States Should Not Resurrect The Individual Mandate
Several states have resurrected the most-hated part of Obamacare—the individual mandate.
Residents of California, Rhode Island, and Vermont must secure health insurance or pay a fine as of the beginning of this year. New Jersey and the District of Columbia implemented their mandates in January 2019. And Massachusetts’s state-level mandate has been in force since 2006.
These mandates will fail to bring about universal coverage, just as Obamacare’s individual mandate failed to do so while it was in effect. If states want to work toward universal coverage, they must make insurance more affordable.
Obamacare’s individual mandate went into force in 2014. Those who chose not to buy coverage that year faced fines of $95 for each adult or 1% of household income, whichever was greater. By 2017, the penalty was the greater of $695 for each adult or 2.5% of household income.
The idea was to pressure young, healthy people that might normally forego insurance into buying a plan. Premiums from these low-risk customers were supposed to hold premiums for older customers more likely to need costly care in check.
The individual mandate was, unsurprisingly, enormously unpopular. Six in ten Americans had an unfavorable view of it from essentially the moment it was enshrined into law, according to polling from the Kaiser Family Foundation. The public saw it as an unprecedented intrusion into their personal lives. Never before had the federal government forced private citizens to purchase a particular good.
That public pushback fueled a lawsuit challenging the constitutionality of the mandate. The mandate survived, thanks to a neat bit of legal jiu-jitsu from U.S. Supreme Court Chief Justice John Roberts. He declared that the mandate wasn’t actually a requirement to purchase a private good; it was a tax on those who went without insurance. No one questions Congress’s power to tax, so the mandate could stand.
That is, until Republicans took back Congress and the presidency. As part of the Tax Cuts and Jobs Act of 2017, Congress reduced the penalty for running afoul of the individual mandate to zero in 2019.
That move prompted a lawsuit from 20 states challenging the constitutionality of the entirety of Obamacare. The plaintiffs argue that the zeroed-out mandate is no longer a tax, so the constitutional raison d’être for the law no longer applies. The U.S. Court of Appeals for the 5th Circuit agreed—and has remanded the case back to U.S. District Court for further adjudication.
But set aside the toxic politics of the mandate. Judged by its own logic, the individual mandate was a miserable failure.
It did not drive people to buy insurance. In 2015, about 6.7 million people paid the penalty for non-compliance. About 29 million people overall went without coverage that year, in spite of the mandate. According to the most recent Census data, 8.9% of the U.S. population remains uninsured.
A big reason why? Obamacare’s many rules and regulations have driven up plan prices dramatically.
For example, Obamacare required all plans to cover a long list of benefits, including maternity care, mental health care, and substance abuse treatment. These services certainly have merit. But mandating coverage of them drives up premiums.
Despite President Obama’s grand promise to “bend the cost curve” down, premiums in the state-level marketplaces actually more than doubled between 2013 and 2017. Benchmark mid-level “silver” plans in 2018 featured average annual premiums of almost $5,800 and deductibles of over $3,900.
The individual mandate offered many working families a tough choice—pay for pricey insurance or get hit with a penalty. That penalty was frequently the less expensive option.
The mandate also hit low-income and working-class Americans especially hard. More than one-third of those who paid the mandate penalty in 2015 had incomes below $25,000. And those with annual incomes between $25,000 and $50,000 accounted for the biggest share of people who paid the penalty that year.
Americans are hungry for low-cost insurance. Fortunately, the Trump administration has made some moves to expand access to low-cost coverage, most notably by relaxing the rules governing short-term, limited-duration health plans.
The Obama administration set the maximum duration for these plans at three months. The Trump administration raised that maximum term to 364 days—and allowed insurers to renew consumers’ short-term policies for up to three years.
Short-term plans are exempt from Obamacare’s many cost-inflating mandates, so they’re much cheaper than the policies for sale on the exchanges—about 80% cheaper, on average, according to an analysis conducted last year by eHealth. That’s among the reasons federal officials predicted that about 600,000 people would enroll in short-term plans in 2019.
Short-term plans have their enemies. House Speaker Nancy Pelosi has called them “disastrous junk plans.” Twenty-one states have imposed restrictions on the plans that are more stringent than the federal government’s. In 11 states, no short-term plans are available at all, whether because they’re banned outright or because the regulatory environment is so unfriendly that no insurers are willing to enter the market.
Market forces are the most effective way to expand access to affordable coverage—not mandates. Several of our nation’s bluest states are poised to learn that lesson the hard way.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All, (Encounter 2020). Follow her on Twitter @sallypipes.