6 Reasons The Individual Mandate ‘Deal’ Is Rotten Health Policy

6 Reasons The Individual Mandate ‘Deal’ Is Rotten Health Policy

Federal funding for abortions, higher insurance premiums for Americans, massive bailouts for fat-cat insurance companies—what’s not to love?
Christopher Jacobs
By

After their member lunch Tuesday, Senate Republican leadership announced they would work to include a repeal of Obamacare’s individual mandate as part of tax reform. The Senate leaders also announced they would bring the Obamacare “stability” legislation written by Sens. Lamar Alexander (R-TN) and Patty Murray (D-WA) to the floor for a vote.

Repealing Obamacare’s tax on individuals who do not buy health coverage, and using the proceeds to reduce taxes overall, may represent sound tax policy. However, for several reasons, both the mandate repeal, and the “stability” legislation linked to it, represent unsound health policy.

1. This Will Raise Premiums

Due to Senate procedural concerns, the tax reform bill cannot include legislative proposals within the purview of the Senate Health, Education, Labor, and Pensions Committee and House Energy and Commerce Committee. These two committees would have jurisdiction over any actions to repeal, waive, or otherwise relax Obamacare’s onerous regulatory regime.

For these reasons, a tax reform bill repealing the individual mandate cannot repeal the regulations that caused premiums to more than double over the past four years, and necessitated the mandate in the first place. As I previously noted, repealing a penalty that encourages healthy people to purchase insurance, while retaining the regulations that have attracted a sicker-than-average population to Obamacare’s insurance exchanges, will raise premiums—the only question is by how much.

2. It Bails Out Insurers—And Obamacare

The “stability” legislation would provide two years of cost-sharing reduction (CSR) subsidies to health insurers, which reimburse them for the cost of discounting deductibles and co-payments to certain insurers. Three years ago, the House of Representatives sued the Obama administration challenging the constitutionality of these payments, which the House contended were being made without an explicit appropriation from Congress.

In May 2016, Judge Rosemary Collyer agreed. While she stayed her ruling stopping the payments while the Obama administration appealed, the Trump administration used her logic—that the payments lacked a constitutional appropriation—to halt the payments unilaterally last month.

As previously noted, when establishing rates for the 2017 insurance cycle, insurers did nothing to plan for the withdrawal of CSR payments, despite a federal judge’s ruling last year calling such payments unconstitutional. Their business model depended upon unconstitutional actions continuing in perpetuity—a questionable business assumption if one ever existed. Yet by turning around and appropriating the CSR payments, Republicans in Congress would reward insurers’ willful ignorance last year.

3. This Establishes De Facto Single Payer

In choosing to appropriate CSR funds mere weeks after the Trump administration cancelled the payments, a Republican Congress would send a very clear message: Health insurers—and Obamacare itself—are too big to fail.

This message to health insurers, who last year ignored the risk that CSR payments would disappear, will only encourage them to take further reckless risks, knowing the federal government will provide a backstop if they fail. In other words, a Republican Congress would create a de facto single-payer health system, by establishing the principle that insurers are too big to fail.

Some might argue, as Alexander did Tuesday, that the “stability” fund will lower premiums and mitigate the effects from repealing the mandate outlined above. In one sense, throwing taxpayer funds at a problem will always “fix” it—at least in the short term. But with our nation $20 trillion in debt and repeated years of federal deficits, the federal government has a diminishing ability to spend other people’s money to “solve” problems. Moreover, in the longer term, a Republican Congress will have set an incredibly dangerous—and costly—precedent by telling insurers the federal government will cover their losses.

4. Insurers Could Reap Billions in Windfall Profits

As previously noted, the Congressional Budget Office in its estimate of the Alexander-Murray legislation concluded that health insurers will keep some portion of the cost-sharing reduction money: CBO expects that “federal costs in 2018 would be higher with funding for CSRs because premiums for 2018 have already been finalized and rebates related to CSRs would be less than the CSR payments themselves” (emphasis mine). In other words, CBO believes insurers—having increased their rates for 2018 after the Trump administration withdrew the CSR payments—will, if given “extra” CSR money after finalizing those higher rates, pocket some of that cash.

The CBO score also provided some sense of the money insurers might keep. The Alexander-Murray bill would appropriate roughly $7-9 billion in CSR funds for the coming plan year. Yet CBO believes insurers would return only about $3.1 billion in rebates back to the federal government, meaning the insurers themselves could keep some, or all, of the remaining $4-6 billion. All this after insurer profits nearly doubled during the Obama era, to $15 billion per year.

5. There’s Not Enough Flexibility for States

Over and above the question of bailing insurers out of their strategic mistakes by making CSR payments, the Alexander-Murray bill provides nowhere near enough flexibility for states in return. The bill provides for several process improvements regarding applications for state innovation waivers under Obamacare, but it does not fundamentally change the substance of those waivers.

States must still provide as many individuals with health insurance as Obamacare, and much provide a benefit package “of comparable affordability” as Obamacare coverage. Because the Alexander-Murray bill does not substantively change Obamacare’s regulatory straight-jacket, it still will not allow states to provide consumer-driven health care options, or plans that might have lower premiums for consumers.

6. This Means Federal Funding of Plans that Pay for Abortion

Last, but certainly not least, the Alexander-Murray bill would likely provide the second-largest amount of federal funding for plans that cover abortion, behind only Obamacare itself. The bill would appropriate roughly $25 billion in federal taxpayer funds, without the “Hyde amendment” restrictions that would prevent those funds from being used to subsidize plans that cover abortion. Alexander implicitly admitted as much in an interview the day he released his bill:

If the above six reasons weren’t enough evidence of the questionable policy merits of the mandate “deal,” the video should serve as the coup de grace. That the bill’s sponsor seemed blissfully unaware of all the policy implications of a bill he sponsored—and worked feverishly to sell to his colleagues—should function as a warning to lawmakers. In their haste to pass a tax bill, they are blundering into some serious strategic and policy errors in health policy, which could come back to bite them for many years to come.

Mr. Jacobs is founder and CEO of Juniper Research Group. He is on Twitter: @chrisjacobsHC.

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