisianans, especially healthy young adults, will soon face a choice under Obamacare — pay for policies through the health insurance marketplaces that open Tuesday or pay a penalty.

Louisiana Insurance Commissioner Jim Donelon said there is a real danger that the “young healthys” won’t enroll because they bear a disproportionate share of health insurance costs.

It costs 12 times as much to insure a person ages 55 to 65 versus a young adult, Donelon said. But the Affordable Care Act caps premiums for older adults at three times what young people pay. The cap was a compromise to win AARP’s support for the new law.

“That’s all well and good, but if you tentpole the cost to young people, and they drop out of the system … then the cost for everybody goes up because you have fewer people to spread that (cost) across,” Donelon said.

If enough young people don’t participate, the cost of health insurance could go through the roof. Spiraling costs then could cause more and more people to stop buying coverage, eventually leading to the collapse of the entire Affordable Care Act.

The individual mandate is seen as crucial to expanding coverage to an estimated 30 million Americans, many of them healthy young people who typically don’t buy health insurance. Because they need little in the way of medical care, young adults help offset the costs for insuring older, sicker people. The insurance industry says requiring it to cover everyone without expanding the insurance pool to include young healthy people would lead to much higher premiums.

B. Ronnell Nolan, who heads The Nolan Group of Baton Rouge, said most young people will probably just pay the penalty for 2014 instead of buying insurance.

For 2014, the penalty is $95 per adult or 1 percent of family income, whichever is greater.

In 2016, the penalty reaches $695 per adult or 2.5 percent of family income, whichever is greater.

“I don’t think they’re going to be able to count on a lot of young people jumping into the plan right away … because of the cost,” said Nolan, who is also chief executive officer and president of Health Agents for America.

Most young people would rather buy something than invest in health insurance.

“Unless they’re really, really responsible, and they understand the importance of insurance, and that things could happen to them,” Nolan said.

It’s unclear how many people even know the marketplaces exist or that people with low or moderate incomes can get financial help to pay for health insurance.

A survey by the Commonwealth Fund shows only 32 percent of the uninsured are aware of the marketplaces and only 31 percent of them know subsidies are available.

Some experts also question whether the penalty for ignoring the mandate is much of a threat.

The Internal Revenue Service — put in the position of enforcing payments — says the Affordable Care Act prohibits the agency from garnishing wages, filing liens against a person’s property or seizing property to collect any penalty. The IRS says the only way to collect the penalty is by taking a person’s tax refund.

Gregory Frost, a partner with Breazeale, Sachse & Wilson LLP in Baton Rouge, said roughly 46 percent of Americans don’t pay income taxes.

Among that 46 percent, almost everyone who isn’t going to buy insurance lies at the low end of the income scale, Frost said. If they aren’t paying taxes, the IRS can’t collect the penalty.

And those who typically receive a refund can easily prevent the IRS from tapping that money. All they have to do is lower the amount of taxes withheld from their paychecks to avoid overpaying and getting a refund.

However, Stephen Angelette, an attorney with Breazeale, said the IRS’s inability to collect doesn’t mean the penalties or interest go away.

It just gets rolled over to the next year, he said.

“So you could calibrate your taxes to avoid the penalty forever, but it would be tricky,” Angelette said.

Ethan Rome, executive director of consumer group Health Care for America Now, said collecting the penalty isn’t as important as the fact that a penalty exists — for a couple of reasons.

“One is most people follow the law. Two is it’s easy to because people want insurance so they’re shopping for it,” Rome said.

People without insurance wish every day they could afford health care, and now they can, Rome said. Six out of 10 people will pay less than $100 a month for coverage in the marketplaces.

Jordan Barry, an associate professor in the University of San Diego’s Law School, said most people probably won’t bother to change their tax withholding to avoid penalties because making a change is a nuisance.

But they could, he added. And there are some people very much opposed to the mandate on a philosophical level. Those people might bother.

Jordan said the requirement to buy insurance has been presented as “this big heavy mandate.”

“But at the end of the day, all that is backing it up is sort of your unwillingness to go and have your withholding changed. So it’s kind of like a mandate through inconvenience,” Jordan said. “It’s sort of like, ‘Pay us this $5, and if you don’t, you have to file this form.’”

Meanwhile, it’s unclear whether the Affordable Care Act allows the IRS to levy additional penalties against individuals who don’t pay the mandate penalty.

The law apparently lets the IRS charge interest on the unpaid penalty amounts, Barry said. But again, the IRS can’t collect the interest on the penalty unless the agency takes the money from a person’s refund.