It has not served to make health insurance more affordable and attractive.
This November, the Supreme Court will hear arguments in the case of California v. Texas, which centers on the constitutionality of the 2010 Affordable Care Act (ACA), also known as Obamacare. The case — which is gaining renewed attention in the wake of Justice Ruth Bader Ginsburg’s death — will focus specifically on the legitimacy of the ACA’s individual mandate, the necessity and effectiveness of which have been points of contention among scholars for years.
But they need not be. New findings from the Census Bureau released last week have effectively settled the debate, confirming that the mandate’s repeal in 2019 by the Tax Cuts and Jobs Act did not significantly lower health-insurance coverage levels in the United States. The better question to ask is why did the individual mandate fail in its intended purpose to increase enrollment?
The Congressional Budget Office originally estimated that the absence of the individual mandate would increase the number of Americans without health insurance by 16 million. Economists advising the Obama administration argued it would be 22 million. These estimates were both astonishingly far from the mark. The Census Bureau’s newly released results from two surveys of health-insurance coverage for 2019, the first year for which the mandate had been repealed, tell a vastly different story: One estimate shows that the number of Americans without health insurance increased by only 1 million; the other that it actually fell by 1 million.
In the 2008 Democratic presidential primary, Hillary Clinton supported enacting a penalty on individuals who failed to purchase health insurance, while her opponent Barack Obama disagreed, arguing: “if a mandate was the solution, we can try that to solve homelessness by mandating everybody to buy a house. The reason they don’t buy a house is they don’t have the money.” But, as the 111th Congress put together the ACA, Obama came to accept Clinton’s policy approach.
The ACA’s core insurance-market reform forced insurers to cover individuals who first purchase coverage when they are seriously ill for the same premiums as those who sign up before they get sick. This led those with major medical needs to sign up in droves — causing medical costs to soar, insurers to hike premiums by 105 percent over four years, and healthy Americans to drop out of the market. By 2020, ACA premiums to cover a family of four averaged $17,244, with households required to pay an additional deductible of $7,767 before plans pay for claims.
The individual mandate was supposed to offset this effect by forcing Americans to purchase ACA plans before they developed higher medical risks. But there was a big gap between how the mandate worked under the simplifying theoretical assumptions of Obama administration’s economists and the real-world constraints that governed how it was actually implemented.
As most middle- and upper-income Americans already have employer-sponsored insurance coverage, the uninsured are largely the poor and those who have recently lost jobs. The Obama administration in 2016 therefore exempted 23 million of the 30 million uninsured from the individual mandate’s penalty, while only 1.2 million uninsured Americans had incomes high enough such that they would face a penalty exceeding $1,000. As I noted in a 2017 report, such a mandate should be expected to drive few of the uninsured to purchase plans — as they could cost families $25,000 per year before yielding medical benefits.
But even if the penalty had been higher, it is not clear that the mandate would have successfully lowered premiums. A recent assessment observed that an individual mandate penalty also increases the ability of large insurers to inflate markups. Furthermore, mandating that healthy people buy plans that are of little value to them tends to force them into mere compliance by purchasing the skimpiest permitted plans, and may serve to drive better quality coverage out of the market.
The ACA’s individual market has been saved from this dysfunction by the creation of subsidies, which automatically expand to guarantee affordable coverage to low- and middle-income Americans. This has sustained Obamacare as an entitlement in disguise after it has ceased to function as a viable insurance market. Unsubsidized enrollment has continued to slump from 9.4 million in 2014 to 5.2 million in 2018.
Without subsidized enrollees and federal overpayments for subsidized healthy enrollees, which indirectly cross-subsidize the nominally unsubsidized, it has been estimated that individual market enrollment would collapse by 80 percent.
Removing the mandate has not significantly harmed the ACA market and the safety net it provides for individuals with pre-existing conditions. That should allow the Supreme Court to rule it severable from the rest of the ACA. However, the mandate’s repeal alone has not served to make health insurance more affordable and attractive. Congress should not be satisfied with the status quo, but needs to reestablish alternatives to ACA plans, so that individuals who seek to sign up before they get sick can access insurance options that are priced in reasonable proportion to their medical risks.