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Fact-Checking Democratic Claims About Repealing Obamacare's Individual Mandate

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Senate Republicans have included a repeal of Obamacare’s individual mandate in the latest version of their tax reform bill. Some Democrats have reacted by claiming that the repeal of the mandate is actually a tax increase, and that mandate repeal “kicks” people off coverage they didn’t want to buy. Welcome to 2017.

Repealing the mandate is a tax cut for lower-income Americans

The “mandate repeal is a tax hike” argument seems ludicrous on its face. Why would repealing a tax—the fine that you pay if you find Obamacare’s coverage unaffordable—represent a tax increase?

The “tax hike” talking point comes from two tables supplied today by the Joint Committee on Taxation, the Congressional agency that estimates the fiscal impact of tax legislation. (Its work is often mistakenly credited to the Congressional Budget Office, which also relies on JCT work for tax policy.)

Joint Committee on Taxation

The first table (above) shows how much the Senate tax bill would reduce people’s income taxes, in aggregate, in 2025, based on which income bracket they’re in. As you’ll see in the left-most set of columns (in the red box), according to this table, in 2025, every bracket will see reduced taxes except those making between $10,000 and $30,000.

Sen. Ron Wyden (D., Ore.) immediately jumped on this report to excoriate the Republicans for raising taxes on lower-income Americans while cutting them for higher earners. “Families earning $30,000 and under,” he said, “are going to get walloped by a tax hike of nearly six billion dollars to pay for this handout to multinational corporations.”

But there’s a catch: it turns out that what JCT is calling a “tax increase” is an artifact of their quirky accounting of Obamacare’s individual mandate.

If you’re in the $10,000-$30,000 income range, you’re eligible for refundable tax credits—subsidies—to buy health insurance on Obamacare’s exchanges. So if you voluntarily decline the opportunity to buy Obamacare-based coverage under the GOP tax bill, two things happen: (1) you get a tax cut because the mandate penalty has been zeroed out; (2) you don’t get the tax credits for buying Obamacare-based coverage.

This isn’t a tax hike at all: it’s the voluntary foregoing of a tax credit. That’s illustrated in the second JCT table (below):

Joint Committee on Taxation

In this table, JCT estimated the distributional effects of the Senate bill excluding the effect of the individual mandate. In this table, every income bracket sees their taxes reduced.

Voluntary decisions to forego health insurance coverage

The second category of Democratic complaints revolves around the Congressional Budget Office’s estimate that 13 million fewer people would have health insurance in 2026 if Republicans repealed Obamacare’s individual mandate. “We’re kicking 13 million people off health insurance to give tax cuts to the wealthy,” exclaimed Senate Minority Leader Chuck Schumer (D., N.Y.) on Wednesday.

There are two problems with Schumer’s assertion. As Glenn Kessler, fact-checker at the Washington Post, notes, nobody is being “kicked off” their insurance. People are no longer being fined for not purchasing it. (Kessler gives Schumer two Pinocchios.)

The second problem is that the CBO’s projections of the mandate’s magical powers are inaccurate, by their own admission. “The preliminary results of analysis using revised methods indicates that the estimated effects [of repealing the mandate] on the budget and health insurance coverage would probably be smaller than the numbers reported in this document,” CBO writes in its updated estimates of the mandate’s impact.

CBO’s current estimates assume that 5 million people will drop out of the Medicaid program in 2026, even though the program is effectively free to the end-user. If that’s really true, then maybe Medicaid isn’t as useful as its advocates claim it to be.

CBO believes two million will drop out of employer-based coverage because of the individual mandate repeal. That’s conceivable, but if it were to happen it would be entirely voluntary on the part of the disenrolled.

For those who buy coverage on the individual market, CBO estimates that 5 million fewer individuals would have coverage in 2026 and 2027. CBO doesn’t delve into detail about this group, but the likely dropouts are higher income individuals for whom the mandate penalty is highest.

CBO believes that mandate repeal would increase premiums “by about 10 percent in most years of the decade,” and it’s possible that a small number of individuals—under one million—drop out of the market because of this problem. Think of it this way: the number of people who stuck it out in the Obamacare markets for the last four years, as premiums increased by 100 percent or more, are unlikely to consider another 10 percent the last straw.

On the other hand, the bulk of the tax reform bill—by increasing the number of American jobs by as much as one million—will increase opportunities for more Americans to obtain employer-sponsored coverage.

The bottom line: Repeal the mandate

The mandate is unlikely to be having a meaningful effect on the health insurance market. To the degree that it is, it forces people to buy insurance that they otherwise would find unaffordable. Shouldn't we be working harder instead to bring down the cost of health insurance in the first place?

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INVESTORS’ NOTE: The biggest publicly-traded health insurance companies include UnitedHealth (NYSE:UNH), Anthem (NYSE:ANTM), Aetna (NYSE:AET), Molina (NYSE:MOH), and Centene (NYSE:CNC).