In the latest move, Sebelius revealed in a letter to six Democratic senators that HHS would allow individuals who have had their plans cancelled to avoid the individual mandate penalty in 2014, or alternatively let them purchase a catastrophic plan through the health care exchanges. Catastrophic plans are otherwise limited to people younger than 30.
The way HHS has achieved this latest change to Obamacare is by adding another item to the list of “hardship exemptions,” which was created to allow people to get out of the mandate if certain conditions make it difficult to comply.
With the latest change, there are now 13 such exemptions to the mandate listed on the HHS website. Others include being homeless, having been evicted and having been a victim of domestic violence.
The Washington Post's Ezra Klein, a supporter of the law, wrote that “this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8 percent of their income. Either that threshold is right or it's wrong. But it's hard to argue that it's right for the currently uninsured but wrong for people whose plans were canceled.”
I think Ezra is correct.
Let's just take a real-world example. An uninsured 31-year-old male living in Los Angeles and earning a salary of $32,000 would only qualify for $1 per month in subsidies through Obamacare, according to a search on the California exchange. Because he is 31, he wouldn't be eligible for cheaper catastrophic insurance. Thus, the most inexpensive plan available to him would be a “bronze” L.A. Care plan costing $178 per month, or $2,136 per year, with a $5,000 annual deductible.
If he chooses to remain uninsured, he’ll be subject to the mandate of 1 percent above the tax filing threshold, meaning around $220.
In contrast, let's say there is a 31-year-old male in California who earns $100,000 per year. He had insurance through United Healthcare, but his plan was canceled once the insurer decided to leave the California market. Under the HHS rule change, he would have the option of purchasing a plan for $148 per month, or about 17 percent less than the lowest option available to the man earning less than a third of his income. Additionally, the higher-income individual would have the option of skipping insurance altogether without being subject to a fine.
Though this is a rough example, it isn’t some wild fantasy. People who were able to afford individual market coverage before their plans got canceled are likely to have higher incomes than individuals who had been uninsured.
This move by HHS may help mitigate the political damage caused by Obama’s broken promise that Americans could keep their insurance, but it renders the administration’s position on the individual mandate untenable. Even before this change, the administration has been under fire for exempting employers from their mandate, but not individuals. Now HHS is privileging individuals who were previously insured over the uninsured. It doesn’t meet a basic test of fairness, and thus it is likely to lead to a further unraveling of the mandate. Put another way, a mandate divided against itself cannot stand.