This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here.
Congressional Republicans got themselves a two-fer when, late in the drafting of the 2017 Tax Act, they inserted a provision repealing the “individual mandate”—the tax penalty charged to individuals who don’t qualify as financially stressed and nonetheless fail to obtain health insurance coverage. The repeal of the mandate not only dealt a blow to Obamacare; it also cut projected federal spending by $338 billion over ten years since it will lead millions of people to drop subsidized coverage. Republicans were then able to use the budgetary savings to offset some of the cost of tax cuts.
Who will be hurt most by eliminating the mandate? It won’t just be the increased numbers of low-income families who face unaffordable health-care expenses without insurance protection. One of the ironies of the mandate’s repeal is that it will lead to especially high costs for middle-class people who buy coverage in the “nongroup” market (that is, outside of an employer plan).
But before getting to the damage report, let’s consider exactly what the Tax Act did to health care and why the Republicans did it. During 2017, no failure irked Republicans more than their inability to “repeal and replace” the Affordable Care Act. The more they threatened the ACA, the more popular it became—and in the end, they were unable to agree on a replacement. But the ACA always had one point of maximum vulnerability, the individual mandate, which polls regularly found to be the law’s most unpopular provision. And while congressional Republicans could not agree on an alternative to the ACA, they could at least say they had fulfilled their pledge to do away with Obamacare by repealing the mandate.
The individual mandate actually originated as a conservative idea, first incorporated into legislative proposals by Senate Republicans in the early 1990s as an alternative to Democratic bills that mandated employers to provide health insurance. The Republicans’ idea at that time was to offer individuals an income-related subsidy for private coverage and to use the mandate to prevent them from waiting to insure until they got sick. No health insurance system can work if only the sick pay into it; an insurer can’t offer you fire insurance if you can wait to buy it when your house is already on fire. When Mitt Romney was governor of Massachusetts, he supported an individual mandate as part of the program for universal coverage in that state. As conservatives at the Heritage Foundation and elsewhere framed it, the mandate reflected an ethic of individual responsibility.
But as soon as Democrats embraced the idea, an individual responsibility requirement became anathema to Republicans. Indeed, responsibility of any kind went out the window in the Republican Tax Act. Earlier in 2017, Republicans at least recognized they needed a functional alternative to the individual mandate in their repeal-and-replace bills. After all, if insurers were to cover people with preexisting conditions, there had to be some incentive for healthy individuals to buy insurance too. A bill passed by House Republicans would therefore have tried to deter people from dropping out of the market by allowing insurers to impose a surcharge on those who purchased a policy after an interruption in coverage. While far from ideal, that surcharge provision would have helped maintain a functioning nongroup market.
In contrast, just repealing the mandate risks destabilizing that market since insurers are still subject to the requirement to offer coverage regardless of preexisting conditions. To protect themselves, insurers obviously will charge more—but the more they charge, the more healthy people may drop out. In similar situations in the past, rising rates have produced a “death spiral” as fewer healthy people buy coverage and insurers ultimately stop offering it.
Even with the mandate’s repeal, however, the ACA still has provisions that reduce the likelihood of a full-blown death spiral. People with income up to four times the federal poverty line pay premiums that are capped at a percentage of their income. So, for example, if your income as a single individual in 2018 is $24,280 (twice the poverty level), your share of the premium for a silver-level plan is capped at 6.34 percent of your income ($128 per month), regardless of how high the premium goes. That cap should keep healthy people in the market as long as they have incomes low enough to qualify for subsidies. But people with incomes over four times the poverty level, who don’t get any subsidy, will be exposed to the full brunt of the rising rates in the nongroup market. They’re the middle-class victims of the mandate’s repeal—collateral damage in the Republican campaign to obliterate Obamacare.
This year, the individual mandate is still in effect. In practice, that means there’s still a penalty for failing to insure that amounts to $695 or 2.5 percent of income above the filing threshold, whichever is greater, unless buying insurance would cause financial hardship (that is, cost more than 8.3 percent of income). What will happen when the mandate ends is unclear because there is no precedent for a market of the kind that now exists without a mandate. The Congressional Budget Office projects that the mandate’s repeal will reduce the insured population by four million in 2019, a total that will grow to 12 million in 2021 and 13 million in 2026. By that final year, according to the CBO forecast, the nongroup market will shrink by five million people, the Medicaid rolls by five million, and employer coverage by two million. A survey last March by the Kaiser Family Foundation, which found that 90 percent of enrollees in nongroup coverage still intend to buy it despite the mandate’s repeal, suggests the losses might be lower.
But the Trump administration is also pursuing other policies that will intensify the problems created by the mandate’s repeal and raise nongroup rates even further. Using its regulatory powers, the administration is seeking to allow “association health plans,” which can skim off the best risks, leaving the ACA’s marketplaces with the highest-cost enrollees. Another administration initiative would expand the use of “short-term” health plans that typically exclude pre-existing conditions and offer far more limited coverage than do plans under the ACA. For example, the short-term plans may not have to cover mental health care, a guaranteed way of avoiding people with higher costs. The effect again would be to draw healthier people out of the general market. The Republicans’ general strategy seems to be to turn the ACA’s marketplaces into high-risk pools, with premiums so inflated that the public deems Obamacare a hopeless failure.
At the time Republicans passed the Tax Act, there was talk of a follow-up bill to stabilize the nongroup market. Predictably, nothing happened with it. Most congressional Republicans have no interest in doing anything to repair problems with health insurance that they hope to blame on the Democrats. And, once again, conservatives are going to court in the hope of getting the ACA declared unconstitutional—this time on the grounds that since the mandate was upheld as a tax and the tax has been repealed, the rest of the insurance market reforms must fall, too. The lawsuit threatens to end the protections for individuals with preexisting conditions, reigniting one of the greatest concerns to voters, just in time for the fall election.
Democratic responses to the erosion of health insurance coverage are now moving on two tracks: proposals for substantial, long-term reform, including expansions of Medicare, and for short-term adjustments in the ACA. If Democrats win control of Congress in November, they may be able to pass some short-term adjustments to reduce rates under the ACA. The more immediate prospect for action, however, is in the states, which have the power on their own to stabilize their insurance markets. New Jersey has passed a stabilization bill with an individual mandate and a reinsurance fund (intended to limit the cost to insurers of high-cost cases in the nongroup market). All the candidates running for the Democratic gubernatorial nomination in Maryland have pledged to support a penalty on the uninsured that would be structured as a “down payment” for health insurance.
The Maryland measure suggests how a measure aimed at creating an incentive to insure could be reframed. Under the ACA, those who pay the tax penalty get nothing in return, but the penalty could represent money earmarked for some basic level of coverage. For example, under the 1986 Emergency Medical Treatment and Active Labor Act (EMTALA), all Americans have a right under federal law to emergency hospital care. In retrospect, the individual mandate might have been better framed as an EMTALA payment due from those without health insurance and paid out to hospitals to cover unpaid bills. That might have changed the debate about the required payment and made it more difficult to repeal.
It seems unlikely now that Democrats are going to make restoration of the mandate in its original form a political priority. They ought to be emphasizing other ways to bring down health-care costs and insurance rates and to get everyone enrolled in coverage. Creative thinking in the states may help show the way.