Doomsday Will Not Follow Repeal of Obamacare’s Individual Mandate

Congressional repeal of Obamacare’s individual insurance mandate penalty is not tantamount to pressing the button on the doomsday machine.

Critics of the Senate tax bill say repeal of the mandate penalty to buy Obamacare coverage will result in a spike in premiums, an increase in the numbers of the uninsured, and a “collapse” of the health insurance markets. In other words, the individual mandate is the “glue” that holds Obamacare together.

The assumption: Millions of Americans will buy Obamacare coverage—regardless of whether they want it or like it—because the government forces them to do it, and penalizes them if they do not.

Do we have compelling evidence that this is, in fact, the case? No.

Do we have evidence that the mandate is not the “glue” holding everything together? Sure do.

No human behavior is inevitable, of course. That is why, in the case of the individual mandate, the certitude of its supporters is unwarranted.

If the mandate were such a powerful force in reducing the numbers of the uninsured, restraining premium growth, and contributing to a robust expansion of choice and competition in the health insurance markets, then almost four years of empirical evidence would verify that proposition. It does not.

Consider coverage. In their November 2017 assessment, the Congressional Budget Office estimates that repeal of the individual mandate would result in 10 million fewer insured Americans over the next 10 years, including 5 million persons who are getting “free” care through Medicaid.

Accessing even “free” goods and services requires federal coercion, apparently in the uniquely weird world of federal health policy. Since 2010, as noted by the White House and others, the Congressional Budget Office’s coverage projections—upon which future coverage reductions are based—have not only been wrong, but in many cases, spectacularly wrong.

Curiously, in their assessment, the Congressional Budget Office reports that the agency is now revising its methodology, and says that the “estimated effects on the budget and health insurance coverage would probably be smaller than the numbers reported in this document.”

That is progress.

The crucial policy question is this: Does the law’s individual mandate—and its penalties—drive coverage increases?

Examining coverage data from 2012 through 2014, researchers writing in the New England Journal of Medicine, including Professor Jonathan Gruber, observed,

“When we assessed the mandate’s detailed provisions, which include income-based penalties for lacking coverage and various specific exemptions and penalties, we did not find that the overall coverage rates responded to these aspects of the law.”

Gruber and his colleagues further noted that the tax penalties in place in 2014 ($95, or 1 percent of household income) were “modest” and that with the imposition of the 2016 penalties ($695, or 2.5 percent of household income), “the mandate may play a larger role over time.”

Well, no. When the 2017 option is, say, paying $695 or an average monthly premium of $393 combined with an average deductible of $4,328, the mandate is no more powerful as an economic incentive today than it was in 2014, when Gruber rendered his assessment. Meanwhile, despite the individual mandate, coverage levels have not only fallen dramatically below the Congressional Budget Office’s earlier projections, but they also appear to be levelling off.

Independent analyses, based on raw insurance data, show a continuing poor performance in private insurance enrollment. Over the 2014-2016 period, public and private enrollment grew by 15.7 million persons, according to a Heritage Foundation analysis, but 89 percent of that growth was attributable to Medicaid and Child Health Insurance Program enrollment.

Between 2014 and 2016, there was a significant drop in the number of “unsubsidized” persons in the individual market from 11.1 million to 9.4 million.

According to a recent report in The New York Times, in 2015, 6.7 million tax-filers (representing themselves or their families) simply paid the mandate penalty rather than buy the Obamacare coverage, and over 12 million tax filers claimed an exemption from the mandate penalty.

In 2016 alone, individual market enrollment actually declined by 583,000. The mandate, whatever else it is accomplishing, is not preventing the decline.

Consider also premiums. When Congress enacted Obamacare, the law’s supporters believed the individual mandate would compel dramatic participation in the markets, and the influx of new enrollees would stabilize premium growth.

Beginning in 2014, the first year of the law’s full implementation, consumers in the individual markets, with very few exceptions, were stunned by rate shocks. In 11 states, for young 27-year-olds, premiums more than doubled. And the same was true for older enrollees, aged 50, in 13 states.

Surveying the uninsured that year, Bankrate.com found that one-third of the uninsured planned to remain uninsured, and 41 percent of those responding claimed that the Obamacare coverage was “too expensive.”

The big “no shows,” from the beginning, were the younger and healthier enrollees that were supposed to enroll in the exchanges and spread the risk, and therefore restrain or even reduce the premium costs. Obama Administration officials initially expected 40 percent of their initial enrollment to be comprised of persons 18 to 34.

Never happened.

In 2015 and 2016, premiums continued to rise—a direct contradiction of President Barack Obama’s silly promise that the law’s enactment would mean that “typical” families would see a $2,500 reduction in their premiums.

In 2017, once again, Americans trapped in the Obamacare markets faced a 25 percent increase in the premium costs of both the standard and most popular plans in the exchanges. For 2018, based on the preliminary data, analysts with Avalere are projecting a 34 percent increase in the standard plans.

The big premium picture is depressing. Since 2013, Obamacare’s premiums for single coverage have averaged an increase of 99 percent, while family premiums have increased 140 percent. Whatever impact the mandate is having on the insurance markets, it is not restraining premium growth

The anticipated “market collapse” has, in fact, already happened, and the individual mandate did not prevent it. In 2013, there were 395 insurers in the individual markets. That number declined to 307 in 2015, and down to 218 in 2017.

Preliminary data indicates that insurer participation will fall further down to just 181 in 2018. The Obamacare exchanges were never real “markets” in the first place, but federally supervised regulatory agencies where private coverage is “private” in name only.

The individual mandate with its penalties is not, in fact, the “glue” that is holding Obamacare together. It never was.

The lifeblood of the law is the generous taxpayer insurance subsidies, which attract and maintain the historically sluggish enrollment. The muscle and bone of Obamacare is the massive federal regulatory regime that governs the state health insurance markets.

The state exchanges have not blossomed into robust insurance markets, rich in choice and competition, but have declined to the point that they are, in effect, stagnant, heavily subsidized federal risk pools, disproportionately populated by the poor and the sick.

While Obamacare has reduced cost shifting to hospital emergency departments through exchange subsidies and Medicaid expansion, the levels of private insurance enrollment that Obamacare’s defenders anticipated did not occur.

The vast majority of exchange enrollees getting taxpayer subsidies will continue to get the subsidies and retain their coverage, regardless of the mandate. But the danger for those middle-class Americans who don’t get subsidies is that they won’t be able to continue to afford coverage, regardless of the mandate.

The job of Congress is not to maintain a monumental policy failure. Rather, Congress needs to strike out in a new direction and make policy changes that will allow state health insurance markets to flourish, and create conditions that will encourage millions of Americans to purchase coverage because they value that coverage—not because the IRS threatens them with penalties.

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The Senate Voted to Kill Obamacare’s Individual Mandate. Why That Was a Wise Call.

Obamacare’s individual mandate to buy federally standardized health insurance is a tax, courtesy of the Supreme Court’s elaborate exercise in creative writing: National Federation of Independent Business v. Sebelius (2012).

Legislators should judge a law by its results, not by good intentions. The record is clear: This particular tax is both unworkable and unfair. The Senate’s decision last week to repeal it is thus sound policy.

The individual mandate tax is not working. Its policy objective is to increase enrollment in private coverage and deter un-insurance.

To accomplish this goal, the law says that any person who does not buy an Obamacare plan would pay an annual tax penalty equal to 2.5 percent of their household income or $695, whichever amount is greater.

The penalty extends to families, including an annual penalty of $347.50 for any child under the age of 18 with a maximum annual family penalty of $2,085. Penalties increase annually by the rate of inflation.

Consider the incentives. Those who insure must buy Washington’s standardized insurance products, whether they like them or not, where premiums for standard plans this year have increased—not by the simple rate of inflation, but by 25 percent on average nationwide.

Before their coverage kicks in, consumers are faced with deductibles this year that average $3,572 for single persons and $7,474 for families in the standard (“silver”) plans. If consumers instead buy the “cheapest” (“bronze”) plans on the exchange, they face an average deductible of $6,092 for single coverage and $12,383 for family coverage.

For millions of middle-class families, this is the equivalent of a second mortgage payment.

Incentives under current policy are therefore perverse. Paying the mandate’s tax penalties (and relying on hospital emergency room care if necessary) may be wrong or unwise, but it is a lot cheaper than forking over the big premiums and crazy deductibles.

Kaiser Family Foundation researchers estimated that persons without mandatory coverage in 2016 faced an average penalty of $738 per household, while upper income persons (legally ineligible for insurance subsidies) faced an average penalty of $1,450.

Obamacare’s Medicaid expansion is responsible for coverage increases, not mandate-driven private insurance. Most who buy “private” Obamacare coverage on the exchanges—more than eight out of 10 enrollees—get enormously generous taxpayer subsidies for insurance. They are not quaking in fear over the threat of mandate penalties.

Coverage considerations are important. In its latest contribution, the Congressional Budget Office estimates that, over the next 10 years, repeal of the mandate penalty would mean that 13 million fewer persons would have health insurance, including, weirdly, an estimated 5 million Medicaid enrollees who get “free” care.

To their credit, the professionals at Congressional Budget Office have repeatedly acknowledged the profound uncertainties surrounding their estimates on the impact of health policy changes, particularly in recent House and Senate reform legislation.

Let’s take those self-acknowledged uncertainties to heart.

The Congressional Budget Office’s key assumption is that this tax encourages people to buy Obamacare coverage. Logically, one can accept their estimates of future coverage reductions if, and only if, one accepts the their estimates of future coverage.

The problem is that, since 2010, Congressional Budget Office’s coverage projections have been spectacularly wrong. In 2016, for example, they projected 21 million people would be enrolled in the exchanges, but the actual number was roughly 11.5 million.

For 2017, as the White House reports, under Congressional Budget Office projections, there were supposed to be 25 million exchange enrollees—but only about 10.3 million persons enrolled. Not surprisingly, independent academic research also indicates that the mandate penalty has a relatively weak impact on increasing coverage levels.

If the Senate tax reform bill passes, will there be 13 million fewer insured in the next 10 years, as the Congressional Budget Office projects? Or, will it be the far less dramatic 3 to 5 million estimated by the independent analysts with S&P Global?

Who knows? In any case, the Congressional Budget Office’s past predictive performance should inspire no confidence.

A related reason why this tax is unworkable is simply that public officials are not prepared to vigorously enforce it. Based on 2015 data, 6.5 million Americans paid the mandate penalty rather than buy Obamacare’s high-cost coverage, and another 12.7 million were able to take advantage of the various exemptions from the mandate.

Curiously, the tax is also profoundly regressive, falling on middle to lower-income persons least able to absorb reductions in their disposable income. Based on the 2015 data, 79 percent of those who paid the tax penalty had annual incomes less the $50,000, while 37 percent of them had incomes less than $25,000.

Curiously, while campaigning against Hillary Clinton for the Democratic presidential nomination in 2008, Barack Obama himself opposed the individual mandate because he said that it would be unfair and unenforceable: “If a mandate was the solution, we could try that to solve homelessness by mandating everybody buy a house.”

Candidate Obama was right. President Obama was wrong.

Congress could, of course, preserve the mandate and toughen enforcement. While progressive policy analysts may talk privately about getting tough with non-compliant Americans (bulking up IRS enforcement, increasing the penalties, garnishing wages, and so forth), the law’s advocates in Congress have not shown the intestinal fortitude to advance such proposals.

Instead, they are promising more government spending, heavier government regulation, and yet another government health plan—a “ robust public option”—to erode further the already-shrunken choice and competition in the insurance markets.

Meanwhile, it’s absurd for Congress to preserve a law it will not enforce.

The real alternative to a government stick (the mandate tax) is a government carrot (regulatory reform)—a friendlier market environment, free of coercion, and characterized by robust consumer choice and competition; a market where people want to buy an affordable product that they determine is of value to them.

Younger and healthier people should not be discouraged from entering the health insurance market by government policy that limits their options and deliberately drives up their health insurance costs—policy that makes coverage unaffordable and undesirable.

Repealing the individual mandate penalty is sound policy. It is, however, only the first step in a hard process of carefully crafting insurance market reforms and allowing new health insurance markets to flourish—markets where individuals and families will control their health care dollars and decisions.

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