It doesn’t even further the ACA’s core goal of helping people with pre-existing conditions get coverage.
If you were deliberately trying to design the most arbitrary, painful and pointless tax possible, how would you go about it?
The mandate is superfluous to the ACA’s core guarantee of affordable coverage for individuals with pre-existing conditions.
First, you would structure it to inflate the cost of an essential product. Then, you’d create exemptions so vast that only 5% of taxpayers were subject to it. You might even ensure that it hit people only when they were particularly vulnerable—like when they’d lost a job. Finally, you would use it to drive enrollment in entitlements, so that it increased the federal deficit by $338 billion.
In short, you would design something that looks very much like the Affordable Care Act’s individual mandate.
Sen. Tom Cotton (R., Ark.) has made headlines by suggesting that tax reform should include a repeal of the mandate—an annual tax of between $695 and $13,380 imposed on 6.5 million American households. In defense of the mandate, ObamaCare’s defenders have resorted to hyperbole and scare-mongering, probably because the penalty is so difficult to justify on the merits.
In most insurance markets, people seek coverage in proportion to the risk they expect to face, and insurers receive payment in proportion to the cost they expect to cover. This approach prevailed for nongroup health insurance in most states prior to ObamaCare. It produced stable markets with premiums of less than half what currently prevails on the exchanges, but often failed to ensure affordable coverage for individuals with major chronic conditions.
The ACA has reversed this situation, providing affordable coverage to individuals with pre-existing conditions, but yielding plans that are priced well above the needs of most Americans. The average annual premium was $5,712 in 2016, while median health-care spending was only $709 in 2014.
The individual mandate was intended to prevent the bulk of individuals from fleeing this unappealing arrangement. Its advocates have argued that the mandate reduces premiums on the exchanges, but this is only true to the extent that it pushes more cost-effective alternatives out of reach.
As a newly released Manhattan Institute Issue Brief demonstrates, the mandate is superfluous to the ACA’s core guarantee of affordable coverage for individuals with pre-existing conditions. In fact, it is subject to so many exemptions that recent studies have failed to discern any impact of the mandate on the proportion of Americans who are uninsured.
The ACA’s guarantee of affordable insurance to low-income individuals and those with pre-existing conditions is due entirely to the law’s subsidy provisions. These expand automatically to whatever level insurers need in order to bring a plan to market, which limits premiums and out-of-pocket costs as a share of income. This principle holds regardless of the ratio of healthy to sick enrollees in the exchange.
For all the rhetoric about “shared responsibility,” the ACA deliberately carved the healthiest upper-middle-class individuals out of the exchange risk pools by giving adults under 26 the right to claim health-care benefits through their parents’ insurance coverage.
Without the mandate, the cost of supporting those with pre-existing conditions would be spread more broadly...
The main effect of the mandate has been to concentrate the burden of subsidizing the chronically ill on those who lack employer-sponsored health insurance or eligibility for public entitlements. This is a very low-income group: 79% of households that had to pay the mandate tax (which starts at $695 per year for individuals earning more than $10,350) had annual incomes of less than $50,000. It’s no wonder that Barack Obama opposed this funding mechanism during the 2008 primaries. “If a mandate was the solution,” he said, “we could try that to solve homelessness by mandating everybody buy a house.”
Without the mandate, the cost of supporting those with pre-existing conditions would be spread more broadly, including the bulk of upper-income individuals who receive employer-sponsored coverage.
Of the 18 million people enrolled in the individual market, only two million are estimated to have major pre-existing conditions. Repeal of the mandate would allow the bulk of them to choose soon-to-be deregulated insurance at half the cost of ACA-compliant plans. As 70% of individual-market enrollees would remain eligible for subsidies, they would not be adversely affected. Only a tiny subset of Americans would be likely to see any increase in premiums from the repeal of the individual mandate—and CBO has estimated this increase would only amount to 10%.
The individual mandate is not essential to the ACA’s coverage expansions. It serves only to accentuate the law’s inequities.
This piece originally appeared in the The Wall Street Journal