Healthcare Insurance: Opt-Out Option

In the United States, health insurance is no longer mandatory at the federal level. Since 2019, there has been no federal penalty for lacking health insurance, although some states have implemented their own individual mandates, including California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont.

The Affordable Care Act (ACA), signed into law in 2010, previously required almost all Americans to have health insurance coverage. The individual mandate was designed to protect against adverse selection, where a high percentage of those enrolled in health insurance plans know they will utilise a lot of healthcare services, such as the elderly and those with pre-existing conditions. The ACA also made it illegal for insurance companies to deny coverage based on pre-existing conditions.

Despite health insurance not being compulsory, it is still wise to have financial protection. Uninsured individuals often face unaffordable medical bills and are more likely to delay or forgo care due to costs. In a worst-case scenario, they could be sued and have their wages garnished, or even be forced into bankruptcy.

The high cost of insurance

The cost of health insurance varies depending on multiple factors, including the insurance buyer's age, zip code, tobacco and other lifestyle factors, community, and insurance plan type. In 2023, the average national cost of health insurance was $456 for an individual and $1,152 for a family per month.

The cost of insurance can be broken down into the following categories:

• Premium: the amount you pay for your health insurance every month.
• Deductible: the amount you pay for health care services each year before your health insurance pays its portion.
• Copayments and coinsurance: payments you make to your health care provider each time you get care.
• Out-of-pocket maximum: the most you have to spend for covered services in a year. After you reach this amount, the insurance company pays 100% for covered services.

The cost of insurance also depends on the level of coverage you choose. The Marketplace has four health plan categories: Bronze, Silver, Gold, and Platinum. Bronze and Silver plans have lower premiums but higher deductibles and pay less of your total health care costs. Gold and Platinum plans have higher premiums but lower deductibles and pay more of your total health care costs.

Preventative care

Most health plans, including plans available through the Health Insurance Marketplace, must cover a set of preventive services, such as screenings and immunizations, at no cost to the patient. However, these services are typically only free when delivered by a provider within the patient's insurance network. This means that those without insurance may have to pay out-of-pocket for these services, which can be costly.

According to the National Center for Chronic Disease Prevention and Health Promotion, six in ten Americans have been diagnosed with a chronic health condition, and 66% of the uninsured in 2019 suffered from a chronic illness. Preventative care services can help identify these conditions early on and reduce the likelihood of more expensive treatments later.

For those without insurance, the cost of preventative care can be a significant barrier. As a result, they may delay or forgo necessary healthcare, which can lead to poorer health outcomes and higher medical costs in the long run.

In addition to the financial burden, access to quality primary care may also be an issue for those without insurance. Doctors have the right to refuse patients who cannot pay out-of-pocket expenses, further limiting their options for preventative care.

Medical debt

People without health insurance are at a much higher risk of accumulating medical debt. In a worst-case scenario, they could be sued, have their wages garnished, or be forced into bankruptcy. Even with insurance, medical debt can still be a problem, with about one-third of those with employer-sponsored or Affordable Care Act (ACA) marketplace plans reporting medical or dental care debt.

The Biden administration is taking steps to address this issue by proposing to ban medical debt from credit reports. This move is expected to improve the financial health of millions of Americans, raising their credit scores and leading to the approval of additional mortgages.

To tackle medical debt, individuals can try to negotiate with healthcare providers, set up payment plans, or seek credit counselling from non-profit agencies.

Tax penalties

Since 2019, federal tax penalties for not having health insurance have been repealed. However, some states in the US have their own health insurance mandates and penalties for non-compliance.

Calculation of the Obamacare Penalty

The Obamacare penalty, also known as the Individual Shared Responsibility Payment, was calculated based on either a flat fee or a percentage of the individual's household income, whichever was higher. The flat fee was capped at a maximum of 300% of the annual flat fee, which could vary from year to year. The percentage of the income-based penalty was set at 2.5% of the income above the federal poverty level (FPL) threshold.

Factors Influencing the Penalty Amount

• Household size: A larger household size generally resulted in a higher penalty as each uninsured individual contributed to the overall penalty calculation.
• Annual household income: The penalty amount was directly linked to the annual household income above a certain threshold.
• Federal Poverty Level (FPL): The penalty amount was calculated based on the annual household income in relation to the FPL.
• Number of uncovered months: The penalty was assessed for each month that an individual and their dependents were without minimum essential health insurance coverage.
• Exemptions: Certain exemptions, such as financial hardship, religious beliefs, and life events, could reduce or eliminate the penalty for eligible individuals.

State Individual Mandate Penalties

While the federal mandate penalty has been eliminated, several states have implemented their own mandates and penalties to ensure residents maintain minimum essential coverage. These states include:

• New Jersey: The penalty amount in New Jersey is calculated based on household income and family size, with the maximum penalty being the state average yearly premium for a bronze plan.
• District of Columbia: The penalty is calculated based on a percentage of household income or a per-person fee, whichever is higher, similar to the pre-2019 federal mandate.
• California: The penalty is either a flat amount per family member or a percentage of the household income over the state tax filing threshold.
• Rhode Island: The penalty is calculated as either a percentage of income or a flat fee per person in the household, similar to the federal ACA framework.
• Massachusetts: The penalty depends on income level, age, and access to affordable coverage, with multiple income-related thresholds and exemptions.
• Vermont: While Vermont has an individual mandate, it does not impose financial penalties for non-compliance. Instead, the state focuses on educating residents about the importance of health insurance and guiding them towards available programs and subsidies.

Changes and Repeal of Obamacare Penalties

The Affordable Care Act (ACA), commonly known as Obamacare, initially included a controversial individual mandate that required most Americans to obtain and maintain health insurance coverage. This mandate was repealed beginning on January 1, 2019, removing the federal tax penalty for failing to enroll in an ACA-compliant healthcare plan.

Impact of the Repeal

The repeal of the individual mandate penalty has had varying impacts across the country. While it has provided financial relief to those who choose to go without health insurance, it has also contributed to an increase in uninsured individuals, potentially leading to higher medical debt and financial strain.

Healthcare for undocumented immigrants

Undocumented immigrants in the US face barriers to accessing healthcare, with eligibility restrictions for federally funded coverage options such as Medicaid, the Children's Health Insurance Program (CHIP), Affordable Care Act (ACA) Marketplace coverage, and Medicare. As a result, many immigrants, especially those without documentation, remain ineligible for coverage options.

State-Funded Coverage

As of March 2024, six states (California, Colorado, Illinois, New York, Oregon, Washington) and Washington D.C. have expanded fully state-funded coverage to some income-eligible adults regardless of immigration status. A few additional states cover specific groups of adults who are not otherwise eligible due to their immigration status using state-only funds, but the coverage is more limited.

Illinois

Illinois is one of the few states that provide Medicaid-style health care benefits to undocumented immigrants, but that coverage is costly, and the state is scaling back. In 2023, Illinois covered undocumented seniors (under the Health Benefits for Immigrant Seniors program) and expanded to cover undocumented adults ages 42 and older (under the Health Benefits for Immigrant Adults program). However, new enrollment into the Health Benefits for Immigrant Adults program has been temporarily paused since July 1, 2023.

Barriers to Enrollment

Undocumented immigrants face several barriers to enrollment, including fear, confusion about eligibility policies, difficulty navigating the enrollment process, and language and literacy challenges.

Impact of Lack of Healthcare Coverage

The lack of healthcare coverage among undocumented immigrants can lead to worse health outcomes over the long term, as they often delay or go without needed care. It can also result in poor credit or even bankruptcy due to the high cost of emergency care or treatment plans.

Frequently asked questions