"Obamacare"
"The obamacare sign-up deadline gets closer and closer"
"The most contentious part of the law is the individual mandate"
"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 to healthy people. Sick people want it more. And they will pay more for it.
So here's what can happen. You get a really good health insurance package. Really good.
So all the sick people rush to buy it. Healthy people decide 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, out go the next healthiest group. Over and
over and over again.
That is a death spiral.
Until now, insurers 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 they can't do that. Insurers need to sell to sick people. They can't even
charge them more than they charge healthy people. The can't discriminate based on pre-existing
conditions at all.
Enter the individual mandate. Now rather than keeping sick people out. The idea is we're
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 its $1,600. And the year after that, $2000. Ouch.
Now that is a lot less money than health insurance usually costs. But you don't get anything
for it. 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.