Two years ago, I was appointed to the Maryland Health Insurance Coverage Protection Commission which was created to prevent the Affordable Care Act (ACA) in Maryland from collapse. Younger (and healthier) Maryland families were finding that they could not afford to pay the rapidly rising health insurance premiums available through the exchange and were dropping out of the program, leaving the program top-heavy with older, less healthy insureds. If the ACA in Maryland were to collapse, more than 150,000 Maryland citizens would lose their health insurance.
In 2018, the commission produced legislation which created a “reinsurance” program that capped health insurance insurer exposure on a per individual basis at $20,000 per insured. Most higher expenses will be paid for out of a reinsurance pool of money. With their exposure capped, the two remaining companies selling individual health insurance policies in Maryland were able to significantly downwardly adjust their Maryland premiums for 2019. Premiums that had been projected to rise by as much as 94 percent in 2019 instead decreased by an average of 13 percent.
One issue that was not addressed by the commission last year was the issue of whether monetary penalties should be imposed on Maryland citizens who fail to buy health insurance. At the federal level, the ACA penalties have been eliminated by the Tax Cuts and Jobs Act of 2017, but some legislators want to re-impose the penalties on Maryland citizens.
There are three principal reasons why Maryland citizens do not obtain health insurance: (1) they can’t afford to pay the high premiums; (2) they can’t understand the program and are unwilling to commit to pay money for a program that they don’t understand; and (3) they are willing to run the risk of being uninsured and prefer to spend their money on other things.
I believe that most people who fail to purchase health insurance for their families just can’t afford it. For 2018, for example, the cost of health insurance for a family of four was $18,000. Lots of working families can’t afford that expense. For many families, subsidies are available to a greater or lesser extent, but this still leaves many other families unable to afford the insurance. Until it was zeroed out, the penalty under the federal ACA for families of four who failed to buy the insurance was slightly more than $2,000.
In Maryland, 76 percent of the families subject to the penalties in past years had adjusted gross annual incomes less than $50,000. So the question is squarely posed — should Maryland single out families that can’t afford the health insurance premiums and impose annual penalties?
That’s bad public policy for two reasons. First, the simple equities involved. Second, it is far preferable for government to offer incentives to citizens to do what is desirable than to extract money from them if they fail to do what government wants them to do.
The reason for the penalties in the ACA in the first place was to induce families to buy health insurance, thus ensuring that the pool of insureds would be large and would include younger, healthier families as well as older, less healthy families. But clearly the penalties have not worked.
A $2,000 penalty is simply not sufficient to induce a family of four to somehow scrape together $18,000 to pay for the insurance. At the commission hearings, I asked insurance company representatives how high the penalties would have to be to induce families to buy the insurance. The answer that I received was between half and two-thirds of the cost of the insurance. Again using a family of four to illustrate the point, that would mean that an effective penalty would be between $9,000 and $12,000 a year. I cannot imagine that the Maryland General Assembly should or would vote to subject Maryland citizens to annual penalties in this range.
On December 14, 2018, a Texas federal judge issued a Memorandum Opinion and Order in Texas v. United States striking down the entire federal ACA as unconstitutional. The court noted that the Supreme Court had previously held that the ACA requirement that each American buy health insurance is only constitutional because the associated penalties could be characterized as a “tax.” In light of the fact that the penalties have now been eliminated, the Texas court held that there is no longer a “tax” and thus that the mandatory purchase requirement is unconstitutional. Where I think the judge went astray was in his subsequent holding that without the penalties, the entire ACA is unsustainable and therefore must be ruled unconstitutional.
In Maryland, we have established that our state ACA can survive without the penalties. There will be no penalties in 2019 in Maryland and thus no enforceable requirement that Maryland citizens buy health insurance. Thanks to the work of the Health Insurance Coverage Protection Commission, health insurance premiums in Maryland are going down, and we learned on December 17th that total enrollment in Maryland next year will go up by at least 2 percent. This higher enrollment despite the elimination of penalties gives the lie to the premise relied upon by the Texas judge in Texas v. United States that the ACA is unsustainable without the penalties. It also demonstrates that reimposing penalties in Maryland is unnecessary.