Affordable Care Act: The reason for the penalty

Why is there a penalty for not having health insurance?  Aren’t my financial affairs my business any more?

Libertarian At Heart

 Dear Libertarian At Heart,

I’m guessing that you are looking for a philosophical answer, not just “because the law says so”.  The rationale for the penalty goes something like this . . .

  1. People who do not have health insurance will almost certainly need medical care at some point.
  2. They may need a lot of medical care, and not have the money to pay for it.
  3. When they leave their medical bills unpaid, everyone else bears the cost of their care.  (This makes your financial choices a problem for everyone, not just yourself.)
  4. Everyone should be responsible for his own medical costs.
  5. Therefore, everyone should be required to have health insurance.

Sometimes, you will hear about how uninsured people postpone care thereby making themselves sicker and more expensive.  Early care is supposedly cheaper than later care.  This is not borne out in science, but it remains a popular story.

The penalty or tax is less than the cost of health insurance.  Avoiding the penalty is not a compelling reason to buy health insurance, in other words. Nearly everyone will find it cheaper to pay the penalty rather than buy a plan.  A person earning half a million dollars a year would pay less on the penalty ($5,000 or 1 percent of income) compared to buying health insurance for himself (assuming his plan cost $5,000 or so).  A plan to cover a family would cost a lot more, making the penalty look like a bargain.

The real reason to have health insurance is to protect your house and assets from being sold to pay for your heart surgery.  No matter how much exercise you get or fiber you eat, you are not immune from expensive health issues.   You could get hit by the proverbial bus and have to re-learn using a fork.

Nevertheless, paying the penalty and going uninsured is a financial choice that is open to anyone.

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Linda Riddell

About Linda Riddell

A published author and health policy analyst with 25 years’ experience, Linda Riddell's goal is to alleviate the widespread ailment of not knowing what your health plan can do for you.