Will scrapping a penalty that’s far less than what many Americans pay for coverage dramatically change consumer behavior?
Repealing Obamacare’s individual mandate might not be the devastating blow to health insurance markets that supporters of the law fear.
Because the tax penalty for not having insurance is far less costly than what many Americans would have to pay for coverage, many have chosen to take the fine. Eliminating it, therefore, might not radically change behavior — or fulfill the dire predictions of spiking premiums and vast increases in uninsured people that economists, health providers and politicians once predicted.
Even the Congressional Budget Office says it’s rethinking its estimates of the consequences.
“We’ve always said the mandate is ineffective; it’s such a weak mandate,” said Deep Banerjee, an analyst at Standard & Poor’s who has closely tracked the Obamacare markets. “We don’t think many people would lose insurance if the mandate goes away.” The ratings service projects repeal would increase the number of uninsured by 3 million to 5 million by 2027, and save the federal government $60 billion to $80 billion.
Using tax reform to repeal the requirement to purchase health insurance is not without irony. When Chief Justice John Roberts saved Obamacare in 2012 by ruling that the individual mandate was a tax, conservatives were outraged. But now, with full control of Congress, Republicans can turn the tables: if it’s a tax, they’ll repeal it in a tax bill.
Axing the mandate, as Senate Republicans are proposing in their tax bill, would give the GOP an estimated $338 billion more to spend on tax cuts. That’s because removing a cudgel to persuade otherwise healthy people to enroll in Obamacare would lower how much the federal government pays to subsidize the coverage. Striking a prominent — and much reviled — feature of Obamacare is a secondary political benefit. House Republicans did not repeal the mandate in their tax bill, but GOP sources expect them to approve adding repeal when the legislation goes to a conference.
Insurers warn that scrapping the individual mandate could capsize the already wobbly markets, which have been buffeted by skyrocketing premiums and dwindling competition. On Tuesday, many of the largest health care industry groups, including America’s Health Insurance Plans, the American Hospital Association, and the American Medical Association, sent a letter to Senate Majority Leader Mitch McConnell warning against eliminating the penalty for failing to obtain coverage.
Their argument echoes fears voiced by the CBO: Scrapping the mandate would cause premiums to jump even higher and fewer Americans to enroll in coverage. The scorekeeping agency projects that premiums would be 10 percent higher if the mandate goes away and that there would be 13 million more uninsured Americans in a decade.
“Eliminating the mandate is pulling the plug on the individual market,” said John Baackes, CEO of L.A. Care Health Plan. “I think this is a cowardly way of doing it.”
But it’s also widely acknowledged by health care finance experts that the tax penalty has proved a weak enforcement tool. That’s because the fine maxes out at $695, or 2.5 percent of income, whichever is higher. That’s still far less than what many Americans would pay in premiums, meaning its effect on consumer behavior may be overstated.
Republicans have long scoffed at the CBO’s projections about what would happen if the tax penalty were eliminated. In its most recent analysis, the CBO indicated that it’s considering “major methodological changes” in how it scores repeal of the mandate.
Most observers expect the agency will eventually reduce the projected effect of eliminating the penalty. That could also result in lower estimated savings — the very thing the GOP is relying on to pay for its tax package.
The GOP’s move to repeal now amounts to “cashing in a declining asset,” said Tom Miller, a health care economist at the conservative American Enterprise Institute. “If we could just wait a couple of years, we would find out it really didn’t amount to much. But it takes awhile for CBO to retreat from its past errors.”
Republicans are framing mandate repeal as a “middle-class tax cut” because the vast majority of people who paid the fine are low- or middle-income. According to the IRS, nearly 80 percent of Americans who paid the penalty in 2015 made under $50,000.
Republicans say the mandate’s true effect on coverage is not clear.
“No one really knows,” the impact of the mandate, said Sen. Lamar Alexander (R-Tenn.), chairman of the Senate HELP Committee. “The Congressional Budget Office has revised its estimate downward of the effect [the mandate] has, and many professionals who look at it say the penalty is too low to make much difference, so I don’t think we know.”
The GOP maintains at least some of the possible effects of repealing the mandate would be blunted by passing the bipartisan deal Alexander struck with the HELP panel’s ranking Democrat, Sen. Patty Murray of Washington, to fund Obamacare’s cost-sharing reduction program, which helps low-income people pay their out-of-pocket health costs. The bill would provide two years of funding for the program, which President Donald Trump cut off last month. That would bring down premiums in 2019 and trigger rebates for consumers in 2018, according to Republicans.
“It would be a very bad idea to repeal the individual mandate and not pass Alexander-Murray,” Alexander said.
But Democrats, who strongly support Alexander-Murray, warned they can’t be counted on for support if Republicans undermine the Obamacare markets by repealing the mandate.
“Republicans who think they’ll be able to jam through a partisan bill that spikes health care premiums and then make it all better by pointing to our bipartisan bill to reduce health costs are either fooling themselves or trying to fool their constituents,” Murray said. “Democrats will hold Republicans accountable for the damage they’re doing every step of the way.”