Americans Are About to Pay $5 Billion in Fines Thanks to Obamacare

The March 31 deadline to comply with the individual mandate of the Affordable Care Act (ACA) is right around the corner. While the Obama administration is trying to keep the actual numbers very hush-hush, even the most optimistic estimates show the law is nowhere near covering all uninsured Americans in the first year of implementation.

So far, the law is miserably failing at achieving its enrollment goals, is blowing a huge hole in the deficit and is disapproved of by a majority of both the uninsured (the primary beneficiaries) and the young invincibles (the primary bill payers).

With just days until the deadline, uninsured Americans could wind up being on the hook for $5 billion in tax penalties. That's not the hallmark of a well-crafted law; that's a steamroller forcing us into compliance.

Here’s what we know: According to a 2012 U.S. Census (long before the ACA went into implementation), there were 48 million uninsured Americans — 6.6 million of them under the age of 18.

We also know that the latest estimate available of Americans signing up for the healthcare exchanges is about 5 million as of March 17, according to the Centers for Medicare and Medicaid Services (CMS). Naturally, the rate of enrollment has increased as the deadline approaches (to a pace of 50,000 or so enrollments a day), but even the increased projections estimate less than 6 million Americans signed up by March 31.

There are at least a few other variables. We don’t know exactly how many of the more than 5 million enrollees that have signed up for the healthcare exchanges were previously uninsured. We also don’t know exactly how many healthcare plans have been cancelled as a result of not meeting the ACA’s coverage standards. Through an extensive reporting project, the Associated Press found at least 4.7 million Americans received notices about cancelled policies by the end of 2013; it could be higher today (some have calculated as high as 6 million).

However, most of those cancelled plans have been restored in some way. As PolitiFact points out, about half those policies were restored when the Obama administration allowed cancelled plans to continue for another year and later through 2016. Many others were also moved to new plans, either through their insurance company or by purchasing a new policy through the healthcare exchanges. The Obama administration estimated that of the people with cancelled health insurance plans, just 500,000 were left without coverage, and catastrophic coverage was extended to those individuals. As PolitiFact concludes, "That’s not to say this wasn’t a difficult ordeal for people who lost their plans, especially if they thought the law would allow them to keep their coverage [as President Barack Obama promised]. But most of them were able to find new plans," almost erasing the total number of cancelled plans as a result of the ACA law.

The latest estimate available as to how many of the healthcare exchange enrollees were ones that were previously uninsured comes from McKinsey, the leading management consulting firm, using enrollment data from February 1. At that time, the total number of enrollees was 3.3 million, however McKinsey found that only 472,000 of those enrollees — or about 14%of total sign-ups — were previously uninsured.

So that’s what we know going into March 31.

Let’s assume the most optimistic estimate of healthcare exchange enrollees the administration hopes to realistically achieve by the deadline — 6 million sign-ups — occurs. It’s impossible to prematurely estimate how many of those 6 million enrollees were previously uninsured, but assuming the rate calculated by McKinley remains the same, we’re looking at about 850,000 of those enrollees having been previously uninsured. It’s also impossible to prematurely estimate how many of those enrollees have children under the age of 26 whose healthcare coverage would be extended too, but let’s assume 150,000 for an even total of 1 million previously uninsured Americans.

That’s a reduction of about 48 million uninsured Americans to 47 million, or 2.1%, by the March 31 deadline (which is consistent with a recent Gallup poll survey).

Source: Gallup

So with about 47 million Americans remaining uninsured after the March 31 deadline, what is the total amount of penalties the Fed can reasonably expect to collect from the individual mandate?

Uninsured adults will either pay a flat fee for themselves and their children or pay a share of their income, whichever is greater. The tax penalties start relatively small, but ramp up within a few years. But they cannot exceed the national average premium for bronze coverage, the cheapest plan tier, in the state-based exchanges.

For 2014, the flat fee is $95 per adult and $47.50 per child, up to $285 per family. Or the tax penalty could be 1% of family income, if that results in a larger fine. Income is defined as total income above the filing threshold, which is $10,000 for an individual and $20,000 for a family in 2013.

Source: CNN Money

So, for example, a person making $50,000 would be subject to a $400 tax penalty, while a couple earning that amount would each pay $300.

By 2016, the flat fees grow to $695 per adult and $347.50 per child or 2.5% of family income, whichever is greater. By then, the average premium for bronze coverage is expected to hit as much as $5,000 for an individual and $12,500 for a family.

According to the latest estimates from the non-partisan Congressional Budget Office (CBO), the individual mandate tax that will be levied on individuals who do not purchase health coverage is expected to cost Americans $51 billion over the next 10 years, or an average of $5 billion a year. Penalties paid by employers of 50 or more full-time workers who do not offer their employees health coverage are projected to total $151 billion over that same time period, or an average of $15 billion a year.

That's $5 billion a year in taxes on individuals who are in non-compliance and in an already tough economy. Though, the administration has added a "hardship exemption," for indiividuals who don't think they can pay the penalty tax, or what the administration calls in an almost Orwellian way, the "individual shared responsibility payment."

In total, the aggregate sum of projected revenues the ACA taxes on individuals, employers, high-premium insurance plans and other sources are expected to generate over the next 10 years is $517 billion, according to the CBO. However, the costs of implementing Obamacare over that same time period is projected to total $2 trillion, culminating in a total net loss of $1.5 trillion.

On top of that, the CBO also projects that the ACA will shrink the work force by a net of more than 2 million full-time job losses by 2017.

If one were to apply a classic cost/benefit analysis test of this law, that’s quite an expensive cost for very little benefit. And the target group that the ACA intended to help most — the uninsured — now disapprove of the healthcare law 56%-22% according to the latest Kaiser Family Health poll (in addition to 18 to 29-year-olds now disapproving of the ACA 57%-41% according to a Harvard poll).

Source: Kaiser Family Foundation

But, hey, that’s government for you. Still, it was smart of President Obama to wait until after he was safely re-elected to launch "his legacy," though it may cost him big in the 2014 midterm elections, especially regarding Democratic control of the Senate.

In the meantime, get those checkbooks ready.