Obamacare’s mandate is a tax. At least that’s what one Supreme Court Justice thinks, and he had the deciding vote. The mandate/tax may have survived, but the individual insurance market might not.
The Affordable Care Act (ACA) requires insurers to offer coverage to all comers, regardless of their health status. Moreover, insurers are not allowed to exclude from coverage expenses for pre-existing conditions, and they are not allowed to charge higher premiums to people with those conditions. Unless you force young, healthy people to purchase health insurance, the cost of coverage will soar as the sick buy insurance and the healthy wait to buy until they really need it. The result, as we have seen in New Jersey and other states that tried this before, is a collapse of the insurance market.
The Obama administration included the mandate to short circuit this selection spiral. But any federal requirement to make people do something they would not do voluntarily is only as good as its enforcement. Why did your mother’s warning that you would be sent to bed without dessert if you didn’t eat your vegetables work? Because that’s a credible threat. The mandate/tax is not.
The penalty—now a tax—for failing to purchase insurance in 2014 is $95–for the entire year. That is far less than the monthly insurance premium even young healthy people would pay. It rises to $695 in 2016, or 2.5 percent of income, and increases with inflation thereafter. For a young person trying to afford rent and pay a student loan, the decision is clear. Delaying an insurance purchase is money in the bank, and the tax is too small to matter.
The mandate is a patch, included in the ACA to try to make the individual insurance market function under ill-considered rules that will drive up premiums and drive uninsured people away from coverage. More coercion won’t solve this problem. Real health reform will.