The Individual Mandate

(Bloomberg) -- It was the least popular part of the Affordable Care Act. Now the individual mandate, the Obamacare requirement that all Americans get health insurance or pay a fine, is gone. Republicans who had tried and failed to kill it in the courts and in health-care legislation finally found a way, by adding a repeal of the mandate’s penalties to the tax cut law signed by President Donald Trump in December. Democrats had always described the mandate as a central pillar of the new system. Without a financial prod, they said, many healthy people would forego insurance, driving up costs for others in the markets for individual policies.

The Situation

Dropping the mandate will mean that by 2027 an estimated 13 million fewer people will have insurance and premiums in the individual market will increase by about 10 percent, the Congressional Budget Office said. But dropping the mandate will reduce government spending by about $318 billion over a decade, according to the Joint Committee on Taxation, because many of those going without insurance would have received government subsidies if forced to get coverage. That money made it possible for the tax bill to stay within the $1.5 trillion cap for additional deficit spending over a decade set by the Senate. To win the support of Senator Susan Collins, a Maine Republican who voted against an earlier proposal to repeal the mandate, the Senate leadership promised to seek a vote on other legislation to strengthen insurance markets. But conservatives in the House said they opposed those measures.

The Background

Both the individual mandate and the continuous coverage proposal address the same problem. In fact, liberals like to point out that the individual mandate was originally a conservative notion, proposed in 1989 by the Heritage Foundation, and that it was a key part of the health-care reform adopted in Massachusetts in 2006 under Republican Governor Mitt Romney. The idea was that without such a prod, any promise to guarantee coverage to those with pre-existing conditions would collapse in a “death spiral” as older, sicker enrollees push up premiums, leading ever more “young invincibles” to decide they can skip insurance, leading rates to rise even further. As a presidential candidate, Barack Obama opposed the individual mandate, then changed his mind as he prepared legislation in 2009. In 2012, four Supreme Court justices said that the mandate was justified under Congress’s power to regulate commerce and four called it unconstitutional. The deciding vote was cast by Chief Justice John Roberts, who upheld it not under the commerce clause but as part of Congress’s power to tax.  In 2015, more than 19 million people either claimed an exemption from the mandate or paid a penalty for not having insurance — more than the 11.7 million who signed up for private coverage under the law that year. About 6.5 million people paid an average $470 penalty for not having insurance, the Internal Revenue Service said.

The Argument

Republicans had always attacked the mandate as a government intrusion into private decisions: If a law could require you to buy insurance, they asked, what else could the government force you to buy? They also argued that ending the penalty would represent a tax cut for many low-income people, citing IRS data from tax year 2015 showing that 79 percent of households that paid the penalty earned less than $50,000 a year. Democrats defended the mandate as necessary to prevent so-called free riding, since if insurers can’t refuse to cover pre-existing conditions, some people won’t pay for insurance until they’re sick. Others think the mandate’s impact in both directions is overblown. Analysts at S&P Global Ratings estimated in November that repealing it would mean only about 3 million to 5 million more people without health insurance in 2027, and government savings of just $60 billion to $80 billion. In their view, the carrot of government subsidies has proven more important than the mandate's stick. After the tax bill passed, Trump said that Republicans have “essentially repealed Obamacare,” adding that the party will “come up with something that will be much better” than the mandate.

The Reference Shelf

• The latest Congressional Budget Office report on repealing the mandate.
• A Congressional Research Service report on the individual mandate.
• U.S. Internal Revenue Service question and answer page on the mandate and its preliminary report on 2016 returns.
• A chart from an insurance industry trade group, America’s Health Insurance Plans, on different estimates of the impact of dropping the mandate.
• Annotated excerpts from the opinions in the U.S. Supreme Court ruling on the Affordable Care Act.
• A compilation of pre-Obamacare calls for an individual mandate.

Caroline Chen contributed to an earlier version of this article.

First published April

To contact the writer of this QuickTake: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this QuickTake: John O'Neil at joneil18@bloomberg.net.

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