Washington – As Congress is about to vote on a tax overhaul that will gut the Affordable Care Act’s mandate that most Americans have health insurance, a number of states, including Connecticut, may consider a state-based penalty to encourage people to obtain coverage.
Nearly 60,000 individuals and families in Connecticut paid a federal tax penalty last year because they did not have health insurance coverage in 2015, a penalty imposed by the ACA’s “individual mandate.”
Most of those paying that penalty in Connecticut — about 50,000 tax filers — reported incomes to the Internal Revenue Service of between $10,000 and $50,000.
The final tax bill that will be voted on this week in Congress would eliminate that mandate in 2019. The result, the Congressional Budget Office said, is the number of uninsured Americans would grow by 4 million people that year and by 13 million by 2027. The CBO also estimates there would be an immediate increase of about 10 percent in premiums because the risk pool that remains would be older and sicker.
“Congressional Republicans made a terrible policy decision in eliminating the healthcare mandate,” said Lt. Gov. Nancy Wyman, who heads the state healthcare cabinet.
Wyman said elimination of the penalty will “cause healthcare costs to rise for everyone.”
“Connecticut’s bipartisan working group is examining the impact of federal action on our healthcare landscape and considering all options to ensure healthcare is affordable and accessible for residents,” Wyman said.
State Rep. Sean Scanlon, a Democrat on that working group, said the idea of a state-imposed mandate “absolutely has to be on the table,” if Congress approves the GOP tax overhaul, because the end of the federal mandate “would be a very bad thing for the state of Connecticut,” resulting in more uninsured and higher premiums for those who do buy insurance.
Scanlon said that as the chairman of the insurance committee in the state legislature, “I intend to have a conversation about this that includes both parties,” when the General Assembly meets early next year.
“To me, this is a very important topic that we will undoubtedly discuss in February,” he said.
“Step one has to be if the (federal tax penalties) do go away, is imposing a mandate the right thing to do?” Scanlon said. “And if we answer that ‘yes,’ then the next step is determining what it would look, like.”
Maryland is considering a state mandate that would give those required to pay it the option of using that money to help pay for insurance coverage, which is subsidized for many under the ACA.
In most cases, Maryland officials say, the person under penalty may not have to pay any more money to obtain coverage because of those subsidies, which help pay premiums for those who earn up to 400 percent of the federal poverty level. That’s an income of $47,500 for an individual this year, and $97,200 for a family of four.
Massachusetts never repealed the state mandate it had imposed before Obamacare went into effect. So if Congress approves the tax bill this week, as expected, the state still has its mandate on the books.
California is also considering a state mandate – as well as other options.
At a recent board meeting, Peter Lee, the executive director of Covered California, the state’s ACA marketplace, raised the idea of a state-level individual mandate if the federal one disappeared.
But he also proposed other steps the state could take to keep premiums from rising, including a continuous coverage requirement — requiring people to remain enrolled in health insurance or pay higher premiums later – and automatically enrolling Californians in an insurance plan.
Washington, D.C., is also discussing replacing the federal mandate with its own penalty.
The idea of a state mandate is under discussion in mainly “blue” states with Democratic governors and state legislatures. But it comes at a political cost, as the individual mandate is one of the most unpopular parts of the Affordable Care Act.
Matthew Katz, executive vice president of the Connecticut State Medical Society, said he’d rather the state offer those who might drop coverage if the individual mandate is eliminated “a carrot, not a stick.”
But he said the mandate “is a way to fund and encourage participation in the marketplace,” and without it there will be “a further ballooning of premiums.”
“If the state doesn’t do something, it could be disastrous to the insurance market,” Katz said.
Making lemonade from lemons
Stan Dorn, a senior fellow at Families USA, a health care advocacy group, said different types of people will drop coverage if the federal mandate is gone.
Not only will young people and young families with modest incomes who are struggling to purchase coverage on the individual market drop coverage, but some people who are now covered under employer policies may elect to drop out of those plans so they don’t have to pay their match.
Also, a number of people who are eligible for Medicaid, the joint federal state program for those with low incomes, may be uninsured.
“The individual mandate act as a ‘nudge’ for many people who don’t realize they qualify for Medicaid,” Dorn said.
The CBO said the end of the mandate and the increase in the number of uninsured would save the federal government about $338 billion over the next decade in subsidies and Medicaid costs it no longer has to pay for. The savings are earmarked by GOP authors of the tax overhaul to offset the cost of some of their plan’s tax cuts.
Dorn said he expects insurers — who want the young, healthy people most likely to drop coverage to stay in the market — to press states to “fill the gap” if the individual mandate is gone, and consider state tax penalties to boost coverage.
“But this is all at an early stage,” Dorn said. “Discussions are just getting underway.”
Still, he predicts “some states will make lemonade out of lemons.”
“They will step up to the plate to help their residents,” Dorn said.