House Republicans released sweeping tax reform legislation this morning. The draft legislation tweaks everything from individual rates to the child tax credit to corporate taxes and the treatment of companies' offshore earnings. One thing it doesn't touch, however, is Obamacare's individual mandate.
Although President Trump tweeted yesterday in favor of repealing the mandate as part of the tax overhaul, and some reports suggested that the idea was in play as the bill went through a last-minute rewrite process this week, the version released this morning would leave the health law's coverage requirement in place—at least for now.
The health law's mandate has come up in the context of tax reform in part because, thanks to a 2012 Supreme Court ruling, it is treated as a tax penalty, administered by the IRS, and in part because it could be a way for Republicans to make the difficult math of tax reform work.
Wouldn't it be great to Repeal the very unfair and unpopular Individual Mandate in ObamaCare and use those savings for further Tax Cuts…..
— Donald J. Trump (@realDonaldTrump) November 1, 2017
Somewhat counter intuitively, eliminating that tax penalty would raise federal revenue, at least on paper. Getting rid of the mandate would result in savings of about $416 billion over the next decade, according to the Congressional Budget Office (CBO). That money could then be used to offset rate reductions in the tax reform bill.
For Republican tax writers, this could be a big deal, because the biggest problem they face is finding pay-fors that will make the tax bill math add up. Almost all of the delays and headaches so far have stemmed from a lack of politically plausible offsets, with contentious ideas like the border adjustment tax and caps on 401k contributions ending up scrapped. Passing tax reform is almost entirely about finding offset that won't make too many GOP legislators (or voters) upset. That's why I think we could end up seeing a repeal of the mandate in a future draft of the bill.
Repealing the mandate might look like a win-win for congressional Republicans, since virtually all of them oppose the individual mandate, and most want to see a tax reform bill passed with deep rate reductions and matching offsets. But it's a little more complicated than that.
The reason why CBO assumes that eliminating the mandate would produce savings is that the budget office expects that doing so would result in about 15 million fewer people signing up for Medicaid or subsidized health insurance under Obamacare. Since the federal government would no longer be paying for that coverage, the result would be significant savings.
But what the failed effort to repeal Obamacare this summer demonstrated was that there is little appetite in the Senate for any legislation that is projected to substantially reduce insurance coverage. Republicans couldn't cobble together the 50 votes necessary to pass any health care bill at all, in large part because of concerns about coverage. Having been thoroughly stymied on the previous legislative initiative, GOP leaders are hoping to avoid tying the already-difficult tax reform effort to a debate about coverage numbers.
One potential wrinkle is that there is some disagreement amongst health policy experts about whether the mandate is really as powerful a requirement as CBO's estimates indicates. States that have tried implementing Obamacare-style regulations governing preexisting conditions have seen their individual markets swiftly collapse. But unlike Obamacare, none of those states had a system of subsidies in place.
The question, then, is whether health coverage sign-ups are driven more by the incentives provided by subsidies or by the penalty of the mandate. Conservative health policy expert Avik Roy has argued that CBO's estimate is inflated, and so have analysts from Avalere Health, which consults on Obamacare. Even CBO has noted that the relevant studies all have difficulty disentangling the mandate from Obamacare's other coverage effects.
Of course, if the mandate is less effective than what CBO projects, and eliminating it would have smaller effects on insurance coverage, then the savings to the federal government would be smaller as well, which would make it less useful for the purposes of tax reform. It's one or the other.
Republicans avoided touching the mandate in the initial legislation because they didn't want to dredge up the debates that killed the Obamacare repeal effort. Passing tax reform will be trying enough on its own. But I would not be too surprised if an individual mandate repeal eventually ends up as part of the tax overhaul.
Although the tax reform draft has only been available for a few hours, it is already running into skepticism and opposition from lobbyists, activists, and even Republican legislators. Reports already suggest that the bill might be heavily rewritten over the weekend before next week's mark up.
— Jeff Flake (@JeffFlake) November 2, 2017
Which means that Republicans will most likely be looking, once again, for offsets that aren't obviously political non-starters. And repealing the individual mandate, an idea favored by the president, will be one of the few that's left that hasn't been tried.