The Individual Mandate of the Affordable Care Act psychologically chafes folks who don’t appreciate the government telling them what they have to purchase. Count me in that segment. If one of the goals of the Individual Mandate is to make people take responsibility for expensive health care, an alternative might be an unforgivable tax liability on those people who have chosen to forego health insurance and incur large medical expanses that go unpaid.
Two purposes for the Individual Mandate
The Individual Mandate, with its associated penalties for not having health insurance, has two main purposes. First, health insurance companies need a good mix of healthy people in their membership pools to keep rates stable and to pay for health care of folks with chronic health challenges. Second, when a greater number of people have health insurance, there will be fewer unpaid medical bills at hospitals. Hospitals must absorb the costs of treatment that goes unreimbursed because the patients don’t have insurance to cover emergency medical services.
Will health plans get the right mix of members?
It remains to be seen if the health plans will receive the proper mix of people who pay premiums but don’t incur covered medical expenses along with those who generate significant covered health care costs because of existing medical conditions. Many young people are being enrolled in Medicaid plans because of their low incomes. These young healthy people eligible for expanded Medicaid don’t help the private health plan’s membership pools. But I’ve talk to numerous individuals and families, with no current medical expenses, that are enrolling in ACA plans because they feel it is the right thing to do.
Many refuse to purchase health insurance
Those individuals that would rather pay the penalty for not having health insurance can’t be persuaded otherwise. These folks will never be forced into a health plan, which in turn would help stabilize rates for everyone, because they don’t believe in health insurance. We might find that the health plans don’t need those healthy people who are philosophically opposed to the ACA in the pool to stabilize rates. On the flip side, the individual mandate may still not drive enough people into the pool to make the health plans viable without additional taxes to subsidize the claims.
Health insurance pays the hospital bills
The bigger more immediate issue is reducing the amount of unreimbursed medical expenses that hospitals across the country must shoulder. Without health insurance to help defray some if not all of the unexpected costs of emergency room visits, surgeries or cancer treatment, many individuals declare bankruptcy or just ignore paying the bills. Unpaid medical services combined with expensive hi-tech treatment is a big driver for escalating health insurance premiums. Hospitals want to get paid and if the patient can’t do it they pass along the costs with higher negotiated rates with the health plans.
Individual Mandate Alternative
An alternative to the Individual Mandate would be to create a permanent tax liability for any unpaid medical services an individual or family may have incurred as a result of their decision not to purchase health insurance. If someone decides not to have health insurance and subsequently has a heart attack with open heart surgery, they shouldn’t be able to permanently discharge the medical expenses through bankruptcy or other means just because they don’t have the assets to pay their hospital bills. The unpaid bills for medical services from people who refuse to purchase health insurance could accrue as an IRS debt to the tax payer.
Permanent IRS liability for unpaid medical bills
As the IRS collects the tax liability either through the tax payer paying the debt, withholding any tax refund due or seizure of estate assets after the tax payer has died the money would go back to the hospitals and providers that filed the initial claim. Since the IRS is already at the center of calculating the Advanced Premium Tax Credits and collecting any over payment from tax payers that under estimate their income, setting up a system to account and collect unpaid medical bills from individuals who chose not to purchase health insurance should be relatively easy. (See: IRS limits tax credit repayments)
It’s all about personal responsibility
At the core of the Individual Mandate or the alternative permanent tax liability for unpaid medical debt is personal responsibility. If you don’t want the government forcing you to purchase insurance, make sure you can pay your medical bills in a time of crisis. While the permanent tax liability alternative could pile up millions of dollars of unpaid tax debt, some of which will never be recovered, there needs to be a system to hold people accountable for a) not having insurance and b) paying their bills.
The IRS is a motivator
One of the greatest motivators for being honest and paying our taxes on time is the threat of having to tangle with the IRS. The mere thought of receiving a letter from the IRS is enough of an impetus for some people to carefully consider making the right decision in their financial life. If those people opposed to the individual mandate knew that their estates would be seized to satisfy a tax lien for their unpaid medical expenses, the specter of purchasing health insurance may not look so bad.
The health care system is screwed up
Honestly, I don’t care if people have health insurance or not. I just want people to be responsible for their bills. The structure and cost of our health care system in the U.S. is pretty screwed up. You can avoid paying for health insurance but you can’t avoid getting sick or needing surgery. I doubt the ACA will have an immediate impact on the cost of health care services. At best all we can hope for is a leveling out of the inflation associated with both health care costs and insurance premiums under the ACA.
Scrap the Individual Mandate
The starting point is getting virtually all medical services paid whether it is through insurance or private pay. If we remove the Individual Mandate and replace it with a tax liability on unpaid medical services, we will reinforce the concept of personal responsibility. So scrap the Individual Mandate but implement a system that doesn’t let those opposed to government subsidized health insurance skip out on paying their medical bills.