Column: Don’t revive the individual mandate
Tax reform repealed Obamacare’s least popular provision, the individual mandate, starting in 2019. Now, at least nine states want to revive the mandate, which required all Americans to purchase health insurance or pay a fine.
Obamacare’s proponents claim that state-level individual mandates would compel young and healthy people to buy coverage through the exchanges. This, they say, would ensure a healthy risk pool and prevent insurers from leaving the exchanges or drastically hiking premiums.
Their assertions are divorced from reality. The last four years of Obamacare have proven that even a government directive won’t compel people to buy insurance they can’t afford. Reinstating the mandate at the state level would penalize lower-income Americans without stabilizing the insurance market.
Few Americans were sad to see Congress kill the individual mandate as part of the tax reform effort. Fifty-five percent of Americans supported repealing the mandate as part of tax reform, according to a mid-November poll from the Kaiser Family Foundation.
That’s especially noteworthy, given that just 25 percent of Americans approved of the tax plan overall at the time.
Many Americans oppose the mandate on principle. Never before in American history has the federal government required everyone to purchase a specific good or service. Many others oppose the mandate because it’s a regressive tax that has failed to bring stability to the insurance market.
The mandate was intended to counter-balance Obamacare’s many cost-inflating regulations. The law prohibited insurers from denying coverage to sick people or charging sicker, older customers any more than three times what they charged healthier, younger ones.
The law’s architects recognized that these rules would create an adverse selection problem. Healthy people would go without insurance and only sign up once they got sick. People with costly health problems would flock to the exchanges, since insurers would have to sell them coverage at artificially low rates. It was a recipe for dysfunctional insurance markets.
Obamacare’s framers thought the mandate would prevent this chaos by coercing healthier people to purchase insurance. But the mandate didn’t work as planned. In 2014, the Congressional Budget Office projected that 24 million Americans would buy exchange coverage in 2017. In reality, only about 10 million purchased exchange plans last year.
Those enrollees were disproportionately old and sick. Insurance company actuaries estimated that 18- to 34-year-olds would have to comprise 40 percent of enrollees to prevent outlandish premium hikes. But millennials barely account for one-quarter of the exchange risk pool.
Consequently, insurers paid out far more in claims than they anticipated. To compensate, they hiked premiums — repeatedly. By 2017, average premiums on the HealthCare.gov marketplaces were more than double the average individual-market rates from 2013 — the year before the exchanges opened for business.
The high premiums priced millions of Americans out of the insurance market. In a November poll conducted by the Kaiser Family Foundation, respondents said the excessive cost of insurance was the number one reason they lacked coverage.
After making insurance unaffordable, Obamacare then penalized people for not buying it. Last year, 6.5 million people paid the individual mandate penalty. Eighty percent of these people earned below $50,000. By repealing the mandate, Congress and President Trump effectively gave these people a massive tax cut.
Mandate repeal could also strike a legal death blow to Obamacare. Twenty red states just sued the federal government, claiming that the health law is now unconstitutional.
Their reasoning is persuasive. In 2012, the Supreme Court ruled that Congress doesn’t have the power to compel people to buy insurance. However, the justices upheld the mandate on the grounds that it isn’t really a mandate — it’s merely a tax on people who go without coverage. Chief Justice John Roberts specifically argued that the mandate, and the entire law, would be unconstitutional if it didn’t raise revenue.
Meanwhile, blue states such as California, Connecticut, Hawaii, Rhode Island, and Washington are trying to impose their own individual mandates that would hike taxes on low and middle-income Americans. Massachusetts already has an individual mandate on its books, signed into law by then-Gov. Mitt Romney in 2006.
These partisans promise that new state-level individual mandates would stabilize insurance markets and curb premium hikes. But four years of real-world evidence shows that they’d simply pick the pockets of millions of Americans who already can’t afford coverage.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute.