Now that Obamacare’s survival seems assured, the debate has finally shifted toward how to improve the law, including by revising the excise tax on high-cost employer-sponsored health plans. With the third round of open enrollment starting Sunday, there’s another Obamacare tax that’s due for a rethink: the penalty for not carrying insurance.

That penalty – the stick behind the individual mandate – makes sense in theory. The point of the law is to provide affordable health insurance for as many Americans as possible. It uses generous federal subsidies to entice those without job-based insurance to buy plans on the exchanges. And to provide a sharper nudge, the law also levies significant fines on those who don’t get coverage.

The tax penalty also helps fund the law’s other provisions. The Internal Revenue Service says it’s brought in $1.5 billion so far, and the amount will increase as the penalty grows.

The problem is, the tax doesn’t appear to be doing enough to change behavior. As many as three out of four uninsured Americans who qualify to buy coverage on Obamacare’s state health exchanges will nonetheless choose not to next year, according to government projections. If these projections are correct, then the tax is becoming more akin to a penalty on people who don’t understand the law or don’t like the options it provides. It’s failing at its main purpose.

What options should be considered? One strategy would be to raise the subsidies for premiums and cost-sharing. Perhaps more health services should be made available before beneficiaries have to pay their deductibles, as Hillary Clinton has proposed.

Tighter caps on out-of-pocket payments would also help. Another approach would be to increase premiums the longer people are eligible for coverage but don’t sign up.

The simplest way to reach this group would be to automatically enroll them. Those who really don’t want coverage could still opt out. But this would raise hard questions about whether it’s appropriate for the government to make purchasing decisions for citizens (even if those purchases are publicly funded).

With any alternative, the details would be difficult to work out. But Obamacare needs incentives and tools that really work to get more Americans insured.


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