Explaining the Health Insurance Penalty

Accountants and tax preparers complain that they have been put in the position of enforcing the Affordable Care Act’s insurance mandate without compensation or training as health insurance agents. They are absolutely correct and this system has produced in some bizarre results.

This was illustrated when one accountant wrote to me “I have clients that the insurance premiums are higher than what the penalty is….and even if the person used the insurance, the deductible is $3000. How do I convince someone to get insurance in that case?”

I responded:

Recognize that argument only makes logical sense under three conditions: a) you value the insurance at $0 or some other minimal amount,  b) your cash flow dictates that your goal is to minimize outflow, or, c) you have little to lose in terms of financial assets and future income that could be levied to pay medical claims. Certainly there are plenty of people that this applies to, however, my point is that in many cases the decision to go uninsured is not based on logic but perhaps emotion or ignorance instead.

We can conclude that the social purpose of a phased-in increasing penalty is to allow time for the public psyche to recognize and adjust to these thinking patterns, a process that takes years. But in the end, the only penalty that makes sense from a social policy perspective is one that exceeds the cost of compliance.

So it it not fair to criticize accountants for their lack of insight into the many aspects of health insurance – like these social policy issues and actuarial calculations in changing social behavior – that take insurance professionals decades to master. For now, I think that insurance executives should simply say “thank you for your volunteer services in helping sell our products”.


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