While previous broad Republican efforts to dismantle the Affordable Care Act (ACA) have failed, the GOP tax bill cleared by Congress today has succeeded in effectively repealing the ACA’s individual health insurance mandate. By way of background, the ACA established a penalty for failure to maintain health insurance coverage that provides at least minimum essential coverage, as defined by various ACA regulations. The penalty generally is equal to the greater of (1) 2.5% of income in excess of tax filing thresholds, or (2) a flat dollar threshold (for 2017, the threshold is $695 per adult and $347.50 per child, up to a family maximum of $2,085), subject to certain limitations and exemptions. The “Tax Cuts and Jobs Act” (HR 1) cuts this penalty to zero, effective with respect to health coverage status for months beginning after December 31, 2018. The tax bill does not impact the ACA’s employer insurance coverage responsibilities. President Trump is expected to sign the bill into law in the near future.
The individual insurance mandate was intended to encourage healthier individuals to obtain health insurance, thereby resulting in a more favorable risk pool and lower insurance premiums overall. The Congressional Budget Office (CBO) recently estimated that if the individual mandate were repealed, the number of people with health insurance would decrease by 4 million in 2019 and 13 million in 2027, and average premiums in the individual market would increase by about 10% in most years of the coming decade. Furthermore, federal budget deficits would be reduced by about $338 billion between 2018 and 2027, according to the CBO, mainly due to reduced federal spending on insurance exchange subsidies and Medicaid.
Senate Majority Leader Mitch McConnell has committed to considering legislation to mitigate potential health insurance premium increases caused by the repeal of the individual insurance penalty, including bills to fund cost-sharing-reduction payments and to create high risk pools for individuals with pre-existing conditions. House consideration of such legislation is not assured, however, likely exacerbating uncertainties in the individual insurance market.