Critics cried sabotage when political leaders took action to repair some of the damage done by the Affordable Care Act. They saw sinister motives behind the decision by the last Congress to repeal the individual mandate and in Trump administration regulations that made more affordable health insurance options available to individuals and small groups.
But a new study by the president’s Council of Economic Advisers (CEA) finds that eliminating federal tax penalties on the uninsured and giving consumers more coverage options will provide economic benefits totaling $450 billion over the next decade.
The report defies conventional wisdom on health insurance markets. The ACA rested on the assumption that Americans would benefit from federal restrictions on consumer choice, restrictions devised to lock people into insurance arrangements that the government believed to be best for them. Giving consumers options, it was argued, would leave them worse off.
The CEA makes the empirical case that there are quantifiable social benefits to giving individuals more health care choices, including the choice to remain uninsured without incurring a tax penalty. Specifically, the study found that:
- Eliminating the tax penalty on the uninsured would generate benefits to Americans worth $140 billion over the next decade.
- Allowing small businesses to form association health plans not subject to certain ACA regulations would add another $80 billion in social benefits.
- Permitting the sale and renewability of short-term limited duration plans would supply an additional $80 billion in benefits.
- Reducing the excess burdens of labor taxation accounts for an additional $150 billion in savings. Repealing the mandate, for example, reduces the economic drag produced by the subsidies and the taxes required to finance them.
In computing these favorable outcomes, the CEA accounts both for the costs and benefits of each of the policy changes. Those opposed to individual mandate repeal, for example, say that people who remain uninsured because they no longer face a tax penalty will run up medical bills they can’t pay and increase premiums for others with individual coverage.
The report concedes both points. Citing recent research, the CEA estimates that each person who drops coverage because of mandate repeal will consume an average of $989 in uncompensated care in 2021. It also accepts the Congressional Budget Office (CBO) estimate that the repeal will raise premiums for ACA-compliant insurance by ten percent, thereby increasing per capita federal subsidies (which rise dollar for dollar with premiums) and out-of-pocket spending on premiums for people ineligible for subsidies.
The report then compares these costs to the economic benefits of repealing the mandate. CBO assumes that five million fewer people will enroll in individual plans in 2021. Put another way, CBO believes that “many subsidized consumers are unhappy with ACA-compliant coverage – so unhappy that they leave these plans to be uninsured.” The mandate thus required taxpayers to finance a subsidy that millions of people would rather not receive.
The study then looks at the CBO estimate of the net federal savings for each of the five million people who will not coverage because the government no longer mandates it: $3,800 in 2021. Assuming their departure from the marketplace will increase premiums for unsubsidized people, the per capita net benefit drops to $3,072. The estimated $989 average increase in uncompensated care reduces the net marginal social benefit to $2,083 per person. Finally, these individuals benefit from no longer having to pay the individual mandate penalty, increasing the per capita social benefit to $2,514.
In sum, the CEA report concludes that “each of these enrollees valued their coverage by $2,514 less than what it cost society.” Multiplying that figure by the five million who are expected to drop coverage produces a $12.6 billion net social benefit in 2021. That benefit would average $14 billion annually over the next decade.
The CEA uses a similar methodology to analyze administration regulations on association health plans and short-term limited duration policies. The result is an estimated $450 billion in net social benefits over the next ten years.
The report’s broader policy implications range far beyond its analysis of those specific actions. The prevailing view in Washington is that social benefits are maximized when everyone has health insurance. It is the animating principle of the Affordable Care Act, Medicare For All and various other proposals that aim to enlarge government financing of health insurance.
The CEA report reaches a very different conclusion. It finds that society benefits when people buy the health coverage they want and incurs costs when the government coerces people into buying coverage they don’t.
The Medicare For All bill sponsored by Sen. Bernie Sanders (I-VT), for example, would require the HHS Secretary to enroll every U.S. resident in the government health program, including automatic enrollment at the time of birth.
Medicare For All’s critics have cited its cost to the federal government and the adverse economic effects of the additional taxes and debt it would require. Those costs, though considerable, are not the only ones the program would impose.
Many individuals and households may not value government-financed coverage anywhere close to what it costs society to provide it. The government will dragoon them into the public system and deny them the opportunity to choose alternative forms of coverage or no coverage at all. All Americans will have government-mandated health coverage, whether they like it or not.
The CEA report reminds us that forfeiting health care choices carries social costs. Voters must decide whether yielding to government’s benevolent coercion is worth that cost.