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Individual-Mandate Repeal Makes GOP Tax-Reform Plan More Attractive

Michael D. Tanner

Tax reform was always going to be a difficult lift for
Republicans, so it came as something of a surprise when the Senate
added a new complication to the mix: a repeal of Obamacare’s
individual mandate. Yet it was the right thing to do.

The justification for repealing the mandate was the search for
money. Because some people might choose not to purchase insurance
if they are not forced to, the government will have to pay out
fewer subsidies. That means some $340 billion less in government
spending over the next decade. Senate Republicans were able to use
these savings to reduce tax rates by an additional half percentage
point across the board.

It should be pointed out that repealing the individual mandate
is itself a tax cut for many Americans. (We know the mandate is a
tax because Chief Justice John Roberts told us so.) In 2016, 6.5
million Americans paid more than $4.5 billion in penalties for
failing to enroll in an Obamacare-compliant health-care plan. Those
penalties, which averaged $695 per person in 2016 and over $2,000
for a family of four, are a particular burden for low and
moderate-income families. More than 92 percent of those hit with
the penalty earn $75,000 per year or less; nearly 80 percent earn
less than $50,000. That’s not exactly another tax cut for the
rich.

There’s a lot to be wary
of in the Republican plan, but getting rid of Obamacare’s most
onerous provision would be a win for everyone.

But the biggest problem with the individual mandate is not a
question of money. The idea that government can force every
American to purchase a specific product, even for the common good,
is deeply offensive to the American idea of individual liberty.
There is a good reason why the individual mandate is the most
unpopular part of Obamacare: It runs contrary to the American
character, and fundamentally alters the relationship between
government and the individual. That alone would justify repeal.

Of course, as noted, without the mandate many Americans would
choose not to purchase health insurance. The Congressional Budget
Office estimates that within a decade as many as 13 million more
people will go without insurance. For many of those people,
forgoing insurance is not a wise decision. But it is still
their decision. Contrary to progressive talking points, no
one’s insurance is going to be taken away.

It is possible that, since young and healthy people are most
likely to decide against buying insurance, repealing the mandate
could speed the ongoing adverse-selection problem that afflicts
Obamacare, and raise some premiums over time. Still, if your
health-care model depends on a product so lousy and overpriced that
no one will buy it unless you force them to … well, perhaps you
should rethink it.

Moreover, the CBO has long overstated the impact of the power of
the individual mandate to induce insurance coverage. That’s one
reason why actual ACA enrollment has consistently fallen short of
CBO projections. An independent analysis released last week by
S&P Global concluded that repealing the individual mandate
would result in just 3-5 million fewer people purchasing insurance
over the next decade. That would mean a smaller reduction in
government spending, but also a smaller impact on premiums.

The Senate is expected to vote on its version of the tax bill as
early as Thursday. Right now, its fate is said to hang on the votes
of roughly eight senators who are undecided or have expressed
concerns about the package (Collins, Corker, Daines, Flake,
Johnson, Lankford, McCain, and Moran). There are reasons to be
skeptical of the bill, including its impact on the deficit. But
there should be no doubt that individual-mandate repeal makes it a
more attractive proposition.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the
Entitlement Crisis
.