Health Care

Some say penalties for no health insurance may not be deterrent

Medical bills forced Sara and Jimmy King, an uninsured Topeka couple with four children, into bankruptcy. After they climbed out, they were faced with new medical bills and recently learned they owe $8,000 for a 5-year-old bill from the hospital where one of their children was born.

They try to pay their own medical bills, Sara King said. Their children are covered by HealthWave, the state's public health insurance program. But she and her husband can't afford to buy into a plan offered by the small motor company where he works, she said.

The idea that they might be penalized if they don't sign up for health insurance under new health care legislation still evolving in Washington D.C. appalls them.

"Taxing people who can't afford health care is ridiculous," Sara King said.

The proposed new so-called individual mandate requiring everyone to buy health coverage or pay a fine is at the center of all the health care bills taking shape on Capitol Hill.

Determined to get as many people as possible covered, lawmakers first proposed fines of as much as $3,800 per family for health insurance scofflaws.

But some in Congress appear to agree with King. They have been steadily scaling back the penalties. The Senate Finance Committee last week dropped them to $750 maximum per adult in their version of a health care bill. The committee also phased in the penalties over five years with no fines in the first year.

The insurance industry — counting on millions more Americans buying insurance — says the penalties are now so weak they practically beg to be ignored.

Without big penalties, "there's a powerful incentive for people to wait until they're on their way to the hospital before they buy coverage," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, which represents insurers.

That, insurance companies warn, would raise premiums for everyone else, since Congress' health care overhaul would also require insurers to take all applicants.

Penalty questions

Would a smaller penalty motivate enough people to buy coverage, or would it undermine the near-universal health care coverage system that President Obama wants to create?

Members of Congress will wrestle with that key question throughout the fall as they struggle to write a final version of the legislation.

Backing away from penalties could threaten a compromise.

In exchange for penalties to encourage more people to buy insurance, insurers had promised to stop denying coverage based on pre-existing medical conditions or canceling coverage once someone gets sick.

The deal made sense for the insurers:

If health legislation goes through, they stand to gain up to 30 million new customers. And requiring most individuals to purchase health insurance would add new — and likely healthier — people to the risk pool, which would help reduce health care costs for everyone.

With smaller penalties, healthy adults may decide it's cheaper to pay the $750 than to spend thousands a year on health insurance, leaving insurers instead with an influx of new, high-risk customers.

Issues on each side

Experts think there are two groups that might shy away from buying policies: healthy young people, and people of all ages who can't afford coverage. Last year, 29 percent of people aged 18 to 24 were uninsured.

Mike Levand of Wichita, who has been without health insurance since January due to pre-existing conditions when he had to re-sign with his insurance company after a move from northeast Kansas, believes a penalty is appropriate for those who simply don't want to carry insurance.

"For me, $750 is not near enough penalty for those who won't sign up for it because they don't believe they need it," he said.

"The penalty has to be there. You have to do something to say, 'Hey, it' s a civilized society. You have auto insurance, you have to have life insurance, and it's there for a reason.' "

Mandated insurance is an important part of health reform so society doesn't end up paying medical bills for those who don't want to carry any, he said.

"I don't see anything wrong with making someone sign up for health insurance. It's for the good of the country," Levand said.

But for Corrie Edwards, executive director of the Kansas Health Consumer Coalition, the $750 penalty is still too high.

In Kansas, 338,000 people, or 12.4 percent of the population, lack health insurance, according to the Kansas Health Institute, which bases its numbers on the U.S. Census Bureau's latest population survey for 2007 and 2008.

Most of them can't afford it and taxing people if they don't get health insurance is unfair if the new plan doesn't make insurance affordable, Edwards said.

"Seven-hundred and fifty bucks right now for any individual I know is simply not affordable," Edwards said. "Shame on Congress if they pass something that doesn't have an affordability component in it.

"If we're going to do a mandate, we absolutely have to do a public plan option. That's the only way the working poor can buy into the market we have."

Government subsidies

The consensus among independent health experts is that big penalties, while preferred, aren't crucial. They say that requiring most people to obtain coverage should keep prices stable and ensure widespread compliance without the threat of large penalties.

"Consumers will focus on whether the policies are affordable and comprehensive," said Sara Collins, a vice president at the Commonwealth Fund, which studies health issues.

Added Linda Blumberg, an economist at the Urban Institute, a Washington-based research center: "People will want to obey the law, and many will be able to get subsidies."

All pending Democratic versions of the legislation would provide help to people who can't afford coverage. The Finance Committee's bill would provide aid to people who earn up to 400 percent of the poverty level, or about $88,000 a year for a family of four.

Under the Finance Committee's plan, a family of four earning $88,000 a year would be billed $13,112 for annual coverage. The government would subsidize $2,528 of that, leaving the family to pay 81 percent of the premium, according to Kaiser Family Foundation figures.

Would those kinds of numbers discourage people from obtaining coverage? The nonpartisan Congressional Budget Office didn't see it as a huge problem, estimating that about 94 percent of eligible Americans would obtain coverage under the Finance Committee plan, up from the current 83 percent.

No good model

There are few models to study. Massachusetts has required most adults to obtain coverage since 2007, and this year it's imposing penalties of up to $1,068 for people who don't. Last year about 2.6 percent of state residents remained uninsured, the lowest rate in the nation.

Lawmakers in the nation's capital contend that Massachusetts is hardly a model for the nation, however, because its residents tend to be more sophisticated about health care coverage and unemployment is lower than the national average. It was 9.1 percent in August, while the U.S. rate was 9.7 percent.

Many lawmakers remain concerned that smaller penalties would be an incentive to avoid buying coverage. Others think that their reluctant colleagues would accept such penalties if they're convinced that coverage will be affordable.

Still others have challenged the insurance requirement as unnecessary government interference in citizens' lives.

Senate Finance Committee Chairman Max Baucus, D-Mont., conceded that the penalty debate is far from over. "Frankly," he said, "we probably do need more work on this down the road."