Individual mandate penalty too low to encourage uninsured to get coverage

The individual mandate penalties may be too low to entice consumers to purchase coverage on the health insurance exchanges, according to a recent report from Avalere Health.

Only 68,000 inviduals have signed up for coverage on during the special enrollment period--which opened March 15 for those who learned after Feb. 15 that they faced a penalty for not having insurance in 2014 and who wanted to enroll in 2015 in order to avoid that penalty. Avalere found that this low number of enrollees stems in part from monthly premiums for subsidized insurance costing more than the individual mandate penalty.

Here's how the report breaks it down:

  • The individual mandate penalty is $95 for 2014 and $325 for 2015 multiplied by the number of uninsured individuals per household, or 1 percent of income for 2014 and 2 percent of income for 2015, whichever is greater.
  • On average, a 27-year-old who makes 200 percent of the federal poverty level (FPL) in 2014 would spend $849 on coverage after using federal subsidies. However, the fine for not purchasing coverage would be $230.
  • If that individual were to remain uninsured in 2015, he would spend $391 more on insurance than if he paid the penalty.

While the report concluded that individuals with incomes at or around the FPL in 2015 will end up saving money by purchasing coverage as opposed to paying the fine, "the incremental cost of insurance becomes less significant as the mandate penalty grows," noted Avalere Senior Vice President Caroline Pearson. "Individuals earning more than double the poverty level may continue to forego coverage since paying the fine is still much more affordable than purchasing insurance."

For more:
- here's the report