ACA penalties will cost more than health coverage for millions(Bloomberg) The Affordable Care Act is about to test how well people respond to economic incentives.

About 3.5 million Americans who are uninsured today could get health coverage in 2016 for less than what they’ll pay in penalties under the ACA, according to a new analysis.

That’s because the Affordable Care Act’s fines for skipping health insurance will rise next year. On average, people currently uninsured would have to pay $969 in 2016, up from $661 this year, according to the report by the Kaiser Family Foundation. The penalties are rising to 2.5% of income or a flat dollar amount of $695 per adult, whichever is higher. That’s compared with 2% of income or $325 per adult this year.

About 11 million people are eligible for coverage but haven’t bought it. The big question is whether the steeper fines will prod more of them into the market. “That’s where the mandate matters the most, because it aims to bring healthy people into the risk pool, which will help keep premiums down,” says Larry Levitt, senior vice president at the Kaiser Family Foundation and one of the report’s authors.

The new insurance markets created by the ACA in 2014 need healthy people to enroll in order to be sustainable. Last month the largest U.S. health insurer, UnitedHealth Group, said it might withdraw from the ACA market entirely after next year because of mounting losses.

More than 2 million people selected ACA plans in the first month after open enrollment began on Nov. 1, according to federal statistics, including 700,000 new to the marketplace. (The tally counts 38 states that use the federal marketplace, and omits states like New York and California with their own enrollment systems.) Obama administration officials have said they expect about 10 million people to sign up in the enrollment period that closes at the end of January, only a small increase over the current year.

The ACA relies on carrots and sticks to get people to enroll in health plans. Subsidies bring down the price of insurance, while the penalties discourage people from forgoing coverage. For many people, paying the penalty might be a rational choice, because it’s often still less money than what the cheapest health plan costs. Kaiser estimates that there are about 7 million uninsured people in this circumstance.

But then there’s another group of about 3.5 million uninsured who are eligible for coverage, and could enroll in the least expensive health plans for less than what they’ll pay in penalties, or for no cost at all after subsidies. That’s roughly equivalent to the population of Connecticut. And they’d have to defy economic logic to remain uninsured next year.

There are several reasons that they might.

First, the penalties aren’t calculated until tax time: Fines people incur for not having health insurance in 2016 won’t be levied until they file their taxes in 2017. A lot of people who are eligible for subsidies to reduce the cost of coverage don’t realize it, Levitt says. And the administration has soft-pedaled the penalties, because they’re among the least popular parts of the law.

“The mandate could be a very effective tool to encourage people to sign up,” Levitt says, “but the politics of it aren’t great.”