Obamacare’s individual mandate, the new target in the GOP tax plan, explained

By Dylan Scott

Repealing the mandate means millions more uninsured and higher premiums.

Senate Republicans want to take another stab at driving a stake into Obamacare in their tax overhaul.

The revised Senate tax bill will repeal the individual mandate, according to multiple reports. Repealing the mandate — which is the gear that makes the Affordable Care Act tick — would save more than $300 billion over 10 years, but only because millions fewer Americans would have health insurance, according to the Congressional Budget Office. It also means higher premiums, because the younger, healthier people who have an incentive to buy insurance rather than pay the mandate would be expected to exit the market while the sicker people stay in.

But Senate Republicans are struggling to make their tax plan satisfy the byzantine rules governing the chamber’s “budget reconciliation” process. The savings from repealing the mandate would help a lot, and Republicans would finally, after their earlier failures, repeal the part of Obamacare they hate most.

“I believe we should use this opportunity to repeal the individual mandate and we should use the revenues … to lower rates for hardworking Americans across the board,” Sen. Ted Cruz (R-TX), one of the staunch conservatives who has been pressing to add it to the bill, told reporters recently.

That win comes at a cost: By repealing the mandate in their tax plan, Republicans will pay for $1 trillion in corporate tax cuts and individual tax cuts that overwhelmingly benefit wealthy Americans by adding a provision that will lead to millions fewer people having health coverage.

Obamacare’s individual mandate is unpopular. But it’s crucial to making the Affordable Care Act work.

Obamacare’s drafters knew that the individual mandate was not popular. As a presidential candidate in 2008, Barack Obama opposed a requirement that all Americans purchase coverage.

But he eventually came around to supporting the idea (which originated in conservative health policy circles) when he saw how crucial the policy is to creating a functional health insurance market.

Health care wonks like to describe the Affordable Care Act’s insurance expansion as a “three-legged stool.” It has three key policies that all work in tandem to expand coverage at an affordable price.

The first leg of the stool is ending preexisting conditions and allowing all people, sick or healthy, to buy insurance at the same price. This was a key goal of the Affordable Care Act.

But it also doesn’t work as a standalone policy. Mandating that insurers accept all customers would likely mean only the sicker patients — people who expect to use lots of health care — would sign up. Healthier people would just skip the market, figuring they’d do better not paying premiums and just buying health care when they need it.

This is where the second leg of the stool comes in: the individual mandate. The requirement to purchase insurance is meant to ensure that sick and healthy people sign up for coverage. The mandate holds down premiums by nudging healthy people with low costs into the market.

The last leg of the stool is subsidies to make insurance affordable. If there is a requirement to buy insurance, Obamacare’s drafters reasoned, then it needs to be affordable for all Americans. This is how the health care law ended up with a sliding scale of subsidies, with more help given to the lowest-income enrollees.

The Affordable Care Act includes a fine for Americans who do not purchase health insurance. The fine is $695 or 2.5 percent of income, whichever amount is larger. The idea was to create a fine that wasn’t quite as expensive as purchasing insurance, but was high enough that it would make consumers think twice about skipping coverage. It does include exemptions for those who cannot find an affordable plan. You can calculate what your penalty would be for not having coverage here.

In 2016, 6.5 million Americans paid an average fine of $70 for not being covered the year before.

Millions would lose coverage if the individual mandate went away — but Republicans dispute the exact number

Most analyses of the individual mandate agree that repealing the provision would have at least two outcomes: Premiums would rise, and some number of people would lose coverage.

The Congressional Budget Office estimates that 13 million people would lose coverage if the individual mandate were repealed, and that premiums in the individual market would rise by an additional 10 percent.

The American Academy of Actuaries generally agrees. “Lower enrollment among healthy individuals would likely result, especially if they would have to pay the premium surcharge due to having prior gaps in coverage, putting upward pressure on premiums, all else equal,” the nonpartisan group wrote in a March 2017 letter to Congress.

Last, major health groups have backed these findings. On Tuesday, a joint letter from health insurers, hospitals, and doctors argued that “eliminating the individual mandate by itself likely will result in a significant increase in premiums, which would in turn substantially increase the number of uninsured Americans.”

Health care groups are able to make these predictions pretty confidently because they have seen these outcomes firsthand. Some states have tried to expand health insurance coverage without an individual mandate, ultimately causing chaos in their marketplaces.

In the late 1990s, Washington state attempted to ban preexisting conditions without any mandate to purchase coverage.

This was a terrible market for insurance companies, which knew that only the sickest customers would sign up. Insurance plans fled the state, and by 1999, it was impossible to buy an individual plan in Washington — no company was selling.

As one report from the Washington state Insurance Commissioner’s Office described it, the insurance market entered a “death spiral,” with customers only buying coverage “when they needed it.”

“There are seven states that tried this in the mid-1990s, and in every case, it was a disaster,” MIT health care economist Jonathan Gruber said a few years back. “It became pretty clear that if you want a market to work, you need a mandate.”

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