Health and Science

Killing Obamacare mandate won't cut number of insured — or budget deficit — as much as predicted, analysis says

Key Points
  • A new S&P report estimates up to 5 million people would become uninsured and the deficit would drop by up to $80 billion if Obamacare's individual mandate is repealed.
  • The Congressional Budget Office estimated 13 million people would become uninsured and the deficit would drop by $338 billion.
  • A Senate bill passed by the finance committee this week would repeal the mandate, which requires most Americans to have health coverage or pay a tax penalty.
Don Humbertson, a 64 year old lung cancer surviver, is examined by Dr. Wade Harvey at the Clay-Battelle Community Health Center March 21, 2017 in Blacksville, West Virginia.
Brendan Smialowski | AFP | Getty Images

Repealing the Obamacare requirement that most Americans have health insurance or pay a fine would not cut the number with insurance — or the federal budget deficit — as much as officially predicted, a new analysis says.

The analysis suggests that Obamacare is such an attractive financial deal to many people that they don't have to be compelled to sign up for coverage with the threat of a fine.

The S&P Global Ratings analysis estimates that repealing the Obamacare individual mandate — which a controversial new Senate tax bill seeks to do — will lead to about 4 million to 5 million more people becoming uninsured by 2027 than otherwise would have been.

The S&P analysis also projects that killing that mandate would save the federal government just $60 billion to $80 billion over the next decade.

Those savings would come from the government paying less in subsidies for people enrolled in Obamacare individual health plans or Medicaid.

Both estimates by S&P fall far below projections made last week by the Congressional Budget Office in that nonpartisan agency's own analysis of a mandate repeal.

CBO had predicted that 13 million more people would become uninsured. And CBO said the budget deficit would be reduced by $338 billion by 2027.

CBO also estimated that premiums for individual health plans would be 10 percent higher than they otherwise would be if the mandate is repealed.

Senate Finance Committee to include repeal of individual mandate in tax bill
Senate Finance Committee to include repeal of individual mandate in tax bill

S&P's projection agreed that premiums would rise as well, despite forecasting less of a drop-off in the number of people with insurance.

If the Senate bill becomes law, and S&P's number turns out to be more accurate than CBO's, it would mean that the tax cuts that Republicans seek to implement will cost the government more than has been predicted.

It also would mean that the loss of insurance coverage would not be as dramatic as Obamacare advocates fear, although it would still be steep enough to concern them.

"Although there will be some drop-offs, the mandate repeal will, in our view, not stop the majority of this population from re-enrolling," S&P said.

"This is also why we expect limited savings for the federal government from the mandate repeal."

Obamacare's mandate requires that most people have some form of health insurance coverage or pay a tax penalty, unless they qualify for one of a slew of exemptions from the requirement.

The penalty for 2017 is the higher of $695 per adult or 2.5 percent of adjusted gross household income.

S&P said "the key difference" between its estimates and the CBO's is how much the individual mandate is seen as driving enrollment in either individual health plans or Medicaid.

"Our estimates are lower because we believe that it is not the mandate penalty, but the intrinsic financial incentives available to most eligible enrollees that drive enrollment in these two markets," S&P said.

S&P was referring to the fact that in the majority of states, poor adults can enroll in Medicaid — a joint federal-state-run health coverage program — at no direct cost to themselves.

The company was also referring to the fact that low- and middle-income people can qualify for federal subsidies that lower the health insurance premiums if they buy a plan through an Obamacare exchange.

Almost 60 percent of all customers in the individual health plan market — which includes both exchange and off-exchange customers — qualify for premium-reducing tax credits. Those subsidies can sharply reduce direct costs to customers, sometimes to as low as $0 per month.

S&P said that while some nonsubsidized customers "may be enrolling because of the mandate, the majority are signing up today because they need insurance."

S&P noted, as do many others, that "the individual mandate is currently weak."

Earlier this year, the IRS reported that about 6.5 million taxpayers who failed to comply with the mandate paid $3 billion in total penalties, with the median payment being around $330 for the 2015 tax year.

Almost double that number of people, 12.7 million, claimed an exemption from the mandate.

And even with the mandate in place, a total of 28.1 million people, or 8.8 of the U.S. population, still had no health insurance during the course of the year in 2016, according to the Census Bureau.

WATCH: Tax reform baton passed from House to Senate

The tax reform baton is passed from the House to the Senate
The tax reform baton is passed from the House to the Senate