Obamacare’s Individual Mandate is Economically Inefficient and Does Not Improve Access to Health Care

January 24, 2017

by John R. Graham

Chairman Buchanan, Ranking Member Lewis, and Members of the Committee, I am John R. Graham, Senior Fellow at the National Center for Policy Analysis, a nonprofit, nonpartisan public policy research organization dedicated to developing and promoting private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. I welcome the opportunity to share my views and look forward to your questions.

The individual mandate is Obamacare’s least popular feature. It was the subject of the 2012 lawsuit asserting Obamacare was unconstitutional: Never before had the federal government forced any resident to buy a good or service from a private business. The people lost that argument. Nevertheless, Republicans have pledged to eliminate the individual mandate. This commitment remains good politics. Perhaps counterintuitively, it is also good economics.

According to last November’s Kaiser Family Foundation Tracking Poll, only 35 percent of respondents have a favorable view of the individual mandate. The proportion drops to just 21 percent among Republicans, and just 16 percent among Trump supporters.

However, getting rid of the individual mandate also poses a political dilemma: It balances a very popular provision of Obamacare. Recall the theory of the individual mandate is to prevent free-riding: Americans should be responsible for maintaining continuous health coverage so they do not become a burden on taxpayers when they become sick.

If you bought a house and did not invest in homeowner’s insurance, few citizens would urge the government to require insurers to issue you a policy after your house was destroyed by fire. We all understand the market for homeowner’s insurance could not function under such a law.

However, we seem to have a blind spot with respect to this problem when it comes to health insurance. In the same poll, 69 percent of respondents support prohibiting insurers from denying coverage because of a person’s medical history. The proportion is 63 percent among Republicans, and 60 percent among Trump supporters.

This appears to support the academic economic argument for the individual mandate alongside a means-tested tax credit for buying health insurance: Without them, people will wait until they become sick to buy health insurance. President Obama and his allies came to accept the academic argument without recognizing its political costs.

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