GOP Premium Penalty to Replace Obamacare Tax Penalty?

Michael Hamilton
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Posted: Mar 09, 2017 12:01 AM
GOP Premium Penalty to Replace Obamacare Tax Penalty?

Conservatives and libertarians, lawmakers and pundits, can and will debate ad infinitum about the need for House Republican leaders to ensure their latest Obamacare replacement bill is politically palatable, even at the expense of some idealism.

The latest bill favored by House GOP leaders—the American Health Care Act (AHCA) released on March 6—appears to make unnecessary concessions out of the gates. Even if passing AHCA proves to be the only politically viable path forward for replacing Obamacare—and I think it is too early to grant it this status—Republicans should claw back ground they obviously should have kept all along.

For example, House Republican leaders pride themselves on removing the individual mandate and tax penalty for individuals who don’t buy insurance, but the GOP leadership’s latest draft bill replaces the Obamacare mandate with a premium penalty.

The bill states insurers “shall” charge a 30 percent “penalty” to buyers who fail to present “certificates” proving continuous coverage. Some analysts have construed this provision of the bill as giving insurers permission to charge patients extra. The text itself, though, provides no permission, but an edict, in subsections titled “Penalty Applied” and “Amount of Penalty”:

“A health insurance issuer offering health insurance coverage in the individual or small group 10 market shall … increase the monthly premium rate otherwise applicable to such individual for such coverage during each 18 month of such period by an amount … equal to 30 percent of the monthly premium rate otherwise applicable to such applicable policyholder for such coverage during such month.” [Emphasis added.]

Dictating what insurers must charge patients, even patients who may prove more expensive to insure, essentially trades Obamacare’s individual mandate and tax penalty for a Republican individual mandate and premium penalty.

If Republican leaders deem it essential to spur patients to maintain continuous health insurance coverage, they could at least change “shall” to “may,” and change “equal to 30 percent” to “up to 30 percent.” These benign revisions would remove the GOP mandate and preserve the possibility insurers would compete on price for the business of patients with lapses in coverage.

If this mandate goes into effect, insurers will price their plans competitively only for buyers who can demonstrate no lapse in coverage. The mandate removes any possibility of insurers responding to market signals of patients who did have lapses in coverage. Those signals would be effectively blocked from transmission by the mandated 30 percent penalty. 

This is ill-conceived, considering Republicans have long promised their Obamacare replacement plan would result in an insurance market more responsive to individuals who have experienced lapses in health insurance coverage. This mandate would tune out those patients.

One could object the mandatory 30 percent penalty is necessary to ensure health insurers do the government’s dirty work of making patients feel the pain of refusing to buy insurance. Since when, however, do health insurers need the government’s help making patients feel pain?

As Obamacare demonstrates, and AHCA threatens to confirm, Congress inflicts pain on patients by conflating “health care” with “health insurance.” Laws substantially rewarding patients who buy health insurance deter patients and providers from pursuing health care solutions utterly removed from insurance.

For example, the latest plan does not appear to consider members of health care sharing ministries, which Obamacare exempts from the individual mandate and tax penalty, as eligible for the health insurance tax credit. Nor does it appear to recognize them as having continuous coverage for their health care expenses. This is backward, considering HCSM members have shared each other’s health care costs more efficiently and effectively than insurance markets for the past 25 years, and especially during the reign of Obamacare.

Before approving AHCA, House Republican leaders should comb through it to claw back needless concessions and impositions—things Democrats and centrist Republicans either don’t care about or to which they object so strongly they will never support anyway. Letting insurers set their own, competitive penalties for lacking continuous coverage would be a start.

Congress and President Donald Trump’s focus should be on decreasing the federal government’s footprint in the health insurance and health care markets, thus creating more room for states to implement any number of state-level reforms recommended by The Heartland Institute.