Nicholas Bagley is a professor of law at the University of Michigan Law School.
To finesse the tricky politics and brutal math of tax reform, Senate Republicans say that they want to repeal the Affordable Care Act’s individual mandate. For Republicans, repeal would be a trifecta: a blow to Obamacare, a money-saver for the federal government and a way to finance a permanent cut to the corporate tax rate.
Republicans are right about all of this. What they haven’t highlighted, however, are the trade-offs: the estimated 13 million people who will lose insurance if the mandate is repealed. Is the country really better off if millions of people forgo medical care, and millions more go bankrupt, so that corporations can pay lower taxes? That’s not a rhetorical question. Those are the stakes of the game.
Under the rules for budget reconciliation — the procedural mechanism that Republicans want to use to avoid a Democratic filibuster — the tax reform bill can’t raise the deficit after an initial 10-year period. To make the corporate tax cuts permanent, they will have to be offset by spending reductions or other tax increases.
The trouble is that cutting the corporate tax rate from 35 percent to 20 percent — which is the Republican goal — is wildly expensive. Finding politically acceptable offsets has proved difficult, and Republicans are scrounging under couch cushions for loose change to make the numbers work.
There’s a lot of loose change in health care because the federal government subsidizes most forms of health insurance. If you’re covered through your employer, you get a big tax break. If you buy health insurance on the exchanges, the federal government probably picks up part of the tab. And if you’re on Medicare or Medicaid, the taxpayer covers most of your medical bills.
Taking insurance away from people is, thus, an effective way to save the federal government money. Which brings us to the mandate. The mandate is a tax penalty levied against people who refuse to get insurance. The goal is to encourage people to get covered before they get sick. Healthy people might otherwise go without, confident that they can buy insurance if and when they need it.
But opting out creates a problem: If lots of healthy people refuse to get coverage, those who keep their insurance will overall be sicker. Because a group of relatively sick people will have higher medical costs than a group of relatively healthy people, insurers will have to charge more for coverage. That drives up the price of insurance for everyone.
The individual mandate counteracts the problem by encouraging healthy people to sign up. Spreading risk across the entire population keeps insurance premiums in check, which allows people who might otherwise have been priced out of the market to afford coverage.
The whole point of the mandate, then, is to expand the number of people with federally subsidized insurance, which naturally increases federal spending. By the same token, eliminating the mandate would reduce federal spending — but only because fewer people will have insurance. Repeal may sound costless, but it’s really a covert way to slash billions of dollars in spending on health care for the poor and disadvantaged.
This isn’t controversial. The nonpartisan Congressional Budget Office estimates that the federal government will save $338 billion over 10 years if the mandate is repealed, but 13 million people will lose coverage. You can flyspeck the projections, but the broader point, as the CBO reports, stands: “Despite the uncertainty, some effects of this policy are clear: For instance, the federal deficit would be many billions of dollars lower than under current law, and the number of uninsured people would be millions higher.”
To make that more palatable, Republicans want to pair repeal with a promise to pass a bipartisan bill backed by Sens. Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.). Among other things, the Alexander-Murray bill would restore Obamacare funding — the cost-sharing reductions — that President Trump abruptly terminated last month.
But Alexander-Murray needs Democratic votes to pass, and Democrats won’t gain much by cutting a deal. Elimination of the cost-sharing money has proven less disruptive than originally feared; indeed, because of canny decisions by state insurance commissioners and the complex financial machinery of the Affordable Care Act, many consumers have found better deals on the exchanges than they have in the past. That may partly explain why nearly 1.5 million people have enrolled in new Obamacare plans in the first two weeks of open enrollment — a 45 percent increase over last year.
So there won’t be any grand bargain. The trade-off here is both simple and brutal: Republicans want to pay for a permanent corporate tax by taking insurance from millions of people. Is that who we are as a nation?
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