What if we don't need the individual mandate after all?

The GOP is about to kill the individual mandate. This might not actually be a huge deal.

A visit to the doctor.
(Image credit: Bjarki Reyr / Alamy Stock Photo)

The Republican Party will likely pass its massive overhaul of the U.S. tax code this week. And in the process, they're going to kill ObamaCare's individual mandate.

Many Democrats are freaking out over the impending death of the individual mandate, which demands that every American obtain health insurance. And it's not hard to see why: The nonpartisan Congressional Budget Office (CBO) estimates that scrapping the mandate will lead to 13 million fewer people with health insurance by 2027, and a 10 percent jump in premiums.

But what if the CBO is wrong?

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The whole point of the individual mandate is that insurers need lots of healthy customers who buy insurance but don't use it much to balance out their smaller pool of sick customers who need a ton of medical care. The individual mandate ostensibly keeps premiums relatively affordable for everyone.

Before ObamaCare, insurers would deny people coverage or charge them impossible premiums based on pre-existing health conditions. They were incentivized to give insurance to young and healthy people and deny coverage to older and sicker people.

ObamaCare laid down rules that put a stop to all that. But on their own, those rules would've also let people just go without coverage when they were healthy, knowing they could get a plan if they ever got sick. That is obviously untenable. And so ObamaCare also mandated that every individual have health insurance or pay a tax. The GOP is now doing away with that tax.

So what will happen to ObamaCare's insurance markets?

The truth is that no one really knows, because no one's really sure how much work the individual mandate is doing.

The mandate's tax is calculated in one of two complicated ways. It's either 2.5 percent of your annual family income, with a cutoff point equal to the annual premium for a "bronze" plan on ObamaCare's insurance markets, or $695 per adult and $347.50 per child, up to a maximum of $2,085 for a family. You pay whichever is greater.

Now, health insurance — even with ObamaCare's subsidies — is often way more expensive than this. For many relatively young and healthy Americans who don't get insurance through work, it seems preferable to just pay the tax, roll the dice, and go without insurance.

Indeed, the individual mandate may not be urging as many Americans to buy insurance as we assume. One study concluded that about 60 percent of the increase in coverage ObamaCare achieved by 2014 was due to the Medicaid expansion. The remaining 40 percent was due to the subsidies. Of course, teasing out causal relationships from statistics in this manner is really tricky. But researchers basically didn't find any evidence that the "stick" of the mandate, on its own, is driving people to sign up for health insurance. The "carrots" that are ObamaCare's subsidies and its Medicaid expansion are doing almost all the work.

But when the CBO scored TrumpCare and the more recent GOP tax bill, its models put considerable weight on the individual mandate's ability to incentivize people to buy coverage. We don't know exactly how much, because the CBO doesn't make its models public. But earlier this year, the CBO estimated that 15 million Americans would lose coverage in 2018 — before cuts to the subsidies or to Medicaid would really kick in. As the rest of the bill played out, the CBO projected that coverage losses would've increased to 22 million over the next 10 years. This suggests that the CBO attributed a big part of the coverage loss to the mandate all by itself.

This was a point of some controversy at the time. And for good reason. There is a real chance the CBO overestimated the damage that repealing the mandate would do.

It is very possible — maybe even highly likely — that ObamaCare successfully enrolled millions more Americans in health insurance by expanding Medicaid and offering subsidies (carrots!) and not by demanding that people buy insurance (stick!).

This would create an interesting new political reality. Those carrots are pretty popular. The individual mandate, by contrast, is widely hated by voters. Democrats defend the mandate nonetheless, because they feel they must to preserve ObamaCare's viability. This has won them no friends. So maybe, just maybe, killing it will be a blessing in disguise.

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