Every government program makes promises that are a stretch. But few policy promises stretched the levels of credulity more than Obamacare did with the idea that America's younger and healthier citizens would suddenly step up and buy expensive health insurance plans.
And now, President Trump has basically signed the death warrant for the stretch of a policy known as the "individual mandate." He did that by signing an Executive Order on Friday that instructs the Health and Human Services Department to do all it can to "grant exceptions from" or "delay" the enforcement of the mandate. This is basically telling the bureaucracy to let it die from neglect.
The crucial nature of the mandate can't be overstated. Experts and politicians on the right and the left have long agreed that without it, the ACA cannot survive. It's simple math. No, the incoming revenues from the insurance premiums and the tax penalties connected to the individual mandate haven't been able to come close to the levels needed to cover more costly patients. But the mandate still produces revenues that will go away when it goes away. That leaves the Trump team needing a plan B. And that plan B should simply be a good dose of "supply side" economics.
No, the individual mandate never made sense from an economic or sociological standpoint. Millions of young Americans who never bothered to get health coverage were never a good bet to suddenly get responsible. That was especially true when many of them realized the penalties for not getting covered were still less expensive than buying policies and especially less expensive that paying premiums and high deductibles combined.
The core problem with the mandate was that it was a classic case of "demand side" economics. Obamacare architects and advocates believed they could create adequate demand for health insurance, but even with subsidies, an eventually functional website, and legal penalties, it still couldn't create enough demand. They literally made it illegal not to buy health insurance, and that still didn't create a big enough market for the product.
And before you ask whether stiffer financial penalties would work, remember that it never became clear exactly how all the Obamacare tax penalties would be collected from people who didn't qualify for a tax refund in the first place. Short of literal imprisonment for non-compliance, there doesn't seem like much the government could do to boost insurance demand.
But President Trump and his team have promised to keep those expensive, previous condition patients covered. Without the mandate, that will get more expensive. Enter the supply side of the equation. The Trump White House has certainly made no secret that it's eager to put direct pressure and offer incentives to many different kinds of businesses. That includes health care businesses with President Trump's repeated promises to do something about high drug prices.
No matter whom you blame for the increasing cost of prescription drugs, the industry faces an extraordinary number of costly regulations, taxes, and other hurdles that definitely participate in causing drug price inflation. Almost no previous president would have felt comfortable arranging a deal to remove many of those hurdles in return for price reductions, but by now no one would be surprised if the new Trump White House did just that. In the past, supply side economics meant simply cutting taxes or regulations and letting the market move on freely after that. With this president, supply side will include a lot more government interference.
Move from drug companies to the insurers, hospitals, clinics, and even private practice doctors. They too face unique regulations and taxes that inflate prices. Whatever deal the drug companies get, the insurers will likely demand as well. None of these businesses and business people operate without costs that can't be significantly reduced by the government. And now there's someone running that government who seems more likely to reduce them than any Democrat or Republican before him.
The burning question is: Even if President Trump can reduce every government-imposed cost on the health care industry, would that be enough to force insurers to shoulder more of the costs of covering everyone who wants health care coverage? Anyone who claims to know the answer to that isn't really being honest. But we do know that what we've tried so far doesn't work. We also know that even if insurance weren't an issue at all, the rising cost of health care would have to be addressed. Health care and health insurance are two different things. But even if we somehow solved our health insurance coverage problems, that may not have any positive effect on the cost or quality of health care.
In the coming days, look for the White House and Republican leaders in Congress to introduce more supply side-friendly solutions, like allowing insurance companies to provide the lower cost plans that Obamacare made illegal. And we'll also probably hear more about how the Trump team will be willing to fund special "risk pools" specifically for those people with costly pre-existing conditions.
But all these solutions will focus on the supply side and not on the fantasy that goosing consumer demand will close the health care cost gap. The individual mandate was one of the greatest fantasies in the long history of demand side economics. If it isn't replaced, the American health insurance model will indeed be in danger. But it's death alone is nothing to mourn.