The Unexpected Surprise That Came With Tax Reform
There's been no shortage of talk about the implications on the economy from a major cut in corporate tax rates approved by Congress this week, but one of the bill's provisions — to repeal Obamacare’s individual mandate — adds a whole other layer to the debate.
Since 2010, Republicans have been vowing to "repeal and replace" Obamacare. But even after taking control of the White House and both houses of Congress in 2016, Republicans still weren't able to come up with an alternative to the law. So instead, it added a provision in the tax cut bill just passed that says the federal government is no longer going to penalize people if they choose not to buy a health insurance policy.
Opponents who claim that 13 million people will “lose coverage" if the mandate was repealed missed an essential point — people will not be kicked off their existing plans, though they may decline to purchase insurance because of the very high premiums.
But will that be the case? Columnist Ramesh Ponnuru writes that getting rid of the mandate makes sense because its impact on insurance rates is not as drastic as once thought.
Throughout the debate over Obamacare, the Congressional Budget Office has attributed great power to the mandate. But the CBO has been backing away from its view about how crucial the mandate is. In its November report on the subject, it now concludes that the market for individual health insurance 'would continue to be stable in almost all areas of the country throughout the coming decade' without the mandate. It does not, in other words, foresee a 'death spiral' in which healthy people take the opportunity to flee that market, premiums skyrocket as they leave, and other healthy people then exit the market, too.
It is true that those who are young and healthy are most likely to drop their coverage since they are usually lower earners and they may not be able to afford to purchase high premium plans with high deductibles. Now that they don't face the federal tax penalty if they do not purchase insurance, they may opt out.
But what happens next may be dependent on whether it's possible to put a genie back in a bottle. Health care spending was already chewing up a huge amount of the economy before 2010, but Obamacare has actually increased the pace that health care costs have risen in the U.S.
Health care spending rose 4.3 percent in 2016, according to federal data released earlier this month. That is the third straight year it outpaced economic growth. Total health spending last year was 17.9 percent of gross domestic product, up from 17.2 percent in 2013.
Will insurers take advantage of this moment to charge even more for premiums from fewer young, healthy people? Doing so seems like the industry would spin itself into a voluntary death spiral, particularly as traditional insurance gets more and more expensive and provides less coverage.
This is especially relevant when alternatives, like Direct Primary Care, are becoming viable options. Meantime, the market may take this opportunity to innovate even more. Will we see some attractive options to cover young and healthy while also making sure older and less healthy? We'll have to see what corporate interests in this field decide to do with all that expected extra income from tax savings.
Will you be affected by the repeal of the Obamacare mandate? Tell us what your insurance company experiences.