When the Affordable Care Act (also known as Obamacare) was passed in March 2010, one of its most hotly debated provisions was the individual mandate. This part of the law requires every American to have health insurance by 2014 or pay a fine. However, even though 2014 is around the corner, a new insuranceQuotes.com survey suggests that many Americans are still confused about how the mandate will affect them in the long run.
How Americans feel about the Obamacare penalty
The study was conducted Nov. 14-17, by Princeton Survey Research Associates International which polled 1,013 American adults. Participants were asked several questions about Obamacare, such as the following.
For a 45-year-old individual who earns $50,000 per year, a typical health plan under Obamacare would cost $250 a month in 2014, or $3,000 a year. If this person didn't buy health insurance, his fine would be $400. Based on that information, if you were a 45-year-old who earned $50,000 per year and didn't have health insurance, would you choose to buy health insurance in 2014 or would you pay the fine?
See also: How much is your Obamacare penalty?
According to the survey results, about 4 in 10 Americans -- 38 percent -- would rather pay the fine than buy health insurance.
"I'm not surprised at all by these findings," says Kevin Flynn, president of Health Care Advocates, a Philadelphia-based nonprofit patient advocacy organization. "Prior to Obamacare, there were plenty of people who could afford health insurance but opted to buy HBO and 22-inch rims instead. They know they need insurance, but they don't want to cut back on other things to pay for it."
The importance of the Obamacare penalty
According to the Affordable Care Act, any American can choose to pay a yearly penalty for being uninsured. It's a flat fee per adult or a percentage of household income (whichever is greater) that is deducted from any tax refund that you may be owed.
In 2014, the penalty is only $95 per adult (or 1 percent of household income, whichever is higher), but it increases to $325 (or 2 percent of household income) in 2015, and $695 (or 2.5 percent of household income) in 2016. Children are assessed at 50 percent of the minimum penalty, and individuals with higher incomes may pay an even higher fine.
There are caps on how much the penalty will be. For a family, the maximum flat fee penalty is $285 in 2014. If a family is assessed the percentage penalty, the most the fine can cost is the national average annual cost of a bronze plan (the cheapest plan on the exchange). The Congressional Budget Office puts this cost at about $4,500 to $5,000, although a definite amount won’t be released until 2014.
According to study, however, about 3 in 10 Americans don't even know this penalty is part of the law. Even those who are aware of the fine are confused about the penalty amounts.
For an individual who earns $30,000 per year, the penalty would be $200. Only 21 percent of Americans who know that uninsured people will be fined correctly pegged the amount between $100 and $250 (38 percent overestimated and 36 percent underestimated).
"It doesn't really surprise me that people don't have a solid handle on the details," says Dr. Benjamin Sommers, assistant professor of health policy and economics at the Harvard School of Public Health. "This is a very complicated law. Even experts in the field who constantly study it are still trying to figure out the details of how it will work."
But according to Kathleen Stoll, director of health policy at Families USA, a Washington, D.C.-based nonprofit group that advocates for lower health care costs, the conversation really shouldn't center so much on weighing the cost of the penalty versus the cost of buying health insurance.
"The simple scenario of X health insurance cost versus Y penalty cost doesn't really reflect the reality of the law," Stoll says. "There are so many other factors that individuals will need to consider."
For instance, a recent Families USA study found that nearly 8 percent of Americans will be eligible for federal subsidies next year that will reduce health care costs. According to a provision in the Affordable Care Act, the federal government will start providing tax credits to low- and middle-income consumers Jan. 1, 2014, in order to help them purchase insurance through state-run insurance exchanges.
Assistance will be available in the form of tax credits. It's available for those with incomes up to four times the federal poverty level ($45,960 for an individual or $94,200 for a family of four) who aren't part of a government health insurance program such as Medicaid or Medicare and who don't have affordable health insurance through work.
Stoll says the size of these subsidies could be quite significant. For instance, a family of four earning $94,200 and purchasing a silver-level plan carrying a $12,500 annual premium will get a subsidy worth $3,550, which limits the cost of the premium to 9.5 percent of the family's income.
Young people will buy health insurance
One of the most surprising findings of the study was that 65 percent of Americans between the ages of 18 and 29 said they would buy health insurance, while only 57 percent of Americans 30 and older said the same.
"That number was pretty surprising to me," says Chris Holt, director of health care policy for the American Action Forum, a Washington, D.C.-based public policy think tank. "We often hear that it's younger, healthier Americans who are less likely to buy insurance because of that popular 'invincibility factor.'"
According to Holt, whether young Americans will buy health insurance depends on whether they consider insurance essential, regardless of the penalty they'll have to pay without it.
"Five years from now is going to be a drastically different landscape because perception and behavior is going to change over time," Holt says. "Young Americans will slowly but surely readjust their lives as Obamacare becomes the norm, which will probably see more and more of them adjusting their resources and buying health insurance."
A political divide
According to the insuranceQuotes.com study, the "penalty vs. insurance" question also resulted in an interesting political divide, as 74 percent of Democrats said they would buy health insurance rather than pay the penalty, while only 40 percent of Republicans and 56 percent of Independents said the same.
"There is no question that this law has been highly politicized, which has been one of the greatest challenges of educating people who can benefit from it," Stoll says.
But according to Flynn, the political nature of the topic won't really matter in the long run.
"It's like asking people whether or not they plan to vote in the next election," Flynn says. "There's a significant difference between what people say they will do and what they'll actually do."