As Congress debates the Republican Tax Reform plan, a novel idea has emerged to lower your taxes – repeal the ObamaCare Individual Mandate.
What is the ObamaCare Individual Mandate?
ObamaCare requires every American to have insurance coverage – or pay a penalty tax. The tax in 2016 was 2.5% of household income (above the $10,350 filing threshold for single adults) or $695, whichever is greater. This tax is very regressive, meaning it affects the poor disproportionately. In 2015, 96% of payers were household earning less than $100,000. Most high income earners are covered by employer-provided insurance or Medicare.
This tax penalty raised $3 Billion in 2015. However, according to The Wall Street Journal, Arkansas Senator Tom Cotton says abolishing this mandate would actually increase revenue for the federal government.
Last December, the Congressional Budget Office (CBO) projected that repealing the mandate would save $416 Billion over 10 years because fewer people would sign up for Medicaid or receive subsidies on the exchanges. Fewer workers might also enroll in employer-sponsored plans, which could result in more taxable compensation (insurance benefits are not taxable but higher wages are).
The CBO estimated in July that repeal of the employer and individual mandates of ObamaCare would yield $275 Billion in savings. Senator Cotton estimates a future score might project even greater savings, about $300 Billion, since next year’s average premium tax credit has ballooned by 45%. Insurers have increased prices on the benchmark Silver plans to make up for cost-sharing subsidies withdrawn by the Trump administration (because they were not funded by Congress).
The CBO has long been a thorn in the side of Republican efforts to repeal and replace ObamaCare because of their projections of the number of Americans who would lose their health insurance. Ironically, the dubious methodology of the CBO in overestimating the impact of reform efforts may be useful to the GOP efforts in the tax debate. The faulty estimates that hurt reform proposals will mean fewer Americans will sign up for insurance and subsidies, thereby lowering necessary federal spending.
Therefore, without changing Medicaid or cutting spending, federal revenues would increase merely by eliminating a law that forces Americans to purchase a product they don’t like and can’t afford.
Furthermore, with the Individual and Employer Mandates out of the way, new efforts to repeal and replace ObamaCare wouldn’t be shackled with the adverse impact of the CBO scoring that always overestimated the reduction of insurance coverage due to the loss of these mandates. Democrats have used the CBO scoring in the past as a cudgel to impede GOP reform. Now it would be easier to pass meaningful reform measures such as the Graham – Cassidy bill.
The WSJ editorial board believes this idea is a winner politically and as fiscal and health policy. It raises more federal revenue and paves the way for healthcare reform – both important goals to achieve.