Evan Horowitz | Quick Study

How a stealth repeal of the health insurance mandate could blow up the GOP tax plan

Senate majority leader Mitch McConnell.
Carolyn Kaster/Associated Press
Senate majority leader Mitch McConnell.

What happens when you combine the Republicans’ tax plan with their health reform plan? Republican leaders are hoping that it gives them a rare chance to get two wins with one vote, but it could also endanger the entire tax cut effort by triggering opposition from hospitals, insurers, and patient groups.

On Tuesday, Senate Republicans added a provision to their tax cut bill that would eliminate the requirement that all Americans buy health insurance, better known as the individual mandate.

In large part, this is about money. Republicans need more revenue to offset the cost of their proposed tax cuts, which include a substantial reduction in the corporate tax rate, dramatic reductions in the estate tax, and a boost to the child tax credit to help middle-class families.


Eliminating the individual mandate provides a big chunk of change, about $340 billion over 10 years, as the government would be helping fewer people purchase health insurance, according to the Congressional Budget Office.

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But the trade-off here is pretty stark. In essence, Republicans are paying for tax cuts by increasing medical costs for people who drop their insurance — and even for some who keep it. To understand why, it helps to think about the real-world impact of eliminating the individual mandate.

Remember, the mandate itself is actually a penalty. People who don’t get insurance have to pay the IRS money each year.

If this were the whole story, eliminating the mandate would deprive the federal treasury of $43 billion in penalty payments over the next decade. But there’s another angle — eliminating the mandate will also change people’s behavior.

Absent the threat of a penalty, many more people will go without insurance coverage. The CBO expects about 13 million additional Americans will be uninsured by 2027. And that includes both healthy people who feel comfortable eschewing insurance as well as poor people who balk at the high sticker prices.


Now here’s the key. Many of those people would have qualified for government support, whether through the Affordable Care Act or via Medicaid. When they leave the insurance market, the government stops paying — thus saving money.

So the net effect, under the Republican plan, is that instead of using $340 billion to help people get insurance, the government will use that money to pay for tax cuts.

For some, this will be a good trade. Middle-class families fortunate enough to stay healthy will enjoy a larger child credit and a bigger standard deduction. But some — likely many — of the newly uninsured will ultimately need medical care, racking up costs that would vastly exceed any promised tax benefits. Which means more families facing high medical costs, and more uninsured people seeking care at hospitals.

What’s more, even those who choose to still buy insurance absent the mandate could see higher costs. Premiums on the individual market are expected to rise by an additional 10 percent in most years, according to CBO, if the mandate is repealed.

Why would insured folks see higher costs? Think about who is most likely to maintain insurance, even without a mandate: people with ongoing medical needs. Faced with higher costs to cover those people, insurance companies will have to compensate by raising prices.


Even worse, this creates a downward spiral, where rising prices discourage ever more people from getting insurancewhich then makes the pool of buyers even sicker and pushes costs up once again.

For now, Senate Republicans don’t seem particularly concerned about this chain of events. They have the support of President Trump; they know the individual mandate is unpopular among the public; and they need the money to make their tax plan add up.

But this is a potentially explosive change, the kind of thing that could mobilize new opposition and frustrate Republican efforts to hold their caucus together behind the tax bill.

If there’s one thing we know about the current Republican majority, it’s that they do not have the votes for large-scale health reform. And while repealing the individual mandate is a narrower change, it still puts wavering Republican senators on the spot — not just about the virtues of lower taxes but also about the importance of affordable health insurance for millions of Americans.

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the U.S. He can be reached at Follow him on Twitter @GlobeHorowitz