End Of Tax Penalty Could Fall Hardest On Previously Uninsured Californians

People wait in line at a Covered California enrollment event in Oakland, Calif., in 2013. A Health Affairs study shows 19 percent of Californians who bought individual health care plans would not have done so if they didn\'t face a tax penalty. (David Paul Morris/Bloomberg via Getty Images)

The elimination of the Affordable Care Act tax penalty on people who don’t have health insurance could roll back recent coverage gains for Hispanics, young people, the healthy and the poor, according to a new study.

The study, published Monday in the journal Health Affairs, stems from a 2017 survey in which researchers at Harvard University Medical School and Massachusetts General Hospital asked more than 3,000 Californians who had bought individual health care plans: “Would you have purchased health insurance coverage this year if there was no penalty?”

Nineteen percent said they would not have, and a disproportionately large number of those were in population groups most likely to be uninsured before the law took effect.

“Especially for lower-income consumers who are potentially eligible for subsidies, it’s really important to try to understand how eliminating the penalty might affect their choices,” said Vicki Fung, lead author of the study and an assistant professor of medicine at Harvard Medical School.

The federal penalty for not having health coverage disappeared Jan. 1, following the decision by the Republican-controlled Congress to reduce it to zero in the 2017 tax reform package. While it was in effect, the penalty potentially cost a taxpayer thousands of dollars a year — though the ACA allowed numerous exemptions from coverage based on financial hardship and other personal circumstances.

The researchers behind the Health Affairs study estimated that if the people who said they would drop insurance in the absence of a penalty had not been enrolled in a health plan, premiums would have been 4 to 7 percent higher that year. Covered California, the state’s Obamacare exchange, said last summer that the elimination of the penalty added nearly 4 percentage points to its average 2019 premium.

The study concluded that other states could be harder hit than California by the elimination of the penalty. Premium increases of the magnitude they estimated for the Golden State are unlikely to destabilize its individual insurance market, they said.

Covered California has spent hundreds of millions of dollars promoting its health plans to consumers — more than the federal government spends for the 39 states that use the federal healthcare.gov exchange.

Still, the loss of coverage caused by ending the tax penalty could fall heavily on many Californians, the study suggests.

About 31 percent of Hispanics responding to the survey said they would not buy health insurance if it were not required, compared with 13 percent of whites, Fung said. (Hispanics can be of any race.)

About 22 percent of people without chronic conditions said they would not have bought insurance if there were no penalty, compared with 12 percent of those with two or more chronic illnesses, according to the study. And more than twice as many men aged 18 to 30 said they would have dropped coverage than among those 51 and older.

The percentage of health plan enrollees who said they would skip coverage in the absence of the penalty was also higher among those with lower income and education levels.

The study’s findings largely echo what other policy analysts have found. But most of their studies have involved statistical models, rather than direct surveys of consumers, Fung said.

A University of California-Berkeley study released in November projected that between 150,000 and 450,000 fewer Californians would enroll in coverage in 2020 without the penalty. An analysis by the Congressional Budget Office estimated that repealing the penalty would induce 4 million people nationally to forgo coverage this year, and 13 million in 2027.

About 1.3 million Californians bought health insurance through Covered California in 2018. A vast majority of them qualified for federal tax credits that lower their premiums, and about 44 percent also got subsidies to reduce what they pay out-of-pocket when they seek care.

The Health Affairs study “really underscores the need for state policies to protect the gains we’ve made and to continue progress toward universal coverage, such as state-level individual mandates and subsidies to buy coverage,” said Laurel Lucia, director of the health care program at the UC-Berkeley Labor Center and one of the authors of the UC-Berkeley study.

Legislative proposals last year to create state-based financial aid for purchasing insurance failed, but their proponents have renewed hope for some of their ideas under California’s new Democratic governor, Gavin Newsom.

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.

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