For millions, health coverage would be cheaper than ACA's tax penalty

The Affordable Care Act's individual mandate to buy health insurance for next year will be more costly than signing up for low-level coverage for 3.5 million Americans, according to an analysis from the Kaiser Family Foundation released Wednesday.

That's because many of the 10.5 million uninsured people who are eligible to buy an exchange plan could receive heavily discounted coverage from premium subsidies.

The report comes less than a week before next year's first big enrollment deadline. Consumers must buy a health plan on or off the exchanges by Dec. 15 for the coverage to go into effect by Jan. 1. Open enrollment ends Jan. 31. The government tempered expectations earlier this year by predicting only 10 million people would have public exchange coverage by the end of 2016.

Health insurers, government officials and advocacy groups have been much more proactive this open-enrollment period in stressing the healthcare law's tax penalty as a way to boost signup figures, particularly for the young and healthy. The first year of the tax penalty did not incent the masses to sign up for coverage due to the relatively low amount and a lack of awareness, but the ACA ratchets up the penalty each year.

In 2016 and going forward, the penalty will be the stiffest for those who don't have continuous coverage: $695 per adult and half that for children, or 2.5% of annual household income, whichever is greater. The maximum an individual or family can pay is around $2,000, a potentially large amount for people who rely on getting money back during the tax refund season.

Researchers at the Kaiser Family Foundation found the average penalty tied to the individual mandate for 2016 will be $969, compared with $661 for 2015. The average tax penalty for people who are eligible for premium subsidies on the exchange ($738) is lower than for those who would not be eligible for a subsidy ($1,450). People are only eligible for subsidies, which lower their monthly premiums, if they buy a plan through HealthCare.gov or their state-based exchange and if their income is less than 400% of the federal poverty level.

Nearly 3.5 million people could get free or subsidized bronze-level coverage while avoiding that tax penalty, according to the Kaiser report. However, there's a caveat—bronze plans typically have more restrictive provider networks and high annual deductibles, often more than $5,000, and people are not eligible for cost-sharing reductions if they buy a bronze plan.

The individual mandate—an idea espoused by conservatives in the 1990s before making its way into the ACA—is supposed to motivate the other 7 million exchange-eligible uninsured who wouldn't be lured into the market by subsidies.

The CMS has warned consumers that if they miss the cutoff this year, they won't be given a second chance like this past year. Health insurers have argued that people are skirting the mandate through special enrollment exemptions. There's scant data suggesting that's the case, although the CMS is seeking comment and data about the issue.

“A special enrollment period around the April 15 tax filing deadline will not be offered this year,” HealthCare.gov chief Kevin Counihan underlined in a blog post this week. “If you don't enroll by then, you could have to wait another year to get coverage and may have to pay the fee when you file your 2016 income taxes.”