Killing the Individual Mandate Will Probably Kill Obamacare

Does the individual mandate work? CBO estimates that if it’s repealed, 13 million fewer people will buy insurance. That’s something like two-thirds of all Obamacare enrollees, which means that CBO thinks it has an enormous impact. Without it, Obamacare collapses.

A few weeks ago I linked to a study of traffic fines that suggested the CBO estimate was at least plausible. But that’s all it did. Today, though, Matt Fiedler—formerly chief economist of Obama’s CEA and currently a Brookings fellow—presented some evidence about the mandate that was much more on point. He looks solely at people whose income is above 400 percent of the poverty level, which means they don’t qualify for federal subsidies. If they didn’t buy insurance before Obamacare, the only reason they have to buy it now is the mandate penalty. So did they?

Starting in 2014, when the mandate took effect, the number of uninsured in this group dropped by a third. As a check, nothing happened in Massachusetts, which already had a mandate.

This is strong evidence that the mandate works. These people receive no subsidies, so there was really nothing that made insurance more attractive to them when Obamacare went into effect. They started buying it because they didn’t want to pay the fine, even though they made enough money that the fine wasn’t that big a deal. For poorer people, it makes sense that the mandate penalty would have an even greater effect. When you’re poor, you really can’t afford to pay this kind of penalty, especially when you qualify for subsidies and might as well spend the money on something useful instead.

I’m still not sure that killing the mandate would cause two-thirds of Obamacare customers to drop out, but it might. And it sure looks likely that at least half would drop out. Either way, Obamacare would be toast.

And we probably won’t have to wait long to find out. If the mandate is eliminated, it doesn’t really matter whether CBO is right or wrong. All that matters is whether insurance companies think CBO is right. If they do, we won’t have to linger around for a death spiral to kill Obamacare. Insurers will just exit the market en masse, and that will be that.