Back in 1989, the Heritage Foundation, a conservative think tank, was trying to think of ways to prevent universal health care from taking hold. They came up with the "individual mandate," a concept that 22 years later was written into law with the Affordable Care Act (Obamacare).
A lot of people on both sides of the aisle are annoyed by the mandate. However, it's actually an important part of the law. At 1:51, we learn why it's needed.
Obamacare . . .
Obamacare . . .
The Obamacare sign-up deadline gets closer . . .
The most contentious part of the law is the . . .
. . . individual mandate.
. . . the individual mandate.
The individual mandate is the heart of the law.
To be affordable health insurance needs a lot of healthy people for every sick person it signs up. But the problem with that is that health insurance is worth more to sick people than it is to healthy people. Sick people want it more and they will pay more for it.
So, here's what can happen. You can get a really good health insurance package, really good, so all the sick people rush to buy it. Healthy people decided it's too expensive, because of all these sick people pushing up premiums. So, the very healthiest, the people who think they need it the least, leave. That raises premiums. Those higher premiums push the next healthiest group out, too. Up go premiums again and out go the next healthiest group over and over and over again. That is a death spiral.
Until now, insurance had a real easy way to prevent death spirals. Just don't sell health insurance to sick people. Or if you do, make them pay so much that you don't have to charge healthy people more. But Obamacare says health insurance can't do that. They need to sell insurance to sick people. They can't even charge sick people more than they charge healthy people. They can't discriminate on pre-exisisting conditions at all.
Enter the individual mandate. Now, rather than keeping sick people out, the idea is we are going to pull healthy people in. Starting this year, anyone who doesn't have health insurance for longer than three months has to pay at least $95 or 1% of modified adjusted gross income. That's your income minus some tax deductions. You can calculate it online. We call it MAGI for short. The penalty is even steeper next year.
So, imagine your family's MAGI is 80,000 bucks. If you go without health insurance this year, it's $800 to the government. Next year, it's $1,600, and the year after that $2,000. Ouch.
Now, that's less money than health insurance will usually cost you, but you don't get anything for that money. You don't get to see the doctor, you don't get your hospital bills covered. And so people, even young and healthy ones, tend to buy insurance rather than paying the penalty. We know that from Massachusetts where Mitt Romney actually signed one of these things into law. People ended up wanting health insurance. They just needed that push. In Massachusetts that was enough to prevent a death spiral. The question is whether it will be in the United States, too.