Starting this year, the individual mandate is dead. If you like your lack of health insurance, you can keep it — without owing a penalty to the government.
This is the only big change to the law that a Republican Congress was able to pull off over two years in power, and with the Democrats having taken the House, it will likely be the last major health reform of this presidential cycle. Combined with Trump-administration regulatory adjustments that make it easier to buy cheaper and less comprehensive coverage outside of Obamacare, though, it has the potential to significantly reshape the individual market.
How this will play out remains to be seen. But contrary to what you may have heard from the left, there is a hefty chance that the reforms will do far more good than harm. Yes, fewer people will buy insurance when you stop forcing them to — millions fewer. And yes, expanding cheaper options for healthy people will drive up premiums for those left in the Obamacare system. But greater consumer choice has immense value in itself, enough of the law remains in effect to guarantee reasonably priced insurance to those with low and moderate incomes, states can re-create Obamacare’s regulations if they want to, and the early signs are that many of the expected downsides will be rather small.
This isn’t an attack on the sick. First and foremost, it’s an expansion of freedom for both individuals and states.
Obamacare focused on people who are not old enough to be covered by Medicare, not poor enough to be covered by traditional Medicaid, and not covered through an employer either — in other words, people who buy individual plans.
The pre-Obamacare individual market was not quite the free-for-all that some have tried to paint it as: It generally provided affordable coverage, and it treated people reasonably well if they stayed insured, thanks to laws such as the 1996 Health Insurance Portability and Accountability Act. For instance, the rule of “guaranteed renewability” meant that you could continue renewing your plan even if you got sick.
One thing you couldn’t do before Obamacare, however, was wait until you got sick and only then buy insurance. That is, if you walked in the door with a condition costing thousands of dollars a month, insurers wouldn’t agree to pay your bills for hundreds of dollars a month. This made a lot of sense to anyone who thought about it for a second, but at the same time it meant that someone who made a short-sighted decision to go without insurance, or simply couldn’t afford it, could be utterly devastated by a sudden medical problem. According to one estimate from Mark V. Pauly and Thomas P. Miller of the American Enterprise Institute, perhaps 2–4 million people had preexisting conditions and were unable to get coverage. Millions more were healthy but uninsured, or were insured but had conditions that would have made it difficult to change plans.
Obamacare changed this setup in numerous ways. It simply banned insurers from taking applicants’ health into account, and limited the degree to which they could consider age as well. The individual mandate counteracted the temptation to go without insurance until you get sick. And the insurance the law required was comprehensive; most Americans were barred from relying on cheap “catastrophic” plans that kicked in only when medical bills truly got out of hand. It even required men to share in the cost of maternity coverage.
All this meant that the young and healthy had to buy rather expensive coverage. And to address the costs it was requiring people to shoulder, Obamacare divided the market into three groups. Those with incomes under 138 percent of the federal poverty level would be eligible for an expanded Medicaid program at little or no expense; those up to 400 percent would be eligible for subsidies that guaranteed their premiums would never exceed a certain percentage of their incomes; and those above 400 percent . . . well, they were on their own. As it turned out, the Supreme Court also made it optional for states to expand Medicaid, creating a “coverage gap” for people who were below the poverty level but not eligible for traditional Medicaid — putting these folks, too, in the third group without help, except when states decided to make other arrangements for them. (A fortunate drafting error set the minimum cutoff for subsidies at 100 percent of poverty rather than 138 percent. This year, the poverty level for a family of four is about $25,000.)
So how has this changed? The Medicaid expansion is still available to any state that wants to bring in a lot of federal money at little state expense, and indeed several red states newly expanded the program by referendum in the recent election. The subsidies for Obamacare plans aren’t going anywhere either. So the first two groups still have hard limits on how much insurance can cost them, and now they can also choose to go uninsured or buy noncompliant plans. Further, those who pass up subsidized insurance will save the government money, and they will be able to sign up later if they change their minds (though they’ll need to wait for an open-enrollment period).
It’s the third group that will see the biggest change: those who aren’t eligible for Medicaid or subsidies. These folks saw their costs rise when the law went into effect, especially if they’d previously relied on the cheaper forms of insurance that were banned. Barring state regulations to the contrary, they’ll now be able to abandon Obamacare for less comprehensive coverage that is much more affordable.
The Trump administration has expanded access to such plans through various regulatory changes. One loosens Obama-era rules on “short-term, limited-duration” plans, which were traditionally meant to cover people during temporary breaks in other coverage. These plans are exempt from Obamacare’s regulations, including the ban on excluding those with preexisting conditions, and as a result they cost less. Many healthy people flocked to them as the law initially went into effect, but the Obama administration cracked down in response, limiting the plans to three months. Under Trump’s rule, such plans can now last a year at a time, can be renewed for three years in total, can offer protections such as guaranteed renewability (though they are not required to), and can even be strung together to provide more than three years’ worth of coverage. Other regulatory changes, while more vulnerable to legal challenge, will allow associations such as local chambers of commerce to offer their own health plans — also exempt from Obamacare regulations and consumer protections — and allow states greater leeway to apply for waivers from the law.
Of the new options, short-term plans have received by far the most attention, and if one thing’s clear, it’s that they save people a lot of money on premiums: more than half, in fact. Liberals respond that these plans are “junk insurance” that can leave patients exposed to catastrophic expenses, and that their low cost will lead healthy people to abandon Obamacare, driving up premiums for those who remain.
These are legitimate complaints and will almost certainly come to fruition to some degree. But there are reasons not to panic. Obamacare premiums are falling, short-term plans are expected to increase the number of people who have some kind of insurance coverage (while admittedly making comprehensive plans less common), and if states don’t like the new system, they are perfectly free to reimpose the old one.
By one measure, premiums on the Obamacare exchanges rose 1 percent the first year (between 2014 and 2015), 8 percent in 2016, 20 percent in 2017, and a whopping 34 percent in 2018. When premiums fall this year, albeit just slightly, it will be the first time this has happened.
Of course, it would be ludicrous to suggest that the new changes caused the drop in premiums. Economically speaking, killing the mandate and expanding other options for healthy enrollees can only drive premiums upward. What appears to have happened is that insurers overshot on their 2018 premiums, becoming quite profitable, and were able to drop premiums for 2019 despite the new changes. An estimate by the Kaiser Family Foundation, based on insurer filings that explicitly spell out why premiums are changing, holds that premiums are 6 percent higher than they would be without the end of the mandate and the expansion of short-term plans.
That’s a trade-off, to be sure. But it’s far from a death spiral. Anyone who defended Obamacare through its phase of shocking cost increases can hardly complain that premiums aren’t falling enough now.
Another trade-off is that the new plans will lure people from more comprehensive coverage, while also making it possible for some of the uninsured to get at least a bare-bones plan. A report from the Urban Institute, for example, finds that the availability of short-term plans will reduce the number of people with Obamacare-compliant “minimum essential coverage” by 2.6 million — but increase the number of people on short-term plans by 4.3 million. How this pans out will depend on how many people really switch and precisely what kinds of short-term plans they go with. Liberals foresee lots of sick folks with skimpy plans that don’t really protect them, though even sick people can join the exchanges during open enrollment (because the rules for preexisting conditions are still in effect there). And whatever plans people buy, it will be a freer choice.
States, too, have choices to make. Those that prefer Obamacare are free to re-create its regulations, a prerogative that conservatives of a federalist bent should wholeheartedly support. Indeed, health care is a difficult topic about which reasonable people can disagree, and not all of the ideas motivating Obamacare were without merit. When red and blue America are so deeply divided, and neither is wrong per se, there’s no reason for the federal government to make a single decision for everyone.
A blue state might see things as follows: It’s absolutely crucial for all Americans to have access to decent medical care. This is not a radical belief; indeed, Ronald Reagan himself signed a bill that made it illegal for emergency rooms to turn away the uninsured. Given that, it’s not unduly coercive to require everyone to pay his fair share — and avoid offloading his future medical bills onto everyone else — by buying health insurance, so long as he can afford it and we help him if he can’t. Furthermore, young, healthy Americans on employer plans already subsidize their older and sicker coworkers without complaint, and it’s not unreasonable to ask their peers in the individual market to do the same, meaning they must not buy special cheap plans available only to them. It’s also important for everyone to have comprehensive coverage, including annual checkups, free birth control, and maternity care. (Why shouldn’t men share in the cost of childbirth, after all?) In short, the basic structure of Obamacare made a lot of sense and should be improved, not destroyed. In this spirit, states should ban short-term plans and pass individual mandates if they haven’t already.
But a red state might see things completely differently. In its view, there is no excuse whatsoever for forcing people to buy a product they don’t want, or for stopping willing buyers and willing sellers from exchanging low-cost health insurance. If we don’t like the results of this free-market process, we should supplement it at taxpayer expense rather than put the burden on the young and healthy via mandates and inflated premiums. Toward that end, Obamacare can take care of the subsidized population and serve as a fallback plan for wealthier people with preexisting conditions; everyone else can buy a plan elsewhere that better suits his needs. Sure, this means that Obamacare will lose some of its healthy enrollees, that premiums will go up a bit in response, and that some people will go without insurance entirely. But that’s an acceptable trade-off. It’s a free country, for crying out loud.
The point here is not that the health-care system is in capable hands. Much as the Democrats passed a law riddled with drafting errors and poorly thought-through schemes, Republicans have made numerous clumsy and embarrassing moves on health care over the past several years.
First and foremost there was the humiliating failure to repeal and replace the law. Then there was the comically inept decision by Congress to kill “bailouts” to insurers, which in reality were reimbursements for discounts the law requires them to provide; owing to some quirks in the Affordable Care Act statute, this manages to drive up premiums, federal subsidies, and the reach of Obamacare coverage simultaneously. Finally, there’s the frivolous current lawsuit from red-state attorneys general claiming that the leftover shell of the individual mandate — technically, the text of the law still decrees a crushing $0 penalty for those who go without insurance — is not only unconstitutional but so important to the operation of the rest of the law that it is “inseverable,” meaning the entire thing must be struck down. The Trump administration has largely sided with these states, taking the position that preexisting-condition protections (but not some other aspects of the law) are inseverable from the unenforceable mandate. Forget the cringeworthy legal arguments — even resolute Obamacare opponents in the conservative legal movement are almost unanimous in distancing themselves, though a district judge in Texas recently bought into this line of reasoning. This is self-evidently stupid on a political level.
These two simple changes, though — Congress ends the mandate, Trump expands other options — can give both individuals and states more freedom without denying Obamacare to anyone who wants it. There will be some downsides, for sure, and conservatives shouldn’t be happy that so much of the law remains in place. But maybe, just maybe, the GOP might have bungled its way into something that works.