The individual mandate – the requirement that virtually all Americans obtain government-approved health insurance or pay a penalty — has long been the least popular part of the Affordable Care Act. Narrowly surviving a Supreme Court challenge in 2012, the mandate’s associated penalty has since technically been a “tax,” as it was only by the taxing power that the provision was found constitutional.
It would only be appropriate now for congressional leaders to repeal this mandate, or at least reduce the "tax" amount to $0, via tax reform legislation.
This would have several positive effects. First, the obvious: the approximately 6.5 million people who paid the penalty last year would not have to pay it this year.
Second, repeal of the individual mandate would save the government money. The Congressional Budget Office estimates that in the absence of the mandate, fewer people would enroll in subsidized Obamacare plans and in Medicaid, which means the government would spend fewer dollars on their health coverage. The latest score shows savings of $338 billion over 10 years, and 13 million people going uninsured.
Finally, and perhaps most important from the long-run perspective: repealing the individual mandate gets it off the books and out of the way for future health reform plans. Undoubtedly, one of the most harmful talking points used against efforts to repeal and replace Obamacare was the charge that these plans would leave 22 million Americans without coverage. But a closer look at the CBO score reveals that 73 percent of the coverage change (then 16 million out of 22 million) was a result of repealing the individual mandate. If Congress repeals the individual mandate now, as part of tax reform, this will pave the way for a more politically friendly battlefield over future health reforms.
The debate over the individual mandate puts Democrats in a difficult position. They have to defend the least popular part of an already very divisive law. Yet most Democrats believe the individual mandate to be a critical piece of Obamacare that holds the rest of the law together. This is how: Obamacare takes away the ability of insurance companies to offer different prices to different customers based on risk. This creates an incentive for people to go without coverage until they have a need for it (at which point they can enroll at the same price as a healthy person). This would ultimately cause a “death spiral,” a phenomenon where only the unhealthy seek coverage.
To stop this, the law includes the mandate, which is supposed to force people to enroll in coverage even if they don’t see it as a beneficial financial arrangement.
In theory, all of this is true: the ACA model needs the individual mandate. But in practice, the mandate has been far less effective and is therefore far less critical to Obamacare’s success or failure than many first thought. The Obamacare mandate simply doesn’t have enough “teeth” to be truly effective. First, there are many different types of exemptions, taken by about 12.7 million people last year. Then consider that average penalty that taxpayers paid for going without insurance in 2016 was about $470… compared to Obamacare premiums, which cost, on average $411 monthly.
The sad truth is that, even with the mandate in place, many Americans are opting out of Obamacare, and the feared “death spiral” is happening anyway, mainly because its plans are so expensive. By comparison, the mandate isn’t that bad for most.
We should keep in mind the wisdom of former President Barack Obama, who, before changing his tune, once said, “If a mandate was a solution, we could try that to solve homelessness by mandating everybody buy a house. The reason they don’t have a house is that they don’t have the money.” The same is true of health coverage.
To really help hardworking Americans get the insurance coverage they need, our approach to healthcare should be very different from the Obamacare approach. We should focus on bringing down costs and offering consumers more options through more vibrant market competition. In the meantime, we can offer Americans tax relief through repeal of Obamacare’s misguided and unproductive individual mandate.