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You must buy health insurance . . . or not

The individual mandate -- the rule requiring you to have health insurance in 2014 or pay a tax penalty -- is among the most controversial parts of federal health care reform.

But amid the arguments of whether the government has the right to force people to buy health insurance is a surprising statistic. Nine out of 10 people under age 65 would either automatically comply with the mandate (because they already have health insurance) or they would be exempt from the mandate, according to a Kaiser Family Foundation report.

"The reality is different from what a lot of people would assume," says Cynthia Cox, a fellow with the foundation.

Individual mandate analysisWhether the individual mandate will be in effect in 2014 depends on the U.S. Supreme Court. Twenty-six states, the National Federation of Independent Business and several individuals sued to overturn the Patient Protection and Affordable Care Act, challenging the constitutionality of some of its measures, including the individual mandate. The Supreme Court heard arguments in April and is expected to issue a ruling in June.

See an article from The Huffington Post on how the White House would deal with a rejection of the individual mandate.

A lot of scrutiny

The mandate has gotten plenty of press, but less attention has been focused on exactly how many people would be penalized if they failed to obey.

Virtually everyone 65 and older would automatically comply with the mandate because they are eligible for Medicare. Among those under 65, 80 percent would automatically comply because they would have coverage through employment; individual health insurance plans; Medicare; or Medicaid, the federal and state program for low-income people, according to Congressional Budget Office estimates.

Although most people who qualify for Medicare are 65 or older, people under 65 with long-term disabilities also can qualify for Medicare.

Of those without health insurance, about 40 percent would be exempt from the individual mandate, according to simulations prepared for Kaiser by Jonathan Gruber, an economics professor at Massachusetts Institute of Technology. Gruber was an architect of state health reform in Massachusetts, which was a model for federal health care reform.

Undocumented immigrants, members of certain religious groups and Native American tribes, and people in prison are exempt from the mandate.

You are also exempt if:

  • Your income is so low you don't have to file taxes. Currently that threshold is $9,500 for individuals and $19,000 for married couples.
  • Health insurance premiums after employer contributions and federal subsidies total more than 8 percent of your household income.

Impacting a family of four

Kaiser looked at how those two exemptions would impact a family of four -- two 40-year-old adults and two children -- living in an area with average health care costs and with no employer-sponsored health insurance coverage in 2016. Kaiser assumed the annual cost for the minimum amount of required coverage would be $12,000 to $12,500 for a family. (This is based on estimates from the Congressional Budget Office.)

Kaiser's analysis found that:

  • The family would be exempt from the mandate if the family members' income was so low they didn't have to file taxes.
  • The family would be subject to the mandate but would qualify for Medicaid and pay nothing for coverage or qualify for substantial federal subsidies to pay for coverage if the family members' income was between the tax-filing threshold and $61,000.
  • If income was between $61,000 and $150,000, the family would be exempt from the mandate because members would have to spend more than 8 percent of their income on health insurance.
  • Only if income was above $150,000 would the family qualify for no federal assistance and be subject to the individual mandate.

"We knew those exemptions were there, but once we put in the numbers, it was really surprising what a wide range of middle-income people are exempt for the mandate," Cox says.

Massachusetts already has a health insurance mandate. According to Kaiser, about 1 percent of taxpayers in that state paid a penalty for not having health insurance in 2009. Meanwhile, about 70 percent of people uninsured for any part of the year were exempt.

Still, the idea of the government requiring people to buy health insurance remains unpopular. In a March ABC News/Washington Post poll, 67 percent said the Supreme Court should either throw out the entire federal health care reform law or at least throw out the individual mandate.

However, it's unclear whether other key parts of federal health care reform can stand if the individual mandate is struck down. Particularly at risk would be the requirement that health insurance can't discriminate against people with pre-existing conditions starting in 2014.

Insurance for a condition you have

Today, it's difficult to impossible to buy affordable individual health insurance to cover a condition you already have.

The purpose of the mandate is to create a large enough pool so risk is spread among young, old, healthy and unhealthy people. Without a requirement for everyone to buy insurance, premiums could become unaffordable because of a phenomenon called "adverse selection." Adverse selection happens when unhealthy and older people buy coverage because they need it, while young and healthy people are less likely to purchase it. This drives up claims costs for the insurer, which then must raise rates for the coverage.

More from Barbara Marquand here

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