Obamacare's 'mandate' meltdown

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The president and his Democratic allies are finding it harder to make people buy insurance than they’d expected. Will Obamacare’s individual mandate survive?

Last month, the administration announced that anyone with a canceled 2013 individual insurance plan would be exempt from the “individual-responsibility requirement” this year, and would be allowed to buy the catastrophe-only insurance previously offered to those age 30 or under.

This exemption is likely only the first of many. How, for one, can the administration exempt people who had insurance last year but not exempt people who were uninsured because they couldn’t afford coverage?

Obamacare’s architects were always ambivalent about the mandate. They knew compulsion was necessary to make their system work — but, fearing a backlash, opted for a fairly weak penalty for those who didn’t obey. Oops: They wound up with a mandate that still provokes resentment, yet probably won’t work.

The US Supreme Court weakened the mandate even as it was saving Obamacare. The law’s authors hoped that the mandate would create the perception that insurance enrollment is now obligatory, but the high court made it clear that Congress has no authority to institute such a requirement. The justices ruled that the mandate could stand only as an optional tax, not as a fine for noncompliance.

So you’re not breaking the law by not buying (overpriced) Obamacare-compliant insurance; you’re just making the legal choice to pay the tax instead.

And that tax will generally be far lower than Obamacare premiums. That’s the clear conclusion of a new study by the 2017 Project, which compares premiums in the Obamacare exchanges in the 50 most populous US counties to the tax that households could pay instead.

This year, that tax equals the greater of two numbers: 1) $95 per adult in a household, plus half of that amount for each child, up to $285 for an entire household, or 2) 1 percent of household income in excess of the tax-filing threshold ($10,150 for singles, and $20,300 for married couples).

So, for instance, a 31-year-old single man making $30,000 in Columbus, Ohio faces a tax of $198.50, more than $2,000 less than the cheapest option in Ohio’s Obamacare exchange, even including his taxpayer-funded subsidy. For a 36-year-old San Diego woman making $40,000, the tax is $298.50, or nearly $2,400 less than the cheapest policy on the California exchange. She’s not eligible for a subsidy.

Obamacare can’t work if the young and healthy don’t sign up in large numbers — yet the law creates a clear incentive for them to opt out.

There’s more: The law also guarantees that you can always choose to buy during the next annual enrollment period — so if you fall seriously ill and find that Obamacare has become a better investment, you can buy it then.

The Obamacare law thus made insurance a less valuable product for most people, even as it pushed up the cost of buying it.

The coercion of the individual mandate was supposed to balance the equation, but it’s far too weak to do so — and it’s getting weaker each time the administration proclaims another exemption.

Yes, the tax for opting out is scheduled to rise in coming years. In 2015 and 2016, the tax rate for those paying based on their household income will rise to 2.0 and 2.5 percent, respectively. But many middle-income families will still find that cheaper than buying Obamacare insurance.

It’s also hard to see these taxes going up without even more backlash. Obamacare is already an extremely unpopular program, before anyone has been taxed for not signing up. When Americans realize that they’ll owe even a modest tax for opting out, pressure will grow to exempt everyone from paying it.

Obamacare’s authors wanted to use both a carrot and a stick to make the law work, but neither one looks effective. The subsidies for coverage are concentrated on the lowest-income households, not the middle class, and the mandate was watered down. So if Obamacare is to succeed, it will have to do so based on its attractiveness to consumers.

That should make the law’s proponents very worried, indeed.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute. Jeffrey H. Anderson is executive director of the 2017 Project.

For more from the AEI health policy team, follow @AEIHealth.

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