The soft underbelly of Obamacare

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Concerned citizens gather to protest Healthcare Reform while standing along Davis Highway on September 7, 2009 in Pensacola, Florida.

Article Highlights

  • The most essential part of Obamacare is also among the most unpopular: the individual mandate

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  • The mandate is essential to the expectations of the Congressional Budget Office and the law’s architects

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  • If large employers are going to be given a reprieve, why shouldn’t working families get one too?

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For opponents of Obamacare, it almost seems like the law offers too many targets to choose from. Its effects on premiums and costs look to be highly unpopular, its perverse incentives are already harming employment, its state exchanges will hand out costly subsidies without the necessary checks against fraud, the promises of its champions—from keeping costs down to keeping the coverage and doctors you have—are proving empty, its lawless implementation is anathema to our system of government, and on and on. Where to focus their efforts to best combine political appeal with practical effect has been a real challenge for Obamacare’s foes.

But fortunately for the cause of repeal and replace, the most essential part of Obamacare is also among the most unpopular: the individual mandate. This is where efforts to use the GOP’s limited leverage should be concentrated.

The law’s champions have always considered the individual mandate to be the indispensable provision. It is what allows them to make the only boast they really care to make, which is that the law—in their estimation—will deliver on the long-sought goal of “universal coverage” (which now appears to mean covering all but 30 million people in our country). And it is what allows them to attempt to transform the purchase of government-sanctioned health insurance from just another consumer choice into a social obligation, if not a legal decree.

Of course, the mandate has already ceased to be the obligation that Obamacare’s architects wanted it to be. In his landmark ruling in NFIB v. Sebelius last summer, Chief Justice John Roberts found that Congress did not have the authority under the commerce clause to make the purchase of health insurance obligatory. The only way the “personal responsibility” requirement was found constitutional was as a tax on the uninsured: Citizens can either purchase insurance or pay that tax. Both options are perfectly permissible under the law. Indeed, the Roberts decision suggests that Congress could never raise the tax very much because that would tip the balance away from providing a genuine choice to imposing a de facto obligation to buy coverage.

As a choice, rather than a requirement, the individual mandate doesn’t make expensive coverage look all that appealing. In 2014, an uninsured household (with income above an exemption threshold) must pay a tax of only $95 or 1 percent of household income, whichever is greater. For a family with a $40,000 income, that’s either a $400 uninsured tax, or about $1,800 in premiums for insurance offered in the Obamacare exchanges (after the subsidies they’d receive). Some will buy the insurance, but many will not. And of those who don’t, some won’t bother to pay the uninsured tax either, because the ability of the IRS to collect it from them is severely restricted. The only way the government can ever recapture the money is by reducing future tax refunds, and then it can only do so a little at a time.

The individual mandate is thus already very weak, and certainly far weaker than the law’s proponents would like it to be. But that does not mean it is not important. It remains the key provision in Obamacare. First, though it is weak, it will still influence some consumer behavior. Moreover, the mandate is essential to the expectations of the Congressional Budget Office and the law’s architects—it is the main reason they can continue to claim (and presumably to believe) that the system will be sustainable. Despite its weakness, and evidence of its likely ineffectiveness, they are counting on the mandate to transform the landscape of our health care system by driving millions of relatively young and healthy Americans to sign up for Obamacare’s insurance, even though doing so will in many cases cost them much more than today’s insurance options and provide them with less valuable protection against risk than today’s insurance does—after all, under the law’s new insurance rules, if they decide to opt out they can always opt back in within a year if they get sick, with no penalty.

One should thus not discount the importance of the individual mandate to the psychology of those supporting the law. They believe they have passed a universal coverage solution, despite all evidence to the contrary. Removing the individual mandate would deflate these claims and make full repeal or wholesale change far more likely. In the wake of last year’s Court decision, the CBO insisted that changing the rule from a mandate to a tax would not much undermine its effectiveness. But the agency, and Obamacare’s defenders, would have to respond to a delay or repeal of the mandate by facing the reality of the new system’s perverse economics.

They therefore have to implement the individual mandate as the system gets going next year, even though it is very unpopular. Indeed, the mandate generally ranks as the most unpopular provision of Obamacare. A recent survey found only 12 percent of Americans supported it. That kind of public opposition is why Barack Obama himself expressed opposition to a mandate in the 2008 election—only to reverse himself when it came time to write a bill. It was also why the law’s architects made the mandate so weak. And it is why Republicans have already successfully used it to pressure the Democrats.

Last month, well aware of the mandate’s unpopularity, the House GOP wisely seized on the opening presented by the administration’s one-year delay of the employer mandate to push not only for a genuine statutory delay of the employer mandate but also a corresponding and simultaneous delay of the mandate for individuals. Twenty-two Democrats joined all but one Republican in support of the individual-mandate delay—a hint that at least some modest part of the coalition defending Obamacare could be picked off on this point.

Indeed, when the Obama administration delayed the employer mandate, it made a debate about the individual mandate inevitable and handed the GOP its best opportunity yet to make real headway in repealing the entire law.

On purely political grounds, it is both easy and right for voters to think about the mandates in tandem. The law created new obligations on employers and workers alike. If large employers are going to be given a reprieve, why shouldn’t working families get one too? But beyond the obvious political link, delaying the employer mandate also makes it much more difficult to fairly enforce the individual mandate.

For starters, the administration’s decision gave a reprieve not only to employers but also to insurance companies. They do not have to report who is enrolled in their plans in 2014. Thus, the IRS will have no independent data with which to verify who is covered and who isn’t, by employers or directly by insurers, and will have to rely entirely on self-reporting to determine who should have to pay the tax for being uninsured. This is a recipe for rewarding the dishonest and penalizing the rest.

Further, if employers do not have to offer insurance in 2014 but will have to in 2015, while workers still must get coverage or pay a fine in 2014, workers will face a counterproductive and complicated ping-pong effect. In 2014, the only way for some workers to avoid the uninsured tax would be to get coverage in the Obamacare exchanges. But in 2015, when the employer mandate will supposedly kick in, many of these very same workers will be pushed into accepting what their employers offer and dropping their exchange coverage (as they would no longer qualify for exchange subsidies). This discontinuity in insurance coverage will create needless complexity and problems for many families and their health care providers.

The Obama administration didn’t want to delay the employer mandate—they had to. That mandate could not be implemented in 2014, and it probably cannot ever be implemented without imposing massive costs on employers. Having been delayed once to avoid such consequences, it is hard to see how it could be imposed a year from now—right around the time of a congressional election. The pressure to delay it again will be immense.

Under these circumstances, the potential for delaying the individual mandate is very real, and the pressure to do so will be very difficult for Democrats to resist. Congressional Republicans should use whatever leverage they feel they can responsibly deploy to push for such a delay. The substantive case is compelling. The political argument is overwhelming. And a delay of the individual mandate would make it clear that Obamacare as a whole is far from inevitable and would greatly advance the cause of a broader repeal.

The individual mandate is simultaneously the most vulnerable and most important element of the law. That is the ground that opponents should attack and that Obamacare’s champions must be made to defend.

 

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James C.
Capretta

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