As third open enrollment arrives, the ACA enters its penalty phase

During the first two open enrollments under the federal law to expand health insurance nationwide, the government and healthcare organizations emphasized the “carrot” of the law by encouraging low-income and middle-class Americans to reap the benefits of heavily subsidized health coverage.

But as the Affordable Care Act's third open-enrollment period begins Nov. 1, that message is shifting.

Insurers, healthcare providers, enrollment groups and others are stressing that to avoid the individual mandate's increasing tax penalty, or the “stick” of the law, Americans must have insurance. Hospitals have also adjusted the eligibility criteria of their charity-care policies to prod patients toward the insurance marketplaces.

“It's no secret that the low-hanging fruit has been picked in the first rounds of open enrollment,” said Lance Lunsford, a vice president at the Texas Hospital Association. “Now it's about choosing to pay that premium versus paying the penalty.”

The ACA's tax penalty is moving from “a pin prick to a baseball bat,” over its first three years, said Mark Ciaramitaro, vice president of tax and healthcare services at H&R Block. Next year, the fine will reach “bat-level” status.

People who go without health insurance for most of calendar year 2016 will have to pay either 2.5% of their annual household income, or a flat fee of $695 per adult and $347.50 per child, whichever is higher. The most any household will have to pay is the national average premium for a bronze plan or $2,085.

For low- and moderate-income Americans, that ACA tax could wipe out all or a sizable portion of their tax refund when they file in 2017.

The problem could rise to a crescendo this February. People who don't purchase coverage for 2016 and didn't buy it in 2015, face a “double whammy,” Ciaramitaro said. They will have to pay the penalty for 2015, and essentially will be locked into the penalty for 2016 since open enrollment will be over. This assumes the CMS will not hold another special enrollment period.

H&R Block and other organizations are ramping up their outreach and education efforts. More insurance agents and brokers looking for new customers will be available to explain the penalties, said Marcy Buckner, vice president of government affairs at the National Association of Health Underwriters.

Hospitals will continue to screen patients for their eligibility for Medicaid or an exchange plan, using their charity-care programs as the conduit. Last year, BJC HealthCare, a St. Louis-based system, lowered the threshold of its charity-care program from 400% of the federal poverty level to 300% in the hopes that more people would buy exchange plans. Parkland Health & Hospital System in Dallas changed its financial assistance program this year, allowing the uninsured and underinsured to lower their deductibles. But the program is capped at 200% of the poverty level.

Bob Reed, vice president of patient access at Parkland Memorial Hospital in Dallas, added that his safety net system has an “ACA center” with computers, phone lines and application counselors to help enroll area residents, although many likely are eligible for Medicaid. He believes communicating the penalty amount will motivate those who live above the poverty level to seek coverage.

Industry players and advocacy groups “certainly are planning to talk more about the penalty than they have in the previous two years,” said Ceci Connolly, managing director of PricewaterhouseCoopers' Health Research Institute. “It becomes more meaningful to people.”

But Connolly and others note that it's unclear if the penalty will actually hit everyone's wallets enough to force them to change their behavior. Approximately 10.5 million people are still eligible for exchange coverage, yet have sat on the sidelines for the first two years. And behavioral economics research shows most procrastinators might never get around to enrolling because the penalty will be in their rearview mirrors.

“The assumption used to be that people act in the most logical manner,” said Helaine Fingold, a lawyer at Epstein Becker & Green who formerly worked at the CMS' Center for Consumer Information and Insurance Oversight. “But I don't think people always take seriously the health risks and the need to stay healthy, along with the financial burden.”

The federal government, which has reaped $1.5 billion in penalties to date, outlined very modest sign-up goals for next year.

HHS Secretary Sylvia Mathews Burwell predicts there will be 10 million fully paying exchange customers by the end of 2016, only about 1 million more than what's expected by the end of 2015. Burwell called the 10 million figure a “realistic goal,” but it's also a clear sign that reaching the remaining uninsured will be an increasingly difficult task. The agency, which allocated fewer dollars to enrollment efforts this time, is pushing for more targeted campaigns in Chicago, Dallas, Houston, Miami and northern New Jersey.

Most of those who are eligible for exchange coverage but haven't yet signed up are the much-desired “young invincibles” who generally are healthier and don't cost a lot to cover. And most in that category don't make a lot of money, according to HHS data. Nearly half of the 10.5 million eligible uninsured people are between ages 18 and 34. Roughly 78% of that group makes less than 400% of the federal poverty level, meaning they can get premium subsidies.

About 48% make less than 250% of poverty and are therefore eligible for the lesser-known cost-sharing subsidies, which substantially lower deductibles and other out-of-pocket costs.

Brian Eck, director of sales at UCare Minnesota, an insurer that sells exchange plans, believes the tax penalty will help drive people to buy insurance, although he admits that “everybody is still looking for what is going to move the younger population.”

UCare plans to work with its state-based exchange and seek a presence in the community to educate potential members about plan options, as well as the penalties they can expect if they continue to opt out.

“I don't know if there are a lot of excuses for folks to say they don't know this is possible,” Eck said.