One-Year Individual Mandate Delay Wouldn’t Cripple ObamaCare

individual mandate

There’s no question that the individual mandate is the center of the ObamaCare universe.  Many other provisions are crucial to the law, but none to the extent of the individual mandate.  This is what made John Roberts’ decision last June to abandon originalism by constitutionally validating the individual mandate tax-penalty so painful.  Regardless of where the court came down on severability, the law could not have effectively functioned without the mandate intact.

Which brings us to the most recent episode of the ObamaCare delay game, this time focused on a one-year individual mandate delay.  At the height of the CR/debt-ceiling showdown, I wrote a post titled “Don’t Settle for One-Year Individual Mandate Delay,” arguing that any acceptable compromise would need to at least delay the exchange subsidies to be an effective barrier toward full implementation.

Those were the good ol’ days where there was hope that the Republicans would stand together and fight for real ObamaCare concessions.  Like defunding it or a one-year delay of the entire law.  In retrospect, I suppose I should have written a post titled “Don’t Settle for…Nothing.”

So here’s my point again: The first year of the individual mandate isn’t that big of a deal.  It’s an existential issue as a matter of constitutional law and individual liberty generally, but don’t believe the hype that the individual mandate is absolutely essential to ObamaCare in the first year.

There are two major reasons why:

1) 2014 Individual Mandate Tax-Penalty is Small

The tax-penalty for failure to comply with the individual mandate in 2014 is relatively small.  It then ramps up in 2015, reaching full effect in 2016.

PPACA Section 1501:

2014 - Greater of $95 or 1% of family income in excess of filing threshold;
2015 - Greater of $325 or 2% of family income in excess of filing threshold;
2016 - Greater of $695 or 2.5% of family income in excess of filing threshold.

Is the threat of a $95 or 1% tax-penalty really going to be the determinative factor in strong ObamaCare exchange enrollment?  As a reminder, 96% of Americans with health insurance are covered by employer-sponsored group health plans or government programs (e.g, Medicare, Medicaid, TRICARE).

The small remaining hodgepodge of folks in the individual policy market creates a strange risk pool for insurers.  It’s largely young people who generally opted for cheaper, catastrophic-type coverage before ObamaCare effectively eliminated it, and pre-Medicare retirees who often have expensive risk profiles because of age-related health conditions and concerns.

The insurance carriers are depending on young people to even out the overall actuarial estimates by essentially subsidizing the pre-Medicare retirees.  The theory is that young people will pay the exchange premiums without needing extensive care.  If young people don’t purchase the expensive coverage in large numbers, as required by the individual mandate, it could cause an insurance premium death spiral.

When it really comes down to it, we’re counting on an involuntary transfer of wealth from the young and healthy people, as well as the taxpayer who subsidizes their costs, to make this whole utopian scheme succeed.  But will the threat of a $95 or 1% tax-penalty really make a difference in 2014?

Based on 2010 data, the median family income for individuals under 35 years old is $35,100.  The 2013 filing threshold is $10,000 single, $20,000 married filing jointly.  That puts the average young person’s income subject to the tax-penalty’s percentage calculation at $25,100 for single filers and $15,100 for married filers.  Take 1% of those figures and the end result is an average individual mandate tax-penalty of $251 single or $151 married for filers under 35 years old (both amounts exceed 2014’s $95 flat rate).  That’s a roughly $200 average individual mandate penalty for young people in 2014.

In most states, that $200 average 2014 tax-penalty for individuals under 35 years old is less than the average premium for one month of the lowest-cost Bronze plan on the ObamaCare exchange.  Is that really going to be the difference between an insurance death spiral and a functioning risk pool?  I don’t think so.  Which is why nobody considered it that big of a deal when the Obama administration recently announced a quasi six-week delay of the individual mandate, and why momentum is building among congressional Democrats to delay the individual mandate for a full year.

2) 2014 $10 Billion Transitional Reinsurance Program

There are a number of special-interest reasons why the insurance industry lobbied for and ultimately endorsed ObamaCare.  There’s likely none bigger than the individual mandate’s promise of new paying customers.  But the ban on pre-existing condition exclusions isn’t exactly a recipe for insurance profits.  Enter the Transitional Reinsurance Program.

Here’s how HHS describes the program:

“The transitional reinsurance program and the temporary risk corridors program, which begin in 2014, are designed to provide issuers with greater payment stability as insurance market reforms are implemented and Exchanges facilitate increased enrollment. The reinsurance program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers’ risk associated with high-cost enrollees.”

Translation—We had to pay off the insurance companies to get them to support ObamaCare with a ban on pre-existing conditions.  It’s like insurance for the insurance companies, except they don’t pay a premium.

Here’s what we’re paying the insurance carriers for the privilege of selling coverage on the ObamaCare exchanges:

PPACA Section 1341:

2014 - $10 billion
2015 - $6 billion
2016 - $4 billion

Who’s paying for the program?  You, through increased premiums on your health plan - even if you’re not in the ObamaCare exchanges - to pay the fee of $63 per covered individual.  The fee applies even if you’re covered under an employer-sponsored plan that has nothing to do with the exchanges.

So even if the risk pool becomes slightly riskier as the result of a one-year individual mandate delay (again, I imagine it would be only a slight change because the 2014 tax-penalty is almost de minimis), the insurance companies will still get their $10 billion Transitional Reinsurance Program payout in 2014.  Death spiral likely averted.


a) We get a one-year individual mandate delay, whether through proper congressional act or by executive decree.  Republicans declare victory even though it’s nowhere near the original goal of defunding or delaying all of ObamaCare.  Democrats claim they’ve made a major concession.

b) is repaired to a marginally functional state in time for the next open enrollment period and the mid-term elections.  Federally-facilitated ObamaCare exchanges become just accessible enough on the front-end, and sufficiently operational on the back-end, to ease public outrage.

c) President Obama, the Democrats, and the media begin a massive messaging campaign to convince Americans that ObamaCare has now adapted to meet our expectations through a) and b).  Any remaining complaints are mere sour grapes from the Tea Party/extremists.  No more debate will be tolerated.

At this point, we will be in a big hole.  The individual mandate delay efforts and failures have caused us to somewhat lose sight of the big picture.

The big picture is the $1.075 trillion we are going to spend over the next ten years on ObamaCare exchange subsidies, and the fact that the IRS is unconstitutionally implementing the subsidies in states that have not established an exchange.  It’s the employer mandate taking effect in 2015 to kill jobs, cut hours, and stunt economic growth.  It’s the individual mandate ramping up to full effect in 2015 and 2016.

The big picture is the $710 billion in Medicaid expansion over the next 10 years, and ensuring that states take the one tiny ray of light from the ridiculous Roberts decision to block this further federal encroachment.  It’s the trend toward narrow-network plans on the ObamaCare exchange that significantly limit your doctor and hospital choices.  The big picture is Harry Reid openly admitting that this is all just a temporary apparatus on the pathway to a single-payer system.

The biggest picture is that ObamaCare is the progressive movement’s most significant threat to individual liberty we’ve yet faced.  A one-year reprieve from the individual mandate would do very little to change that brutal reality.

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