Alternatives to the individual mandate: Financial penalties

We’ve been discussing the results of our poll on alternatives to the PPACA individual mandate. The second-most popular idea on the poll was “enforce a penalty that escalates the longer people wait to buy health coverage.” In the Government Accountability Office (GAO) report on mandate alternatives, a range of possible financial penalties are mentioned in conjunction with limiting enrollment windows (which was itself the most popular idea from the poll):

Late enrollees could enroll during subsequent open enrollment periods, or possibly between open enrollment periods, but incur financial penalties. Such penalties could take the form of requiring retroactive payments of missed premiums from the date of the last open enrollment period, or a flat or gradually escalating premium penalty depending upon the length of time without coverage. To encourage individuals to maintain their coverage once enrolled, the premium penalties could decline after a period of continued coverage, until they are eventually eliminated. Other financial penalties could include higher cost sharing for the individual, such as copayments, coinsurance, or deductibles. Another financial penalty could be to reduce or deny subsidies for otherwise eligible late enrollees. Another variation would be to provide a premium discount to all individuals who enroll when first eligible, but withhold the discount from late enrollees.

Of course, as the report goes on to point out, financial penalties might tend to further discourage younger, healthier, but less-wealthy individuals from purchasing coverage, which runs counter to the goals of broadening coverage and reducing costs.

The notion of of using financial incentives and penalties to change behavior is something that has been discussed quite a bit in recent years. For example, we recently looked at how the PPACA raises the level of financial incentives that employers can use to encourage employees to meet wellness targets.