Individual Mandate More Like Suggested Donation

What's the point of issuing individual mandate rules, as the White House did this week? Of course it has to be done by statute, but what does the sound and fury signify? Apparently not much.

Through a pair of documents, one from the IRS and one from the Department of Health and Human Services , the Obama administration has issued a set of proposed rules surrounding one of the most controversial parts of the Patient Protection and Affordable Care Act for public hearing.

The most surprising news about the proposed rules is that it appears exemptions built into them for enforcing the individual mandate are so permissive that only 2% of the population would owe a penalty.

Wait a second. I thought that by the time of the passage of the PPACA in 2010, 46 million people were uninsured. That number was heatedly disputed then, but even taken as fact, it represents about one sixth of the total United States population of about 313 million, or around 17%.

Since most of the provisions surrounding the health insurance portion of the law won't go into effect until next year, the number of uninsured must be at least as high now.

Some of those millions undoubtedly will find health insurance once the state-level exchanges are set up, but there's nothing to suggest that a large majority of them necessarily will, even though the law supposedly compels them to do so.

Those who do won't face a penalty, of course. Some of those uninsured certainly live in states that so far have refused to set up an exchange, but certainly not the majority. It makes sense to give those people an exemption.

Those who would also be exempt include taxpayers with incomes below the filing threshold and members of Indian tribes, for example. Those are worthy exemptions.

Other exemptions, to put things kindly, are more dubious, but still sound reasonable.

They include those who cannot afford coverage, people who qualify for hardship exemptions, individuals who have short coverage gaps, those who don't want to purchase health insurance for religious reasons, members of "health sharing ministries," and individuals who are incarcerated.

The problem seems to be that some of the exemptions (who's judging what's affordable, for example) are so wide that pretty much anyone could qualify for at least one of them. But what about the 2% who still don't? Will they be responsible for paying a penalty? Well technically, yes, but who's counting?

Not the IRS, which has already told Congress that it won't enforce the collection of the, ahem, "shared responsibility payment" for people who violate the requirement that they obtain health insurance. (I thought the Supreme Court had already gotten the administration to admit that the penalty, or "shared responsibility payment" is a tax, but I guess that's another story).

It's unclear at this time, but it's reasonable to project that because the state exchanges will be supported by the government through subsidies and coupled with a Medicaid expansion, that payer rates may not be generous.

Medicaid (already known as one of the stingiest payers for hospitals and health systems) is already a challenge for hospitals who charge that it doesn't come close to paying for the cost of treating its beneficiaries. The fact that penalties paid by those who ignore the individual mandate are likely to be minuscule doesn't help the economics of the ACA.

Despite the apparent pointlessness of the new rules given the ultimately tiny percentage of taxpayers who will find it possible to actually violate them, it's clear that what the Obama administration is planning on enacting is far from a real individual mandate. It's also neither a tax nor even a "shared responsibility payment," whatever that means.

In practice, it seems it will be more of a "suggested donation."