Why do residents opt to pay insurance fine?
November 20, 2017
Tens of thousands of Coloradans who could be eligible for free or reduced-cost health insurance instead pay a fine every year for not having insurance at all, according to a recent report from a nonpartisan health group.
The issue, for many, is the price of insurance. Especially in rural areas of the state, the cost of insurance — even if it is reduced by federal tax subsidies — can still be many times more than the cost of paying the fine, said Joe Hanel, the manager of public policy outreach at the Colorado Health Institute and the report's author.
"The carrots and sticks are kind of misaligned," Hanel said. "The tax incentives you get to buy coverage are not enough to make it more economically enticing to be insured than to pay the penalty."
The penalty is meant to be a critical component of the Affordable Care Act, the national health care law also known as Obamacare. The law requires people to have insurance in the hopes of spreading the financial risk across the biggest possible group. Those who don't have insurance are required to pay a fine, technically a tax, to the Internal Revenue Service.
This year, the penalty is either $695 per adult or 2.5 percent of a person's income, whichever is greater. At that rate, the Congressional Budget Office has projected the federal government will collect $38 billion from the penalty between 2017 and 2026.
'Tax Credits on the Table'
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The Colorado Health Institute looked at how many people paid the penalty in Colorado in 2014 and 2015, when the tax was lower. Hanel's report found more than 126,000 people who paid the penalty in 2015, nearly 5 percent of Coloradans who filed a tax return that year. According to the Congressional Research Service, payments in 2015 from Colorado alone totaled $60.6 million.
The highest rates of penalty payment came from people who make less than $50,000 a year, the Colorado Health Institute report found. Many in that group would be eligible under the Affordable Care Act for subsidies to help pay for insurance premiums, Hanel said, although the IRS data he used for his analysis make it difficult to say how many.
"People were just kind of leaving those tax credits on the table and paying the penalty," Hanel said.
Mountain counties, such as Garfield, Lake and Grand, had the highest rates of penalty payment, and Hanel said that helps explain what is going on. Those areas also have some of the highest insurance costs in the state.
Even looking at the statewide average premium cost in 2015 — which was $1,512 per year for the lowest-cost plan for people receiving tax credits — sheds light on the issue. It cost four times more to buy insurance at that price than it did to pay the 2015 penalty.
Hanel said an increase in the penalty between 2014 and 2015 may have been partly responsible for reducing the number of people without insurance. The penalty increased again in 2016. But premiums have also increased rapidly, meaning the cost-benefit analysis may not have changed, Hanel said. Data is not yet available to know for sure.