Many Will Opt Out and Simply Pay a Small Penalty

COMMENTARY Health Care Reform

Many Will Opt Out and Simply Pay a Small Penalty

Aug 2, 2013 2 min read

Commentary By

Nina Owcharenko Schaefer

Director, Center for Health and Welfare Policy

Alyene Senger @AlyeneSenger

Former Policy Analyst, Domestic Policy Studies, Institute for Family, Community, and Opportunity

It should come as no surprise when employers and young adults decide not to join in the Obamacare parade - despite the lofty promises made by the president and supporters in Congress.

As more about the law is learned, more problems come to light. Two groups crucial to the health-care law's success - employers and young adults - are beginning to see that costs may be outweighing the benefits.

Participation by employers is critical to making the law work. The law counts on employers to continue offering coverage to their workers.

Not only because the president promised that if you like your health care, you can keep it, but also because the fewer employers that offer coverage, the more employees will look to get subsidized coverage in the exchanges - causing costs for taxpayers to sky rocket.

The need to keep employers in the game helps explain the employer mandate. The authors of the law must have understood how the law changes an employer's incentives and feared they would respond by dropping coverage. Therefore, the penalty on certain employers whose workers show up for coverage in the exchange was included.

But employers are already resisting the law, which in large part contributed to the recent temporary mandate delay.

For instance, there are more than 60 cases before the courts challenging the requirement that certain employers offer coverage they find morally objectionable due to new benefit mandates that include coverage for contraception, sterilization, and abortion-inducing drugs.

There are also cases challenging the validity of the employer mandate in the 34 states that will have a federally run exchange, because the law's language doesn't specify that it should apply there.

And before the employer mandate delay, we saw many employers shifting their full-time workers to part-time workers to protect themselves from higher healthcare costs or penalties.

The Congressional Budget Office currently projects that seven million people will lose their employer-sponsored insurance. But that trend might be much larger as more employers conclude that discontinuing coverage altogether may be the most cost effective option for them.

Young adults, who are generally less costly to cover, are also expected to play a key role in the law's success by keeping costs down. Reportedly, the administration estimates that of the 7 million enrollees they expect in the exchanges next year, 2.7 million need to be young, healthy adults to make premiums work.

The need for young enrollees to participate stems from rules that force insurers to charge them more than they actually cost to help offset the higher cost of insuring older and sicker people. If the young don't sign up, premiums for everyone in the insurance pool will dramatically increase as will the cost to the government.

Here too, the authors of the law must have feared young adults and others would not voluntarily purchase this more expensive coverage. They therefore included the individual mandate to penalize those who don't purchase coverage.

But young adults are beginning to see the reality as the health law takes shape, and understand how they wind up losing from every angle.

The costly benefit mandates, plus paying artificially higher premiums solely because of their age, will make their coverage costs higher than the penalty for not purchasing government-approved coverage. Thus, many young adults will simply pay the lower-priced penalty instead. And finally, whether they try to pay for coverage or opt for the penalty, some will likely find part-time jobs where full-time employment used to be.

Rational decisions by employers and younger adults are just that - rational decisions made in the face of an irrational law. So far, they have plenty of reasons and incentives to simply opt out.

- Nina Owcharenko is director of the Center for Health Policy Studies and Alyene Senger is a research analyst at The Heritage Foundation.

First moved by the McClatchy-Tribune news wire.

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