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One by one, the myths of the Affordable Care Act have been revealed. When the curtain on open enrollment falls on March 31, the last remaining big myth of Obamacare will be fully exposed: The individual mandate has failed.
After a last-ditch effort with President Obama himself encouraging “young invincibles” to sign up before the deadline, the administration is scrambling to boost enrollment. On Tuesday, the White House announced that people who applied for coverage on the federal health-insurance exchange will have until mid-April to finish the paperwork.
The mandate was supposed to be the administration’s magical elixir for the assorted shortcomings of the Affordable Care Act. Disappointing early enrollment numbers? More people will sign up eventually to avoid mandate penalties. Potential premium spikes for government-approved coverage that must ignore cost differences in the age- and health-related risks of enrollees? Forcing young and healthy individuals to buy coverage will spread out the costs.
But the individual mandate was never strong enough to force millions of Americans to buy insurance they did not want or could not afford. Last week, the Obama administration estimated that 5 million Americans had signed up thus far for insurance on the exchanges, falling short of original projections by the administration and the Congressional Budget Office that there would be 7 million first-year enrollees. Yet even the 5 million figure needs to be discounted by at least another 20 percent to account for people who fail to pay for their first month’s premium, according to insurers’ estimates of early enrollees.
The individual mandate had the least effect on those it was supposed to encourage to gain coverage — the uninsured. McKinsey & Co. surveys found that a little over one-quarter of people signing up for coverage last month were previously uninsured. Goldman Sachs analysts estimate that about 1 million uninsured Americans will sign up for the Obamacare exchanges before open enrollment ends. For perspective, that’s about 2 percent of the 48 million uninsured.
A larger share of the exchange enrollees is likely coming from people whose previous coverage was canceled (due to other Obamacare rules) or those who found a somewhat better deal for exchange coverage (due to much more generous low-income subsidies). More recent increases in insurance coverage are appearing in health plans outside of the exchanges.
The mandate penalties are too small and limited to be very persuasive. Many uninsured individuals are exempted from them. Either their incomes are lower than the federal income tax filing threshold (roughly $10,150 for a single individual), the minimum essential coverage that Obamacare requires would be “unaffordable” under the law (costing them more than 8 percent of their household income), or they fall within a growing list of other exemptions from the mandate.
Even when the CBO was more optimistic about the individual mandate’s effects (in April 2010), it expected about two-thirds of the 21 million nonelderly persons still uninsured in 2016 to be exempt from the mandate or its penalties.
Those not exempt face modest fines compared with the out-of-pocket cost of paying premiums for Obamacare-required insurance. For example, the maximum penalties for a single adult remaining uninsured throughout all of 2014 would amount to the higher of $95 or 1 percent of household income above the federal income tax filing threshold. This is a fraction of the cost of health insurance for potential enrollees in government exchanges.
The threat behind the penalties is even less believable. The Affordable Care Act explicitly prohibits the Internal Revenue Service from using its most powerful enforcement tools like criminal penalties and levying property — such as wage garnishment.
If the IRS manages to discover someone without required coverage for all or part of a year, it can do little more than collect the penalty by taking it out of any other income tax refunds owed to an uninsured taxpayer. That risk can be limited or avoided by reducing the amounts withheld from one’s regular paycheck for income taxes.
For the mandate to have teeth, the size of the penalty would need to be greatly increased, exemptions would need to decrease, and enforcement would need to be stronger. Good luck with convincing congressional Democrats facing midterm elections to commit political suicide.
Even then, a tougher mandate still might not work. The CBO concedes that there is “little empirical evidence concerning individual people’s responsiveness to health insurance mandates.” In other countries with much higher penalties, such as Switzerland or the Netherlands, health-insurance mandates have had little success in changing the behavior of the uninsured and largely reinforced existing levels of coverage. This was the finding in a November 2007 Health Affairs study by former Obama Health and Human Services official Sherry Glied and two co-authors. They also found mixed results from mandates for auto insurance.
The March 31 deadline to gain coverage in government exchanges will come and go with a whimper, not a bang. Enrollment numbers may rally a bit, but likely still will remain low. Any net gains in coverage will be due primarily to Obamacare’s generous exchange subsidies for lower-income Americans, plus automatic enrollment of income-eligible Medicaid beneficiaries.
The ineffectiveness of the individual mandate is trumped only by its unpopularity. Two-thirds of Americans support getting rid of the individual mandate completely, according to a recent ABC News poll. This month, the House of Representatives voted again to delay enforcement of the individual mandate for a year, with support from 27 Democratic defectors.
The Obama administration already has been forced to delay, drop or revise a host of other requirements in the law, such as the employer mandate, minimum benefits standards, and nondiscrimination rules. Until now, the White House has refused to delay or repeal the unpopular individual mandate because it was supposed to hide the full “on-budget” costs of Obamacare. Its architects hoped that the mandate could force millions of Americans to pay for the law’s expensive coverage and cross subsidies through higher premiums instead of higher taxes. But they always lacked sufficient political support to try to make the mandate powerful enough to accomplish this.
Expect the mandate to turn into even more of a “suggestion” before votes are cast in this November’s congressional elections. With the mandate illusion off the table, the Affordable Care Act can no longer hide what it truly is: another unfunded liability for taxpayers.
Ms. McCloskey is program director of economic policy at the American Enterprise Institute. Mr. Miller is an AEI fellow and a former senior health economist on the U.S. Congress’s Joint Economic Committee.
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