The individual mandate is vitally important to the architecture of the Democratic health reform proposals in both the Senate and the House. The basic idea is that if you require insurers to sell policies on a guaranteed issue basis, there is a powerful incentive to only purchase an insurance policy when you become sick. The mandate is meant to prevent this kind of free-riding. But, as Yuval Levin has observed, it is far from obvious that this will work given the weakness of the proposed mandates.
Yesterday, California Healthline offered a very useful analysis:
Under the House bill, people who do not buy health insurance coverage would be subject to a tax of 2.5% on either the national average premium for coverage or their annual modified adjusted gross income in excess of the minimum income level required to file a federal tax return. The 2.5% tax would apply to the lesser of the two amounts.
The House bill’s penalties would take effect in fiscal year 2014 and would generate $33 billion through 2019, according to the Congressional Budget Office.
Meanwhile, the Senate bill would impose penalties of $95 in 2014 and $350 in 2015. A Commonwealth Fund analysis of the Senate bill indicates that beginning in 2016, penalties would increase to the greater of the two scenarios below:
- $750 per adult in a household (indexed for inflation); or
- 2% of household income, not to exceed the national average premium for a “bronze” health plan.
CBO projects that penalties would generate about $15 billion through 2019.
Assuming you are young and healthy, is it worth it to pay $95 to avoid having to pay far more for an insurance policy, particularly since you can buy when as soon as you actually become sick? Would it makes sense to pay $350 or $750? The only penalty that would actually have teeth, I’m guessing, is a penalty that equals the national average premium for a “bronze” health plan. And only a handful of affluent families would be subject to that penalty.
Keith Hennessey has described the likely consequences.
By including a guaranteed issue mandate, a mandate for modified community rating, and the ability for a new government-appointed body to create new benefit mandates, the House and Senate bills will cause total and average private health insurance premiums to increase.
How much? I cannot say precisely, because of the differences between CEA studied State mandates and because there are other interactive effects in this bill. But clearly these mandates will increase premiums, and if the numbers are comparable, the neighborhood is quite expensive: +4-5% higher premiums for another 10 benefit mandates, +20-27% for community rating, and New Jersey’s guaranteed issue is associated with 94% higher premiums compared to a similar State without guaranteed issue. Those are potentially astronomical premium increases that would make the problems the President describes far worse than under current law.
I have to assume that the weak mandate will have some impact, and that premium increases won’t be as egregious as what we’ve seen in New Jersey. But I really am puzzled by the fact that people seem to have so much faith in a weak mandate that, for “young invincibles,” amounts to little more than a symbolic gesture. If you want a mandate, create a real mandate. These half-measures reflect the fact that the public doesn’t want a real mandate, and Congress knows it. Now, however, we’re doing more harm than good.