Health and Science

GOP's Obamacare replacement plan will levy a bigger penalty for some uninsured Americans

Health care winners, health care losers
Health care winners, health care losers

Republicans hate Obamacare's individual mandate. But their new replacement plan, which gets rid of that rule, could cost some Americans more money.

Financial penalties for not having health insurance coverage could be higher under the GOP's proposed Obamacare replacement for many people than they would be under Obamacare itself, a new analysis finds.

The analysis from the Avalere Health consultancy also finds that proposed new penalties — to be imposed on uninsured people signing up for insurance after a two-month gap in coverage — would hit older people and those with lower incomes the hardest.

On the other hand, younger people and those who earn more money would face lower penalties under the new plan.

For example, a 50-year-old earning $47,520 annually would pay just $465 for being uninsured for six months under Obamacare.

But that same person but would be on the hook for up to $1,991 in penalties under the Republicans' plan if they were uninsured for the same time period and then signed up for coverage, the analysis finds.

If that person ended up earning $118,800 the following year in income, and also had a six-month gap in coverage, their Obamacare penalty would be $2,414. But their fine under the GOP plan if they signed up for insurance could be as low as $1,006.

"The continuous coverage penalty" proposed by Republicans "functions much like today's individual mandate, but it increases penalties for lower-income and older individuals, and it reduces penalties for younger and wealthier people," said Caroline Pearson, senior vice president at Avalere.

Obamacare's individual mandate currently requires most Americans to have some form of health coverage or face a potential tax penalty equal to the greater of $695 per adult, or 2.5 percent of household income.

Lower-income earners pay less in fines than those with higher incomes. And the fines are prorated based on the length of time a person is uninsured, with shorter gaps in coverage penalized at lower rates than longer gaps.

The plan proposed Monday by Republican leaders in Congress calls for ending that mandate, meaning that no one would pay a fine for lacking insurance. But the GOP's plan would impose a penalty on people signing up for health insurance after being uninsured for 63 days or more.

That penalty would be 30 percent of the monthly premium of the insurance plan selected by that person, and would last for 12 months, beginning in 2018. The penalty would not be prorated, meaning that someone with a three-month gap in coverage would pay the same penalty as someone with a 12-month gap if they signed up for the same insurance plan.

Avalere, in a report on its analysis, noted that "the penalty would be higher for older people and lower for younger people" because the health insurance premiums of individual insurance plans are age-adjusted, with older customers paying more.

House committess debate bill to replace Obamacare
House committess debate bill to replace Obamacare

A chart prepared by Avalere shows that for all uninsured 50-year-olds earning less than $71, 280 annually, the Republican penalty would be more expensive if they signed up for coverage than the cost of the current Obamacare penalty.

And because the Republican plan's penalty "is not tied to income," as Obamacare's penalty is, "low-income individuals will pay significantly more under" the GOP proposal than higher income earners.

Another Avalere chart showed how a 27-year-old person earning $35,640 annually would owe $695 in penalties under Obamacare for being uninsured for a full year.

That same person, if they sought to sign up under the Republican plan for coverage after year-long lapse, would owe $1,006 in penalties if they enrolled in the least expensive form of insurance, and $1,169 in penalties if they purchased the second-cheapest type of coverage.

Pearson noted that "the majority of people who are [currently] uninsured are low-income, so the people who pay the [current Obamacare] penalty tend to skew low-income."

"Those are the people that end up paying more under this new proposal," Pearson said.

While the 30 percent penalty called for by the Republican proposal is designed to discourage people from dropping health coverage — thus hurting the bottom lines of insurers — some health analysts have said it could actually have the opposite effect.

Healthy people, no longer confronted with Obamacare's individual mandate, may wager they will be better off financially by dropping their insurance plan, knowing they can re-enroll in coverage, and pay the GOP's penalty, if they need to at a later date.

Peason said, "I think it encourages people to delay buying coverage until they have very acute health-care needs."

"I think it could make the risk pool worse, which would drive up premiums," Pearson said.

Premiums are based on an insurer's costs. The healthier the "risk pool" of customers is the more likely it is that their premiums will cover the cost of providing benefits to customers needing medical care. The sicker the pool, the more likely that costs will outweigh revenue from premiums, which would lead insurers to increase their prices.