PPACA penalties will cost more than health coverage for millions

More than 2 million people in the 38 states that use the HealthCare.gov enrollment system selected PPACA exchange plans in the first month after open enrollment began on Nov. 1, according to federal statistics. That total includes about 700,000 people who are new to the system. It omits enrollments by residents of California, New York and other states with state-based, state-run exchange programs. Obama administration officials have said they expect about 10 million people to sign up for exchange coverage during the enrollment period that closes at the end of January, only a small increase over the current year.

PPACA relies on carrots and sticks to get people to enroll in health plans. Subsidies bring down the price typical consumers pay for insurance, while the penalties discourage people from forgoing coverage. For many people, paying the penalty might be a rational choice, because it's often still less money than what those people would pay out of pocket for the cheapest health plan. Kaiser estimates that there are about 7 million uninsured people in this category.

But then there's another group of about 3.5 million uninsured people who are eligible for coverage, and could enroll in the least expensive health plans for less in out-of-pocket premium spending than what they'll pay in penalties, or for no out-of-pocket cost at all after subsidies. That's roughly equivalent to the population of Connecticut. And they'd have to defy economic logic to remain uninsured next year.

There are several reasons that they might.

First, the penalties aren't calculated until tax time: Fines people incur for not having health insurance in 2016 won't be levied until they file their taxes in 2017. A lot of people who are eligible for subsidies to reduce the cost of coverage don't realize it, Levitt says. And the administration has soft-pedaled the penalties, because they're among the least popular parts of the law.

"The mandate could be a very effective tool to encourage people to sign up," Levitt says, "but the politics of it aren't great."

See also: PPACA World dictionary expands