Democrats’ Plan to Resurrect Obamacare’s Individual Mandate Would Be a Disaster

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Some Democrats think they’ve found a way to bring back the much-hated Obamacare individual mandate, but voters shouldn’t be fooled by this heartless attempt to score political points.

 One of the most important provisions of the Tax Cuts and Jobs Act (TCJA), Republicans’ tax reform legislation that passed in December 2017, was that it effectively ended the Affordable Care Act’s (ACA) individual mandate (beginning in 2019) by eliminating the penalty imposed on people who are not enrolled in a “qualifying” health insurance plan. The individual mandate forces people to purchase qualifying health insurance plans or else pay a fine. The penalty for the 2017 tax year was $695 per adult (up to $2,085) or 2.5 percent of household income, whichever was greater.

The mandate costs some families massive sums of money. For instance, CNN Money reported in march one family in Orange County, California will pay about $15,200 in fines for not having qualifying health insurance.

As soon as TCJA was passed, Democrats and other left-wing supporters of Obamacare immediately characterized the end of the individual mandate as a potentially disastrous development for Obamacare health insurance exchanges. Without the mandate, they argued, millions of healthy people would drop out of the exchanges, leaving only the sickest, costliest consumers remaining. This could cause prices to skyrocket and eventually push more health insurers out of the exchanges entirely.

While many Democrats mourned what could be the first signs of a looming death for their party’s signature legislation, others plotted to create state-specific legislation that would keep the individual mandate in place. National Public Radio reported in early March that at least nine states—including California, Connecticut, Maryland, and Washington—as well as the District of Columbia have been working on plans to save the individual mandate.

Although many of these efforts have already stalled, one proposal making its way through Maryland’s state legislature has garnered significant attention from liberals who believe it could present the most palatable model for bringing the unpopular individual mandate back to life. Under the Maryland plan, individuals who do not have qualifying health insurance would be charged a penalty of $695 per adult ($347.50 per child) or 2.5 percent of his or her modified adjusted gross income, whichever is higher. But instead of the money being deposited into government coffers, the Maryland legislation would allow people to use the penalty funds to help subsidize the purchase of a health insurance exchange plan during the following open-enrollment period.

Many Obamacare supporters have lauded the bill. The Atlantic called the legislation “intriguing.” National Public Radio said Maryland is “on the cutting edge.” The Washington Post’s editorial board called it an “ingenious plan to fix Obamacare.”

Contrary to these claims, there’s nothing “ingenious” about the plan. In fact, substantial evidence suggests the legislation would likely cause significant harm to thousands of lower-income workers, and it’s unlikely the plan would be able to stop Obamacare’s inevitable collapse.

IRS data reveal the overwhelming majority of people who pay the individual mandate penalty are in working class households. In 2015, the most recent year for which data are available, 6.66 million Americans paid the Obamacare payment penalty. Of those filers, 78.5 percent had an income between $10,000 and $50,000. More than 2.45 million had incomes greater than $10,000 but less than $25,000.

Maryland’s plan would reinstitute this costly and cruel penalty on lower-income workers but do nothing to improve the underlying problems with ACA health insurance plans: They are too expensive and most lower-income Americans can’t afford to use them.

The cheapest Silver Plan currently available on Maryland’s Obamacare exchange for a 30-year-old earning $40,000 is more than $300 per month, including the ACA tax credit. Even worse, the plan’s deductible is $6,000, making the insurance almost entirely useless. The least expensive Silver Plan for a family of three with two parents aged 40 and one child aged 10 is also about $300 per month in Maryland, but the annual out-of-pocket maximum is $11,700 for such a family with a household income of $50,000.

Because these plans have high deductibles and expensive out-of-pocket costs, many of the working class families who are enrolled in them can’t afford to use their insurance. Forcing Americans to buy these inferior products, which are loaded with essential health benefits many Americans will never need, is cruel and only serves to further political goals.

Instead of imposing costly plans on people, Democrats should work with Republicans on instituting policies that lower health care costs, such as expanding tax-free health savings accounts, eliminating unnecessary regulations and essential health benefits, and promoting the use of direct primary care agreements. These reforms, not additional fines and punishments, will provide greater health care access.

[Also published by The Hill.]

PHOTO: Tea Party tax day protest 2010. Photo by Flickr user Fibonacci Blue. Attribution 2.0 Generic (CC BY 2.0)