The Soft Underbelly of Obamacare
For opponents of Obamacare, it almost seems like the law offers too many targets to choose from. Its effects on premiums and costs look to be highly unpopular, its perverse incentives are already harming employment, its state exchanges will hand out costly subsidies without the necessary checks against fraud, the promises of its champions—from keeping costs down to keeping the coverage and doctors you have—are proving empty, its lawless implementation is anathema to our system of government, and on and on. Where to focus their efforts to best combine political appeal with practical effect has been a real challenge for Obamacare’s foes.
But fortunately for the cause of repeal and replace, the most essential part of Obamacare is also among the most unpopular: the individual mandate. This is where efforts to use the GOP’s limited leverage should be concentrated.
The law’s champions have always considered the individual mandate to be the indispensable provision. It is what allows them to make the only boast they really care to make, which is that the law—in their estimation—will deliver on the long-sought goal of “universal coverage” (which now appears to mean covering all but 30 million people in our country). And it is what allows them to attempt to transform the purchase of government-sanctioned health insurance from just another consumer choice into a social obligation, if not a legal decree.
Of course, the mandate has already ceased to be the obligation that Obamacare’s architects wanted it to be. In his landmark ruling in NFIB v. Sebelius last summer, Chief Justice John Roberts found that Congress did not have the authority under the commerce clause to make the purchase of health insurance obligatory. The only way the “personal responsibility” requirement was found constitutional was as a tax on the uninsured: Citizens can either purchase insurance or pay that tax. Both options are perfectly permissible under the law. Indeed, the Roberts decision suggests that Congress could never raise the tax very much because that would tip the balance away from providing a genuine choice to imposing a de facto obligation to buy coverage.
As a choice, rather than a requirement, the individual mandate doesn’t make expensive coverage look all that appealing. In 2014, an uninsured household (with income above an exemption threshold) must pay a tax of only $95 or 1 percent of household income, whichever is greater. For a family with a $40,000 income, that’s either a $400 uninsured tax, or about $1,800 in premiums for insurance offered in the Obamacare exchanges (after the subsidies they’d receive). Some will buy the insurance, but many will not. And of those who don’t, some won’t bother to pay the uninsured tax either, because the ability of the IRS to collect it from them is severely restricted. The only way the government can ever recapture the money is by reducing future tax refunds, and then it can only do so a little at a time.
The individual mandate is thus already very weak, and certainly far weaker than the law’s proponents would like it to be. But that does not mean it is not important. It remains the key provision in Obamacare. First, though it is weak, it will still influence some consumer behavior. Moreover, the mandate is essential to the expectations of the Congressional Budget Office and the law’s architects—it is the main reason they can continue to claim (and presumably to believe) that the system will be sustainable. Despite its weakness, and evidence of its likely ineffectiveness, they are counting on the mandate to transform the landscape of our health care system by driving millions of relatively young and healthy Americans to sign up for Obamacare’s insurance, even though doing so will in many cases cost them much more than today’s insurance options and provide them with less valuable protection against risk than today’s insurance does—after all, under the law’s new insurance rules, if they decide to opt out they can always opt back in within a year if they get sick, with no penalty.
One should thus not discount the importance of the individual mandate to the psychology of those supporting the law. They believe they have passed a universal coverage solution, despite all evidence to the contrary. Removing the individual mandate would deflate these claims and make full repeal or wholesale change far more likely. In the wake of last year’s Court decision, the CBO insisted that changing the rule from a mandate to a tax would not much undermine its effectiveness. But the agency, and Obamacare’s defenders, would have to respond to a delay or repeal of the mandate by facing the reality of the new system’s perverse economics.
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