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With the passage of their tax overhaul, Republicans in Congress have repealed the Affordable Care Act’s individual mandate, delivering their first major blow against the law and imperiling the insurance marketplaces where millions of Americans buy health coverage.
The tax bill, which President Trump will soon sign into law, ends the penalty for Americans who don’t have health insurance. Repealing the mandate — which is the gear that makes the Affordable Care Act tick — is estimated to 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 and 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 Republicans struggled to make their tax plan satisfy the byzantine rules governing the chamber’s “budget reconciliation” process. The savings from repealing the mandate helped a lot, and Republicans have finally, after their earlier failures, repealed the part of Obamacare they hate most.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 to explain why Republicans combined the two issues.
That win comes at a cost: By repealing the mandate in their tax plan, Republicans are paying for $1 trillion in corporate tax cuts and individual tax cuts that heavily 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.
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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.”
For those reasons, the mandate’s repeal could also drive some insurers out of the market, at a time when some parts of the country have already been at risk of having no insurers to sell plans through the ACA marketplaces.
There is substantial uncertainty about how effective the individual mandate has been. But, what matters is whether insurers would be willing to participate in a market that guarantees coverage for pre-existing conditions with no mandate. I'm doubtful.
— Larry Levitt (@larry_levitt) November 14, 2017
The CBO’s mandate estimates have been controversial
The mandate — and the CBO’s estimates of its effects — has been a flashpoint over the past year. Republicans have accused the budget office of overstating exactly how much the mandate actually affects the insurance market.
“The CBO way overstates the power of Obamacare’s individual mandate to drive people to buy health insurance,” Avik Roy, one of the major proponents of the repeal bills that Congress considered earlier this year, told Vox back in May.
Some have taken issue with who the CBO thinks would lose coverage. The nonpartisan agency estimates that 13 million fewer people would have health insurance, including 8 million on the private marketplaces and 5 million in Medicaid. Critics have argued it’s unlikely that mandate repeal would cause millions to lose Medicaid, given that the public program charges no premium — its members don’t have to pay anything to receive that coverage.
Sen. Bill Cassidy (R-LA), as he sought to build support for his Obamacare repeal plan with Sen. Lindsey Graham (R-SC) this fall, devoted the opening minutes of a briefing with reporters in September to dispelling the agency’s projections about the mandate.
Other conservatives have also urged the CBO to make its methodology about the mandate’s effects publicly available.
It’s a wonky, sometimes inscrutable debate, but an important one. The projected coverage losses for the various Obamacare repeal plans — upward of 20 million — are a big reason why those bills failed in the Senate. With Republicans deciding to repeal the mandate in their tax bill, you’re assured of seeing the “XX million lose coverage” attack from Democrats now that the CBO has updated its estimates.
A more significant update could be coming. The CBO did meet in September to discuss revising its methods for estimating the mandate’s impact, Vox has reported. The agency said in its release last Wednesday that it was in the process of reevaluating its model.
The revised estimate could cut both ways. If it does show a smaller level of coverage loss, then that will make the headlines about millions losing insurance slightly less potent. But that would also mean that individual mandate repeal wouldn’t save as much money — one of the key reasons for including it in the tax bill in the first place.
Republicans keep trying to repeal the individual mandate because it’s unpopular — and it raises revenue
A Kaiser Family Foundation poll from November 2016 estimated that 63 percent of Americans view the requirement to purchase insurance unfavorably — and that the number is even higher among Republicans.
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This helps explain why the mandate is constantly under attack. Republicans know it’s a winning political line to talk about ending government fines for not purchasing coverage.
Repealing the individual mandate also saves the government money, which paves the way for larger tax cuts in the current reform effort.
The CBO estimates that repeal would save the federal government $338 billion in the next 10 years. Most of those savings would come from Americans dropping their insurance coverage and the federal government no longer needing to subsidize the premiums of those low- and middle-income Obamacare enrollees or pay for their Medicaid coverage.
The GOP tax bill became health care cuts paying for tax cuts
As Vox’s Tara Golshan explained, the tax plan had to meet certain conditions under budget reconciliation, which allows Republicans to advance the bill with only 50 votes instead of the usual 60. It can only increase the federal deficit by $1.5 trillion in the next 10 years and it can’t increase the deficit at all after 10 years. The spending cuts that result from repealing the mandate help on both fronts.
So the 13 million increase in the uninsured and accompanying health care spending cuts helped to finance a plan that cuts corporate taxes by $1.3 trillion, partially rolls back the estate tax paid by wealthy families to the tune of $93 billon, and directs most of its benefits to the richest Americans with its individual tax cuts.
Health care cuts for tax cuts help sink the various Obamacare repeal bills, because it scared off the more moderate Republican senators. But this time, repealing the mandate was a necessity to win conservatives in the upper chamber. It also had the support of President Trump, who repeatedly called on Congress to repeal it in their tax plan.
The gambit depended on moderates not abandoning the bill over the projected coverage losses. They didn’t. Sen. Lisa Murkowski (R-AK), one of two Republicans to oppose every version of Obamacare repeal thus far, had an unrelated incentive for backing: It opened parts of the Arctic National Wildlife Refuge for oil and gas drilling, a long-sought goal of Alaska politicans.
Sen. Susan Collins (R-ME), the other, meanwhile secured commitments from Senate leaders and President Trump to support two Obamacare stabilization bills to help offset the effects of the mandate’s repeal. Those bills haven’t passed yet and even if they do, experts are dubious about whether they would actually help the market much after the mandate goes away. They also face difficult prospects in the House, where the rank-and-file are reluctant to do anything to shore up Obamacare. But it was still enough for Collins to back the tax plan.
In the end, repealing the mandate increases the uninsured, increases premiums, and could jeopardize the stability of the insurance markets where 10 million Americans buy coverage.
But that was a price many Republicans were willing to pay to get a win against Obamacare and help pass enormous tax cuts for businesses and wealthy Americans.
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