Paul Howard: Obamacare ‘Individual Mandate’ Penalizes Healthy Americans, Will Hike Costs

Friday, 16 Nov 2012 05:17 PM

By Kathleen Walter and Nick Tate

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At least six million Americans are expected to ignore the new Obamacare “individual mandate” requiring everyone to have health insurance or pay a “tax penalty” to the Internal Revenue Service, according to a new analysis by the Congressional Budget Office.

That figure, which is significantly higher than the non-partisan CBO’s estimate in 2010, is roughly half of the estimated 11-12 million uninsured Americans who will be subject to the mandate, which takes effect in 2014. If the CBO projection proves true, it could have significant implications for everyone else who buys insurance — including higher premiums and other ripple effects on the private insurance market, says Paul Howard, director of the Center for Medical Progress at the Manhattan Institute for Policy Research.

In an interview with Newsmax, Howard says the CBO analysis suggests one of the key pillars of Obamacare — the individual mandate — could be on soft footing and would be significantly undermined, if millions of Americans fail to live by the requirement. It also raises serious questions about the Patient Protection and Affordable Care Act’s viability and funding, just as states are gearing up to create new “affordable health exchanges” that will sell insurance to individuals and small businesses, beginning in 2014.

Watch the exclusive interview here.



What follows are excerpts from Howard’s interview with Newsmax TV’s Kathleen Walter.

Q. The CBO just came out saying that 11 million uninsured Americans will be subject to Obamacare’s individual mandate penalty tax. Half say that they would rather pay the tax instead of buying insurance. Will premiums skyrocket?

A. Look, it’s really concerning that a number of potentially young healthy people who are going to face very high insurance costs on the exchanges are going to step out and pay the fine rather than buying insurance. But this is a side effect of building a very expensive insurance regime that in many ways is going to penalize the young and healthy.

So they’ve built a program that is going to keep people out and I think it’s troubling and we need to reform it and look at it in a completely different way.

Q. Do you think that this is going to trigger a death spiral in the private insurance market?

I think in the first few years we’re going to know a lot. We’re not going to know a lot immediately because it’s going to take a while for the exchanges to get up and running.

But I think it’s going to be a problem that’s going to get worse as time goes on, as prices rise, as the CBO expects them to, as many private insurers expect prices to continue rising and [that will] force more people out of the market even with the generous subsidies available.

Q. Now the Obama Administration wants states to establish their own health insurance exchanges. How much control will states have over these exchanges? Will everybody be forced to buy the same federally approved product?

A. Good question. Only 13 states have actually moved to set up their exchanges at this point. A lot of other states are sitting on the sidelines, going much slower. Rules from the feds have also been very unclear.

One of the key issues on the exchanges is what’s defined as minimum basic insurance; it’s called the essential health benefits package .That is probably a political firebomb, if it’s a very expensive package, [and it] could very much upset the states.

Q. Leaders in a number of states are concerned Obamacare that will bankrupt them. You believe that block grants need to be reformed for Medicaid to work and prevent states from going broke. How do we do this?

A. Well, what we try and do is say to the states: ‘We know that Medicaid is bankrupting you today. We’re going to set a fixed level for federal support that’s going to level the playing field for different categories of people, like children, pregnant women, the elderly, the disabled, and say this will give you a baseline of support.’ Anything wealthy states want to spend above that, that’s fine. You can have freedom to innovate, bring new care management programs to the table that will improve health and help keep costs down.

Right now basically the federal government gives a blank check to the states and says: ‘Spend as much as you want.’ That’s a trap because for every federal dollar that goes into that program, they would have to effectively cut two dollars to save one dollar of state spending. So it’s a trap, we need to fix that fiscal trap and get Medicaid providing better care for the poor and put it on a sustainable trajectory for state taxpayers.

Q. Everybody agrees that we need better value for our dollar when it comes to Medicare. What’ the ideal model here?

A. I think the ideal model is to build on choice and competition that’s in the program already today. The Medicare Part D drug program is very popular with seniors, [with] about 90 percent approval rates. [It] protects seniors from very high drug costs but gets choice and competition and has held premium costs in that program flat for the last 3 or 4 years.

That’s the model we need to use, it’s the model that works for federal employees, and it’s the model that works also for Medicare Advantage plans. We can keep traditional Medicare and build competition and choice through private competing insurers. That’s the direction we need to go.

Paul Howard, Ph.D. is a Manhattan Institute senior fellow and director of the Manhattan Institute's Center for Medical Progress. He is the managing editor of Medical Progress Today, a blog providing a forum for economists, scientists, and policy experts to explore medical innovation.


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