The Individual Mandate

Obamacare's Unpopular, Pivotal Point

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It produced the decade’s most momentous decision by the U.S. Supreme Court and remains one of America’s most bitterly divisive issues.  The individual mandate, Obamacare’s requirement that all Americans carry health insurance or face penalties, went into effect  on April 1 — sort of, for some people and in a way that won’t cost anybody anything until next April 15, when their 2014 taxes are due. The mandate is the linchpin of the 2010 health-reform law’s plan to make insurance more affordable by getting enough healthy people into the insurance pool to offset the cost of sicker ones. It’s also the law’s least popular provision. With that and perhaps the November elections in mind, the Obama administration has been adding exception after exception to the mandate. What remains to be seen is whether a requirement denounced by Obamacare foes as tyrannical will in practice prove too wimpy to do its job of getting everybody into the insurance pool.

The Situation

The official enrollment period for getting coverage for 2014 ended on March 31. Failing to obtain coverage will mean paying a fine on your 2014 taxes (due in April 2015) of $95 per person or as much as 1 percent of household taxable income, whichever is higher. By 2016, those figures will rise to $695 and 2.5 percent, and will be indexed to inflation thereafter. Since October, the administration has extended a bevy of new waivers that could make millions more exempt from the penalty, including anyone who had “a hardship in obtaining insurance.” Under pressure to uphold President Obama’s promise that anyone who liked their previous insurance could keep it, the administration is allowing some people to meet the mandate with old plans even if they don’t meet the law’s minimum standards. The Congressional Budget Office estimated in 2012 that no more than about 6 million Americans will ultimately face fines, since most people get coverage through their jobs or government programs. In April, the CBO revised down its projection for mandate penalty payments, as it now expects fewer uninsured people, but it will be months before the first solid figures emerge.

Source: Kaiser Family Foundation
Source: Kaiser Family Foundation

The Background

Liberals like to point out that the individual mandate was originally a conservative notion, proposed in 1989 by the Heritage Foundation, and that it was a key part of the health-care reform adopted in Massachusetts in 2006 under Republican Gov Mitt Romney. The idea was that without such a prod, any promise to guarantee coverage to those with pre-existing conditions would collapse in a “death spiral” as older, sicker enrollees push up premiums, leading ever more “young invincibles”  to decide they can skip insurance, leading rates to rise even further. As a presidential candidate, Barack Obama opposed the individual mandate, then changed his mind as he prepared legislation in 2009. After the health-reform law was signed in 2010, the mandate became the focus of legal challenges, with conservatives calling a government rule that required purchase of a private product an unprecedented intrusion. In 2012, four Supreme Court justices said that the mandate was justified under Congress’s power to regulate commerce and four called it unconstitutional. The deciding vote was cast by Chief Justice John Roberts, who upheld it but on different grounds, saying it falls under Congress’s power to tax.

The Argument

In March, House Republicans passed a bill that would have delayed enforcement of the mandate for five years, saying it was unfair to punish individuals while small businesses were getting their mandate to buy insurance postponed. The move would have cut spending by $170 billion over 10 years, because having fewer people buying insurance would mean less spending on subsidies.  The Democrats who control the Senate killed the idea, which would also have led to 13 million fewer people getting insurance, according to the CBO. While Republicans would like to get rid of the mandate entirely, they have also criticized Obama for expanding exemptions to the mandate, with some calling it a stealth repeal of the unpopular provision and others questioning whether the Internal Revenue Service will actually enforce it. The White House says the mandate will be enforced. But even its allies say it seems to be looking for ways to do so lightly, at least until the law has taken hold — and the midterm elections are over. Insurers continue to insist that the mandate is crucial to balancing out the added costs Obamacare places on them.

The Reference Shelf

  • Congressional Research Service report on the individual mandate.
  • U.S. Internal Revenue Service question and answer page on the mandate.
  • A chart from an insurance industry trade group, America’s Health Insurance Plans, on different estimates of the impact of dropping the mandate.
  • Annotated excerpts from the opinions in the U.S. Supreme Court ruling on the Affordable Care Act.
  • A compilation of pre-Obamacare calls for an individual mandate.

First Published April 15, 2014.

To contact the writer of this QuickTake:

Caroline Chen in New York at cchen509@bloomberg.net

To contact the editor responsible for this QuickTake:

John O'Neil at joneil18@bloomberg.net