Broad hardship exemptions could make mandate a paper tiger

The Obama administration is advising uninsured Americans that they have just one week left to buy coverage to avoid a costly tax penalty under the healthcare reform law's individual mandate. But experts say it's unlikely any minimally sophisticated taxpayer will have to pay the controversial penalty in 2015.

Under the Patient Protection and Affordable Care Act, any individual can seek a hardship exemption from the coverage requirement. There are 14 qualifying categories, including for people who have had their existing health plan canceled because it was not compliant with Obamacare requirements. There is even a category described on the hardship exemption application as: “You experienced another hardship in obtaining health insurance.” The evidentiary standard appears light: “Please submit documentation if possible.”

The law's supporters and opponents agree the mandate is relatively toothless. “Basically anyone who wants to be able to claim a hardship exemption will probably be able to,” said David Howard, a professor at Emory University's school of public health.

That has led congressional Republicans to argue that the administration should agree to formally jettison the mandate. This month the GOP-controlled House voted to repeal it for five years to finance the repeal of the Medicare sustainable-growth rate formula for physician payment—at a cost of millions more uninsured.

But to seek one of the hardship exemptions, people have to know those options are available. The law's supporters, including the insurance industry, are not eager to publicize them for fear that would reduce the number of people signing up and drive up premiums for 2015. Polls repeatedly have shown that a large percentage of Americans remain ignorant of major provisions of the law, including that they can obtain generous subsidies to help them buy coverage.

“I think (the administration) feels it's important legally and symbolically to have a mandate in place,” Howard said.

Still, some fear the law's opponents will encourage a large number of consumers to apply for hardship exemptions to undermine the coverage expansion effort. At this point, no coordinated effort by the law's opponents to educate people about the ease of avoiding the tax penalty has become public. The conservative advocacy group FreedomWorks, which previously organized a campaign to encourage young people to burn symbolic “Obamacare cards,” did not respond to a request for comment on the issue.

The Obama administration has steadfastly refused to delay the mandate, despite pausing other provisions of the law, including the requirement that businesses with more than 50 employees provide insurance for their workers. In the first year, the tax penalty will be 1% of adjustable gross income or $95, whichever is greater. That figure rises to 2.5% of income, or $695, in 2016. In that year the Congressional Budget Office estimates that 6 million individuals will face penalties totaling $8 billion.

The lack of popular understanding of the law's details is one reason political observers expect enforcement of the penalty by the Internal Revenue Service to be lax during the 2015 tax season. Under the ACA, the IRS can only enforce the tax penalty against uninsured people by garnishing any income tax refunds they are owed, which already is a relatively weak enforcement mechanism.

The Obama administration will have to proceed cautiously in enforcing the mandate, said Joe Antos, a healthcare policy expert with the conservative American Enterprise Institute. “Anybody who really would qualify under any of these more specific hardship categories almost certainly is struggling with life,” he said. “The mandate is not even on the radar screen. Any politician who fails to recognize that is going to make it very difficult for his party.”

Howard agreed. “They recognize that enforcing it to the T would cause a lot of political problems for Democrats in tight Senate and House races,” he said.

If the public realizes that the mandate is riddled with loopholes and that enforcement is likely to be weak, that could significantly diminish enrollment, particularly among the younger and healthier consumers needed to create a balanced risk pool in insurance exchange plans. But generous subsidies will still provide a strong inducement to acquire coverage for those who could seek out a hardship exemption, said Karen Davis, a health policy expert at Johns Hopkins University's school of public health.

“Nearly all of those are going to be very low-income individuals who are going to qualify for substantial subsidies,” she said. “I just don't see (this) undermining the stability of the risk pool.”

Follow Paul Demko on Twitter: @MHPDemko