In the middle of celebrating passage of a $1.5 trillion tax cut, President Donald Trump pivoted to what the bill did for another one of his major goals.
“We essentially repealed Obamacare because we got rid of the individual mandate, which was terrible,” Trump said. “And that was a primary source of funding of Obamacare.”
During the campaign, Trump promised to get rid of the Affordable Care Act. While full-blown repeal eluded him and Republicans in 2017, a relatively late addition to the tax bill did hand him a partial victory.
The individual mandate fines people who might be able to afford health insurance but choose not to buy it. The maximum penalty is the higher of 2.5 percent of income or a fine based on the number of adults and kids in the household. The new tax measure reduces the fine to zero.
The question is, how far does ending the penalty go toward repealing the Affordable Care Act? And did revenues from the fines represent a primary source of money for the program?
The money part is simple. In 2016, about 6.5 million households paid $3 billion in penalties. The Congressional Budget Office, the nonpartisan number crunchers for Congress, reported that in 2017, government costs for the Affordable Care Act totalled nearly $120 billion.
The penalties would cover less than 3 percent of that.
Other revenue sources are more significant, including taxes on wealthy households — about $16 billion, and health insurance companies — about $12 billion.
So Trump was wrong when he called the penalty money a primary source of funding.
Impact on the entire Affordable Care Act
The experts we reached generally agreed that repealing the mandate would undermine the health care law, but key elements would remain intact.
In broad strokes, without the penalty, fewer healthy people will buy insurance, which will make it more expensive to cover the people who do. (Reminder: This mainly affects the individual insurance market, which amounts to about 7 percent of all the people covered in the country.)
The Congressional Budget Office estimated that repealing the mandate would drive up premiums by 10 percent. This would price some people out of the market, and turn away others who might have been ready to buy a plan if it were cheaper. After 10 years, 13 million fewer people would be insured.
But even the CBO stressed how mushy any prediction is, noting that the actual impacts “would probably be smaller than the numbers reported in this document.”
The single-greatest coverage gains under the Affordable Care Act came through expanding Medicaid to all low-income adults. Overall, about 20 million people became insured. Of that, the CBO says Medicaid expansion reached 13 million people at a cost of about $70 billion in 2017.
Even though Medicaid coverage is either free or very low-cost, eliminating the mandate would have some effect on the growth of that group. The CBO said that in 2027, about 5 million fewer people would be enrolled in Medicaid than the government analysts would otherwise expect.
The logic is that fear of the mandate leads people to apply for insurance, at which point they discover they are eligible for Medicaid coverage. Without the stick of the mandate, they wouldn’t have applied.
Whatever the scale of that effect, Medicaid expansion remains intact.
Effect on the individual insurance market
Studies point in both directions on the impact that the mandate alone has on the individual market.
When an earlier and similar law took effect in Massachusetts, enrollment jumped among healthy people. On the other hand, research based on the first few years of the national law through 2015 concluded that “the individual mandate’s exemptions and penalties had little impact on coverage rates.” The big drivers were the hefty premium subsidies for private insurance and the expansion of Medicaid to low-income adults.
Larry Levitt at the Kaiser Family Foundation, a neutral source of health care data, said his sense is that at the end of the day, the change “will hobble the ACA, but not kill it.”
“The heart of the ACA – the premium subsidies, the Medicaid expansion, and protections for pre-existing conditions – remain in place,” he said. “The premium subsidies should provide enough of an incentive for many healthy people to get coverage to keep the individual market reasonably stable.”
The law provides substantial assistance to keep premiums affordable for people with low incomes (specifically, those making less than 400 percent of federal poverty). Those households represent most of the plans sold through the government’s health insurance exchanges. In 2017, about 8.7 million people benefited.
When premiums rise, the subsidies insulate households from most of the impact.
Assuming the end of the penalty pushes premiums up, Levitt said the people who will take the hit are those who make over 400 percent of federal poverty (about $98,000 per year for a family of four) and aren’t insulated from increases by the subsidies.
That puts about 6.7 million people at risk. That’s a lot of people, even if it’s only about 2 percent of the total population.
We reached out to other health care policy experts. Christine Eibner at the RAND Corporation emphasized that the effect of repeal is “highly uncertain.”
Still, she told us that “on balance, I think the evidence suggests that the mandate is having some impact on enrollment, but it may be small relative to other factors such as the tax credits and subsidies.”
“We don’t really know what the impact will be,” said Martin Gaynor, economist at Carnegie Mellon University.
But he went on to warn that “if the mandate is important, then eliminating it will create big problems in the exchange marketplaces, which would likely prove difficult to reverse.”
Trump said that repealing the individual mandate essentially repealed Obamacare and eliminated a primary source of funding for the program.
Eliminating the mandate does undercut the Affordable Care Act, but it hardly repeals it. In reality, the major pieces of the Affordable Care Act remain in place.
On the money side, the penalties represent less than 3 percent of the cost of the program, and other taxes directly tied to paying for Obamacare are four and five times larger.
Overall, this change will be disruptive, but not terminal. It certainly does not “essentially repeal” Obamacare. We rate Trump’s claim False.