Health insurance mandate a step backward for Vermont health care
Last December, when the Tax Cuts and Jobs Act eliminated the mandate (an aspect of ACA or Obamacare unpopular with two-thirds of the public), a number of Democrat-controlled state legislatures, eager to show up D.C., sought to resurrect it at the state level. On May 28, Republican Governor Phil Scott signed House Bill 696, requiring all Vermonters to buy health insurance or endure the consequences (details of which will be decided in 2019).
Obamacare architect and MIT economics professor Jonathan Gruber (who famously attributed ACA's success in Congress to the "stupidity of the American voter") analogized the individual mandate to one part of a "three-legged stool." The other two components entail prohibiting insurers from raising premiums or denying coverage to Americans with pre-existing medical conditions, and providing subsidies to make insurance affordable.
Beginning in 2014, insurance firms could no longer charge premiums based on an individual's health status. Rates for say, Clara with a chronic illness like COPD, needing frequent and costly medical care, could not exceed that of Jim in good health. As a result, Jim (likely younger) would need to pay high premiums disproportionate to his minimal use of medical services, motivating him to leave the insurance market.
The individual mandate was designed to prevent the latter, or "stabilize" the insurance exchange in politically correct terms, so that insurers could maintain a wide pool of low-risk, high premium payers like Jim to subsidize the medical costs incurred by the chronically ill like Clara. Referring to this argument, proponents of the Vermont mandate like Rep. Anne Donahue, Republican vice chair of the House Health Care Committee, maintain that imposing an individual mandate is integral to paying for those with pre-existing conditions. She is wrong.
Chris Pope of the Manhattan Institute explained that ACA subsidy provisions (for which 85 percent of persons on the exchange qualify) finance the insurance expenses of low-income Americans and those with pre-existing conditions, whereas the now-eliminated mandate concentrated these costs on a niche demographic. Lower-middle income individuals without employer-based health insurance, such as small business owners and those juggling multiple part-time jobs, disproportionately paid the price. According to a Vermont Joint Fiscal Office report, 78.4 percent of Vermonters that paid individual mandate penalties for the 2015 tax year (total of $6.1 million) made an annual income between $10,000 and $50,000.
Obamacare offered exemptions from the penalty for varying reasons like low income and religious affiliation. Individuals with a household income between 100-400 percent of the Federal Poverty Level received a hardship exemption, provided they bought insurance through a government marketplace. Low-to-middle income Americans did not qualify for this exemption (or Medicaid). For example, a young couple making $65,000 per year would be ineligible, and could be fined up to $1,390 for saving money and thus remaining uninsured.
This mandatory cross-subsidization set up an anti-competitive and inequitable system that attempted to pay for the expensive, long-term medical care of persons with chronic conditions by taxing those that could not afford health insurance. When premiums and out-of-pocket costs (i.e. deductibles, copayments, and coinsurance) vastly exceed the mandate penalty, many forgo coverage. The 2014 Vermont Household Health Insurance Survey shows that Vermonters aged 25-34 years formed the largest uninsured group at 11.0 percent (5.1 percent between 35-44 years and 4.6 percent of the 18-24 age cohort also did not have health insurance). Some could argue that younger Americans do not purchase insurance because they are healthy, but a 2016 Harris Poll indicates that increasingly they cannot afford it.
Economic factors like astonishing student loan debt have set up Millennials to become the first American generation to fare worse financially than their parents. We are lagging behind predecessors in achieving milestones such as buying homes, having children, and saving for retirement. Why, then, are the Vermont mandate's Democrat sponsors, all the politicians that voted in its favor, and Gov. Scott compelling young Vermonters to purchase unaffordable insurance? As Rep. Warren Van Wyck, one of the sixteen House Republicans to oppose H.696 remarked, "I thought we were trying to attract young people to the state."
The U.S. Supreme Court upheld the constitutionality of the individual mandate in 2012 for it functions as a tax and hence, falls under Congress' power to tax citizens. At present, Gov. Scott and Majority Democrats are embroiled in a budget standoff, playing out over a special session, because he refuses to raise taxes on Vermonters. Yet, he enacted the mandate - a health tax - into law with nary a peep of resistance.
The Scott Administration contends that this mandate will keep the number of uninsured Vermonters low, citing Congressional Budget Office data that thirteen million will "lose" insurance by 2027 as a result of the federal mandate repeal. First, recent studies demonstrate that the federal individual mandate had no discernible impact on the proportion of uninsured Americans. Second, the dysfunctional and coercive mandate ravaged American contract law of mutual assent. In its absence, millions of Americans may voluntarily choose not to buy a commodity.
Don't we have the right to make our own life decisions? Montpelier says no. Our political class finds the clarion call of collective responsibility more seductive than personal liberty. Green Mountain Care Board chairman Kevin Mullin (a former Rutland Republican senator) stressed that everyone needs to contribute - except the mandate adds to Obamacare's inequities by demanding more from some than others. (Note that adults under the age of twenty-six may remain on their parents' insurance plans, and thus the healthiest category from higher income strata do not participate in the exchange).
Indeed, cost-effective alternatives to an individual mandate exist. (A) Provide more choice in the form of slimmed down plans with low premiums for catastrophic coverage, which would incentivize the young and healthy to remain in the insurance pool. (B) Create separate and efficient high-risk pools through which greater subsidies could be focused toward tailored medical care (e.g. preventive services) for low income Americans suffering from major chronic illnesses. Maine operates a successful invisible high-risk pool, launched in 2011, which should serve as a model for tending to society's neediest without arbitrarily taxing some and depriving all of the freedom to choose.
To borrow from a 2008 Obama campaign mailer, "Punishing families who can't afford health care to begin with just doesn't make sense."
Meg Hansen is executive director of VHFC, a nonprofit committed to free-market reforms in American health care.
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