Posted 03/16/2012 05:47 PM ET
The fate of the individual mandate to buy health insurance may not be decided by the Supreme Court or even the 2012 elections.
Even if justices were to find it constitutional and President Obama were to win re-election, the mandate central to his signature health law still might not survive the laws of economics or the politics of deficit reduction.
As oral arguments are set to begin March 26, both Democrats and Republicans are looking to the court for vindication. But the case won't alter their fundamental need to reach a deal over health care and the broader budget, and the mandate seems ill-suited to either goal.
Already the law would see the burden of premiums gradually shift to individuals after 2018 in a way that the Congressional Budget Office has said "may be difficult to sustain."
Something would have to give. With fines capped at 2.5% of income — a fraction of premium costs — either subsidies would have to be made more generous, or healthy people would begin to bolt the exchanges, driving up costs for the older and sicker people that remained.
The mandate also raises the hurdle to a grand deficit bargain, like the one crafted by the Simpson-Bowles commission.
As the Simpson-Bowles panel made clear, a tax policy deal is likely to combine lower marginal rates with a broader base. This would be an economic win-win, boosting incentives for work while curbing incentives for less productive spending, but it would be more difficult to achieve with the individual mandate in place.
ObamaCare Vs. Tax Reform
The most valuable of all tax benefits for broadening the base is the exclusion from taxes of employer-sponsored health insurance, which reduced federal income tax revenue by $184 billion last year.
Economists generally believe that this subsidy fuels health cost increases because tax subsidies rise with premiums. That encourages more comprehensive coverage requiring less out-of-pocket spending for which there is no tax break.
Republicans such as House Budget Committee Chairman Paul Ryan have long advocated reforming the tax treatment of health care. But Ryan rejected the Simpson-Bowles plan to do just that because curtailing the tax exclusion could lead additional millions, or tens of millions, of people to join the subsidized health exchanges created by the Affordable Care Act (aka ObamaCare).
"We're going to expand and blow up a new entitlement," Ryan said at the time.
Ending the employer health care exclusion could add 22 million to the subsidized exchanges, roughly doubling current projections, an analysis (for IBD) by John Sheils of the Lewin Group health care consultancy found.
That's because exchange subsidies, already more generous than the employer tax exclusion for moderate-income households, would become even more of a magnet.
A last-minute addition to the 2010 health care law provided for a cost-control to be triggered after 2018 if exchange subsidies top 0.5% of GDP, as new CBO projections confirm they would.
Without question, an influx of more people to the exchanges because of tax reform would keep the subsidy cost above 0.5% of GDP indefinitely.
Under the provision, CBO said subsidies would shrink as a share of premiums — or worse. For individuals earning 350%-400% of the poverty level, subsidies would not only fail to keep up with inflation but would shrink in nominal terms once cost curbs are triggered.
This not only underscores the importance of holding down health care cost growth, but also raises significant questions about the exchanges' sustainability.
Even if justices were to find it constitutional and President Obama were to win re-election, the mandate central to his signature health law still might not survive the laws of economics or the politics of deficit reduction.
As oral arguments are set to begin March 26, both Democrats and Republicans are looking to the court for vindication. But the case won't alter their fundamental need to reach a deal over health care and the broader budget, and the mandate seems ill-suited to either goal.
Already the law would see the burden of premiums gradually shift to individuals after 2018 in a way that the Congressional Budget Office has said "may be difficult to sustain."
Something would have to give. With fines capped at 2.5% of income — a fraction of premium costs — either subsidies would have to be made more generous, or healthy people would begin to bolt the exchanges, driving up costs for the older and sicker people that remained.
The mandate also raises the hurdle to a grand deficit bargain, like the one crafted by the Simpson-Bowles commission.
As the Simpson-Bowles panel made clear, a tax policy deal is likely to combine lower marginal rates with a broader base. This would be an economic win-win, boosting incentives for work while curbing incentives for less productive spending, but it would be more difficult to achieve with the individual mandate in place.
ObamaCare Vs. Tax Reform
The most valuable of all tax benefits for broadening the base is the exclusion from taxes of employer-sponsored health insurance, which reduced federal income tax revenue by $184 billion last year.
Economists generally believe that this subsidy fuels health cost increases because tax subsidies rise with premiums. That encourages more comprehensive coverage requiring less out-of-pocket spending for which there is no tax break.
Republicans such as House Budget Committee Chairman Paul Ryan have long advocated reforming the tax treatment of health care. But Ryan rejected the Simpson-Bowles plan to do just that because curtailing the tax exclusion could lead additional millions, or tens of millions, of people to join the subsidized health exchanges created by the Affordable Care Act (aka ObamaCare).
"We're going to expand and blow up a new entitlement," Ryan said at the time.
Ending the employer health care exclusion could add 22 million to the subsidized exchanges, roughly doubling current projections, an analysis (for IBD) by John Sheils of the Lewin Group health care consultancy found.
That's because exchange subsidies, already more generous than the employer tax exclusion for moderate-income households, would become even more of a magnet.
A last-minute addition to the 2010 health care law provided for a cost-control to be triggered after 2018 if exchange subsidies top 0.5% of GDP, as new CBO projections confirm they would.
Without question, an influx of more people to the exchanges because of tax reform would keep the subsidy cost above 0.5% of GDP indefinitely.
Under the provision, CBO said subsidies would shrink as a share of premiums — or worse. For individuals earning 350%-400% of the poverty level, subsidies would not only fail to keep up with inflation but would shrink in nominal terms once cost curbs are triggered.
This not only underscores the importance of holding down health care cost growth, but also raises significant questions about the exchanges' sustainability.
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