The Weakest Leg

Democrats have gone to great lengths to convince themselves that the individual mandate is critical, going so far as to call it one of the three most important parts of the law.

You’ve probably heard them refer to the individual mandate as “one leg in a three-legged stool,” the other “legs” being subsidies and guaranteed issue. Famous economists like Paul Krugman, Jon Gruber, Linda Blumberg, and Aaron Carroll all use this analogy, but it’s highly misleading. It implies that all three legs are equally important. That is not true.

The individual mandate can bear no weight on its own. As candidate Obama pointed out in 2008, “If a mandate was the solution, we could try that to solve homelessness by mandating everyone buy a house. The reason they don’t have a house is because they don’t have the money.”

While it would be impossible to have a system with a mandate and no subsidies, you can have a system with subsidies and no mandate. We know this by looking at large employer-provided health plans before Obamacare was adopted: government regulations combined with a generous tax deduction induced most people to sign up for their employer plan before there was a mandate.

Today, just 7 percent of adults with non-group coverage say they would drop their insurance coverage if the mandate were repealed. The subsidies are doing over 90 percent of the work.

Even longtime proponents of the individual mandate, like Kaiser Family Foundation vice-president Larry Levitt, has acknowledged that the “ACA marketplaces appear to be financially sustainable even without the individual mandate.”

In defense of the mandate, Democrats point to a Congressional Budget Office (CBO) report projecting that roughly 13 million fewer people would choose to be insured without the mandate by 2025 and that premiums in the small group market would be roughly 10 percent higher. These numbers are very misleading.

First, even the CBO thinks their own estimates about the negative effect of ending the individual mandate are way too pessimistic. They are now revising their findings based on new data, and expect the numbers of people affected by the end of the individual mandate to be smaller than originally reported. Second, many of those uninsured people will be uninsured in name only. Regulations allowing for retroactive Medicaid coverage mean that many people who are not reminded, by the individual mandate, to sign up for benefits can still be retroactively enrolled when they go to the hospital.

Finally, according to the CBO, the “death spiral” — wherein the health insurance market collapses as fewer and fewer people sign up — that Democrats warn of won’t happen. This is the main problem the individual mandate is supposed to prevent.

Stop Trying to Make it Happen

The individual mandate isn’t just unnecessary. It’s a political dead end that threatens the rest of Democrats’ health care policy by proxy.

As Matt Bruenig of People’s Policy Project recently wrote, “What this all means is that Obamacare failed the survival test. As soon as the opposition party got into government, they were able to relatively easily set it down a path towards collapse . . . It turns out fining people for not buying into private insurance is unpopular and this unpopularity made it possible for the GOP to get rid of the fine, which will have the effect of destabilizing the rest of the scheme.”

Democrats had seven years to convince the American people to accept the individual mandate and failed. It remains very unpopular and an easy target for Republicans. Even if blue-state Democrats were to adopt state-level individual mandates in a few places, it would likely become a target for ballot referendums or Republican campaigns.

Creating a new federal individual mandate would be difficult, and even if Democrats do it, they have little reason to believe it would be viable long term. There is a real threat Republicans would just repeal it again as soon as they could. Instead of clinging to an unpopular dead end policy, blue state Democrats should be using this moment to experiment with alternatives that the party can eventually enact nationally.

Part of the reason Democrats began to defend it in the first place is that after instituting it, they had little ability to go back and fix it. Republicans won control of the House in 2010 and states couldn’t apply for “innovation waivers” to create their own health care systems until 2017.

Now blue state Democrats have real options. It is no longer a binary choice between weakening the ACA or defending an unpopular policy. The party needs to move away from that old thinking.

Even if state Democrats are only looking for a plan to temporarily reduce the damage to the exchanges, they have multiple policy options besides an individual mandate: autoenrollment, back premium penalties, added subsidies, aligning open enrollment with tax filing season, requiring the submission of a special affidavit if an individual forgoes coverage, or an employer mandate. In 2007, San Francisco created a health program based around a small employer mandate. The result was 70–89 percent of the uninsured in the city gained coverage without an individual mandate.

Another modest option is first creating a state public option then a new state individual mandate. What many people objected to about the ACA mandate was the requirement that they give money to the despised private insurance companies, an industry with a favorability rating even worse than Congress’s. While almost never polled, people are much more willing to support an individual mandate if they have an option to give their money to a government plan.

These are all options to support the exchanges and keep Obamacare humming in the meantime.

Yet it would be a mistake to make these technocratic fixes the basis of a long-term vision for health care. They would just prop up a system that has mostly failed to live up to its promises.

Down With the Private Exchanges

Fighting an uphill battle to bring back a new-and-improved individual mandate could make sense if the private insurance exchanges it supported were a major policy success. Yet they are a failure by almost every measure.

Obamacare consists of two major coverage expansion programs — the Medicaid expansion and the subsidized private exchanges. The Medicaid expansion has proven to be more popular with the public, more popular with enrollees, more politically durable, and more cost effective than the exchanges.

The Centers for Medicare and Medicaid Services projects adult coverage by the ACA’s Medicaid expansion will cost an average of $5,370 per regular adult in 2018. By comparison, the Congressional Budget Office projects the federal government will spend an average of $6,370 for each individual who qualifies for subsidies for exchange coverage next year.

Let that sink in. Medicaid offers full coverage with little cost-sharing or premiums while people with subsidized private insurance exchange coverage need to pay premiums and often large deductibles. Arkansas’ Medicaid experiment showed that covering low income individuals with private exchange coverage cost 24 percent more than directly covering them with Medicaid. To cover people with private insurance via the exchanges, both individuals and the government are paying more and getting less.

In addition, people also prefer having Medicaid coverage to the private coverage they get on the exchanges. Previously uninsured people who gain coverage via Medicaid are more satisfied with their coverage and are more likely to rank their coverage as good or better compared to those forced to buy private plans via healthcare.gov.

Moreover, people are terrible at shopping for insurance, limiting any benefit from “competition.” Both surveys and studies have shown most people don’t understand health insurance terms and hate shopping for it.

On a personal level, during each open enrollment period, I spend several hours explaining basic health insurance terms to friends and family with college degrees, only to have many of them ask me the same basic questions the next year.

The exchanges were not supposed to be just for individuals. They were designed to be an option for all large companies by 2017. Some of Obama’s top health care advisers envisioned the exchanges as a popular way to transform employer provided insurance, but companies have aggressively shunned them. As a result, they’ve become the substandard refuge for individuals with no other insurance options.

The Solution

The reflexive push to adopt local individual mandates in blue states is a bad idea. The lack of an individual mandate will cause some issues, but they have been overstated. The ACA will not collapse. A death spiral is effectively impossible due to how the tax credits are structured.

Instead of rushing to bring back this inefficient, unpopular, dead end policy, Democrats should see this as an opportunity to adopt new, better plans. Being the party that forces people to give money to a private insurance industry with a net favorable rating of negative 32 points has not and will not be a winning long-term strategy.

Democrats have been given a gift by Republicans: the perfect excuse to abandon the most disliked aspects of Obamacare (the individual mandate and private insurance exchanges) and build on what worked best (expand public insurance programs).

Since Republicans have made it clear they will undermine even “market based” approaches to expanding coverage, there is no longer any political, practical, financial, or ideological justification to not make every Democratic action on health care about working towards single payer.

It would be a truly idiotic move to squander this opportunity by making the exact same mistakes again.