Senate Obamacare Mandate Repeal Threat Hurts Insurers Twice

(Bloomberg Gadfly) -- It is a self-evidently dumb idea to add health care to an already iffy tax-cut plan. Past efforts to repeal Obamacare have been miserable failures that lost the GOP elections.

And yet here we are: Senate Republicans have made repealing the Affordable Care Act's individual insurance mandate part of their tax-reform bill.

That's ugly news for insurers and hospitals in at least two ways: Passing such a measure will hurt the individual insurance market. But failure may drag the tax-cut effort down with it, possibly hurting the stock market and leaving companies with higher tax bills. 

Senate Obamacare Mandate Repeal Threat Hurts Insurers Twice

The ACA's mandate is unpopular but necessary. It generates revenue for the federal government via penalty payments. Repeal would only save money and enable larger tax cuts because millions of people would stop buying insurance, reducing government spending on subsidies. 

That's bad news for Obamacare-focused health insurers. They'd lose millions of customers, and the risk pool in the individual market would deteriorate; people who would still buy insurance in the absence of the mandate are likely to be sicker.

Premiums would jump significantly, making it even harder for people who don't qualify for subsidies to afford insurance. The CBO also projects that fewer people would sign up for Medicaid in the absence of the mandate, which would hurt a broader group of insurers. 

That has a negative knock-on effect for already-struggling hospitals. Higher uninsured rates mean fewer customers and more uncompensated care that eats at hospital profits. 

Senate Obamacare Mandate Repeal Threat Hurts Insurers Twice

While insurers and hospitals may not benefit from the GOP's proposed tax reforms as much as companies that generate a ton of revenue overseas, they are certainly fans of a lowered corporate tax rate. And tax-cut success is baked into Wall Street's earnings estimates for 2018.

The GOP's tax-cut ambitions already face serious obstacles. There are major differences between the House and Senate bills and internecine disagreements about tricky policy issues. Either bill would balloon the deficit. While repealing the ACA mandate could help solve some of those issues, it creates others. Wrecking the individual insurance market also happens to be politically difficult. 

A prior effort to repeal parts of Obamacare without a replacement didn't pan out. Some in the GOP likely hope they could pass an Obamacare replacement after tax reform, having apparently developed amnesia about their past inability do so.

They may believe this time is different, that the political imperative to cut taxes will flip votes. But the also-strong political imperative for Obamacare repeal created by seven years of promises and presidential pressure didn't do the job. Past repeal/replace efforts planned to use portions of the savings generated by repealing the individual mandate to support the insurance market. In this case that money would be going somewhere else, potentially weakening any future replacement effort.

Health-care firms surely hope the GOP will come to its senses. But for now, they get to simultaneously enjoy a renewed threat to the insurance market and dwindling tax-reform prospects.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

To contact the author of this story: Max Nisen in New York at mnisen@bloomberg.net.

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