Republicans are threatening to repeal the individual mandate. Here’s why that’s a terrible idea.

The individual mandate matters for insurance companies and people who don't receive federal help.

Jim Cooke doesn't have health insurance, and has  paid the tax penalty annually.  This year, that might change. Credit: Amanda Michelle Gomez/ ThinkProgress
Jim Cooke doesn't have health insurance, and has paid the tax penalty annually. This year, that might change. Credit: Amanda Michelle Gomez/ ThinkProgress

Jim Cooke is looking to purchase health insurance this open enrollment period on Maryland Health Connection, the state’s Obamacare exchange. He usually pays the penalty for not having insurance, due to the individual mandate under the Affordable Care Act (ACA). But for him, this year is different.

“It’s not urgent, I’d just feel more comfortable,” Cooke told ThinkProgress. “I’m 61 now, and I think I better have this coverage.”

Cooke makes just over $48,240 — or 400 percent of the federal poverty level — which disqualifies him from earning premium subsidies. He says the lowest cost plan on the exchange costs more than the penalty, and this is why he typically pays the penalty — which is 2.5 percent of his income.

But now he’s beginning to “feel 61 years old” and would really like to get regular checkups with a primary care doctor. Of course, this is contingent on if he can afford a health plan. Maryland insurance companies raised premium rates by an average of 33 percent, although the brunt of increases were loaded on one type of plan.

Whether Cooke actually follows through and purchases insurance for 2018 is to be determined; he’s still shopping around. If health plans are a lot more expensive than last year’s, then that means he’ll have to pay the penalty and he’ll be without health reassurance. (A quick scan on Kaiser Family Foundation’s premium tracker paints a pretty bleak picture of what health plans this year will cost consumers without federal help.)

As Congress is looking to pass tax reform, people have begun discussing the individual mandate again. Last week, several Republican Senators indicated they would look to include repeal of the individual mandate — an unpopular provision in the current health law — in the Senate’s tax bill as a way to pay for corporation and individual tax cuts. The Congressional Budget Office estimates that by repealing the mandate, 13 million people will go without insurance and the federal government will save $338 billion by 2027. The idea is the government will no longer need to spend billions of dollars on subsidies.

But over the last few days, various news reports have highlighted the individual mandate’s under-performance. There has always been chatter about the mandate’s weakness, and projections from S&P Global Ratings seemed to crystallize this point. S&P Global Ratings estimated that repealing the mandate would increase the number of uninsured people by just 3 to 5 million and save the federal government about $60 to $80 billion by 2027.

So does it matter that Congress may try to sneak in repeal of the mandate in a tax reform bill if that many people aren’t affected? The answer is still yes.

While there’s good evidence to support the idea that repealing the individual mandate may not result in 13 million more people uninsured, it doesn’t mean forgoing it altogether is wise either. In fact, S&P Global Ratings also said the marketplace would benefit from a stronger mandate. If you ask insurance companies, who set premium prices and decide whether to participate in the Obamacare marketplace, they want the individual mandate in place — unless there’s a comparable replacement.

“Eliminating the individual mandate by itself likely will result in a significant increase in premiums,” representatives from major health entities, including the America’s Health Insurance Plans (AHIP) and Blue Cross Blue Shield Association, wrote last week. When key insurer representatives say repealing the mandate will result in premium hikes, it’s safe to assume it will.

While federal subsidies will safeguard the majority of people on the Obamacare exchanges from premium hikes, not everyone will be protected — including Cooke.

While, it’s important to ask what patients might do without the mandate, it’s also important to anticipate what insurance companies might do. Insurance companies were put through the wringer during health care reform, especially when Trump decided to pull cost sharing reduction (CSR) payments just weeks before open enrollment began.

Premiums on the Obamacare marketplace increased after summer uncertainty over current health law. After several threats to do so, President Donald Trump eventually ended cost sharing reduction (CSR) payments to insurance companies in October. CSRs are one of two types of subsidies offered to people who purchase Obamacare plans. Charles Gaba, an Obamacare statistician and author of the blog ACA Signups, told ThinkProgress that as far as he can tell the number of people who purchase unsubsidized health plans has already dropped. He thinks the odds are strong that “several million unsubsidized enrollees” will drop coverage whether or not the mandate is gone because Trump cut CSR payments to insurers — a point he makes on his own blog.

“Some [insurance companies] may jack the rates even more — others may leave from being jerked around” if the mandate is repealed, Gaba told ThinkProgress. “One thing I learned after doing this for four years is what insurance companies hate above all else is uncertainty.”

Washington state serves as another good example of what would happen if the individual mandate is repealed. In 1993, Washington passed the Washington Health Services Act, and like the ACA, it required individuals to have health insurance or pay a penalty. Similar to current health law, consumers were guaranteed comprehensive health plans. When state Republicans took over the state legislator a year later, they repealed provisions of the law, including the mandate. And within three years, 17 of the 19 participating insurance companies left the state, according to the AHIP.

Obamacare was able to avoid “bare counties,” or counties with zero insurance providers, over the summer. Every county in the United States now has at least one insurer participating in the Obamacare. If Congress continues to undermine health care law, the question becomes for how much longer? Already 1,565 counties — or 51 percent of the marketplace — currently have only one insurer option.