Why Repeal of the Individual Mandate Hasn’t (Yet) Brought Obamacare’s Death Spiral

This article appeared on New York Post on February 11, 2019.
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As you file your tax returns this year, you will be asked whether or not you had health insurance during 2018. If your answer is “No,” you could be subject to a penalty of up to $2,085 per family.

Fortunately, this will be the last year that Americans will face punishment for failing to comply with ObamaCare’s individual mandate. That’s because President Trump’s 2017 tax reform effectively ended the mandate, starting next year. In typical Washington fashion, Congress didn’t exactly repeal the mandate, instead setting the penalty at zero starting in 2020.

The individual mandate was always the least popular part of ObamaCare, and with good reason. The idea that government can force Americans to buy a product is offensive to American liberty. And the mandate itself leads to a host of problems, such as forcing Americans into expensive insurance plans with benefits that they may not want or need.

But repealing the individual mandate while leaving the rest of ObamaCare intact also demonstrates the incoherence of Republican efforts to reform health care. That’s because the individual mandate was part of ObamaCare in the first place primarily as a mechanism for dealing with problems stemming from a much more popular aspect of ObamaCare — its ban against denying coverage for preexisting conditions.

“Preexisting condition” is simply another name for “people who are already sick.” Insurers will necessarily lose money by providing benefits to those sick people. Therefore, they must offset those losses by charging healthy people higher premiums than they otherwise would.

That’s one reason why average premiums shot up under ObamaCare. But faced with these excessively high premiums, younger and healthier Americans may choose to forgo insurance altogether. That could destabilize insurance markets, causing an “adverse selection death spiral” of rising premiums and a smaller, sicker pool of the insured.

ObamaCare’s “solution” was to force the young and healthy to buy the overpriced insurance, even if they didn’t want it.

There are other — better — ways to help people with preexisting conditions, but Republicans, wilting in the face of Democratic attack ads, wanted no part of that debate. Thus, they repealed the unpopular mandate but kept the popular preexisting‐​condition provisions. You don’t have to be a health care expert to see the incoherence of this approach.

Even before the mandate formally expires, young and healthy Americans have begun to abandon the costly ObamaCare plans they never wanted. The number of people signing up for ObamaCare plans on state exchanges has declined nearly 12 percent since 2017, though some of that may be because the economic recovery has shifted some people to employer coverage.

New York is an exception. Enrollment on New York’s exchange is up 10 percent, most likely owing to the state’s aggressive outreach efforts.

Insurance companies have ­responded exactly as you would expect: by raising premiums. The death spiral is showing possible signs of accelerating.

Democrats have pounced, blaming the GOP for premium increases while simultaneously accusing Republicans of secretly wanting to do away with the preexisting‐​condition provisions. Health care was almost certainly a key factor in the Democrats’ recapture of the House in November. But the Democrats don’t have a solution for ObamaCare’s failures either.

Even before the ­Republican repeal of the mandate, the young and healthy were resisting the dubious appeal of ObamaCare plans. Roughly 40 percent of new enrollees needed to be ages 18 to 34 to maintain the market’s stability, but less than 30 percent actually were. As a result, insurance premiums were rising at ­record rates and insurance companies were abandoning the market. Repeal of the individual mandate may speed up the death spiral, but it was already well ­underway. Fast or slow, it gets you to the same place.

Republicans have made some modest positive ­reforms. ­Expanding short‐​term insurance and association health plans, which allow insurers to escape some of ObamaCare’s onerous regulations, have provided consumers with new, less expensive options. The White House estimates that these two reforms alone could save consumers nearly $15 billion by 2021. Still, these are tweaks at the margins, not the fundamental reform we were promised — or that Trump implies he has achieved.

Meanwhile, leading Democrats have largely left the wreckage of ObamaCare in the rearview mirror. A $32 trillion single‐​payer system is the latest shiny object to catch their attention.