CBO: Four Million Americans Will Pay Individual Mandate Fine

CBO: Four Million Americans Will Pay Individual Mandate Fine

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)


A report by the nonpartisan Congressional Budget Office (CBO) forecasts the health insurance individual mandate included in President Obama’s health care law will force approximately four million uninsured Americans to pay a sizable fine by 2016.

“Among those who are subject to the penalty, many will voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid making payments,” the CBO reported in a letter to Congressional offices. “Therefore, the estimates presented here account for likely compliance rates, as well as the ability of the Internal Revenue Service (IRS) to administer and collect the penalty.”

Under a complex system of waivers and caps put into place for households which fit certain criteria, the annual penalties will average a little more than $1,000 apiece by 2016, according to the CBO.

Could Be Big Underestimate

CBO’s methodology could be undercounting the number of people subject to the fine, says Sally Pipes, president of the Pacific Research Institute, a California based think tank,.

“CBO estimates that about 14 million people will make conscious decisions not to buy health insurance if they deem it too expensive,” Pipes said. “But by 2016, when the mandate goes into effect fully, CBO claims only about 4 million of them will be paying a fine. Since CBO does not release their methodology for these types of claims, we have little way of analyzing its accuracy—it could end up being a much higher figure in terms of liability.”

According to Mark Pauly, professor of health and economics at the Wharton School of Business, this makes it difficult to predict the outcomes of the program.

“You take a reasonably precise number and you multiply it by a more or less made up number, and that's how you come out with a conclusion,” Pauly said.

No Methodology Provided

According to Robert A. Book, senior research fellow at the Heritage Foundation, the four million figure originated in a November 30, 2009 report CBO sent to Democrat Senator Evan Bayh of Indiana, which did not provide a methodology.

Pauly believes the figure is based more on conjecture than fact, noting higher premiums may make insurance less attractive to younger, healthier individuals, who may choose to pay the fine rather than obtain costly coverage.

“Surveys of people by their income level and insurance coverage and so forth give you a pretty good idea how people would be subject to the penalty,” Pauly said. “But that doesn't tell you how many will pay the penalty versus how many will go ahead and buy the insurance. That calculation is made based on an estimate of how responsive people are to financial incentives, and estimates of whether insurance they will purchase can be had for a reasonable price.”

Wide Margin of Error

Obama’s law contains provisions for guaranteed issue, which forces insurance companies to disregard the health status of new customers. A provision of that type has allowed sick individuals to exploit Massachusetts’ individual mandate. But Book notes Congress included flexibility for the Secretary of Health and Human Services (HHS) to allow for a waiting period before newly insured people are eligible for public benefits, which could discourage some people from gaming the mandate.

Another incentive to comply with the individual mandate could take the form of an increased IRS presence, though the agency’s enforcement ability is not expanded under the law.

“Congress is adding 16,000 IRS agents to step up enforcement, which I assume will be in localities rather than in Washington,” Pipes said. “But we’ll have to wait and see.”

These provisions create a very wide margin of error around the CBO estimates, according to Pauly.

"The CBO is not allowed to attach confidence intervals to its estimates, but if you were a statistician you would say, even if that is your central estimate, that it could be a lot more, or it could be a lot less,” Pauly said. “It’s a starting point, but that’s all it is.

Loren Heal (loren.heal@gmail.com) writes from Neoga, Illinois.

Internet Resources

Congressional Budget Office Report on Individual Mandate Penalties: http://www.heartland.org/healthpolicy-news.org/article/27722/CBO_Report_Mandate_Penalties_in_PPACA.html

Loren Heal

Loren Heal (loren.heal@gmail.com) is a research programmer at the University of Illinois at Urbana-... (read full bio)