04 Apr 2013 Vermont First State To Reveal Big Incentive For People To NOT Buy Insurance

Vermont is the first state to reveal what insurers will likely be charging for policies on its exchange.  That also makes Vermont the first state to reveal that many individuals and families will have a big financial incentive to forego insurance and pay the ObamaCare penalty.

Here are some of the examples the Vermont exchange provides of the premiums people will pay after the tax credits kick in.  Keep in mind that the ObamaCare penalty for not buying coverage is $695 or 2.5% of one’s income*, whichever is higher.:

1. One article about Vermont notes that a “single self-employed person earning $40,000 a year could go from a $600 a month premium, down to $317 a month.”  That’s about $3,804 a year.  Since the ObamaCare penalty for this person is $1,000 ($40,000 * 2.5%), the single self-employed person will have about $2,804 worth of incentive to decline insurance.  But what if he gets sick?  Well, ObamaCare has “guaranteed issue” which means that an insurance company must sell him a policy at anytime.  So why pay $3,804 a year when he could pay $1,000 knowing that he’ll still be able to buy coverage if he falls ill?

2. According to a Vermont Exchange press release, “a family of four with a household income of $75,000 per year will pay a little under $600 per month for family coverage with a federal premium tax credit. This is compared to over $900 for the lowest cost small group plans available today.”  The Exchange forgot to mention that also is compared to the $1,875 penalty which is about $5,325 less than the $7,200 that family will be paying for coverage annually.  In this case, ObamaCare not only incentivizes the family to forego insurance, it incentivizes the parents to teach the children that it’s best to wait until you get sick to get coverage.  Who says family values are dead?

For more on the fiasco that is the individual mandate, see this excellent post by Avik Roy from July of last year.

*$695 or 2.5% of income is the ObamaCare penalty in 2016.  In 2014 it is $95 or 1.5% and in 2015 it is $325 or 2%.  Of course, that means that in 2014-15 people have even more incentive not to buy coverage.

UPDATE:  My statement that “guaranteed issue…means that an insurance company must sell [a consumer] a policy at anytime” is too broad.  Rather, under ObamaCare, they must sell him a policy during the open enrollment period, which in most years will run from early October until mid-December.  There are a few exceptions to that.  For more on the guaranteed issue rules, see this blog post at Health Affairs.