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Health Care Reform Without The Mandate?

Yesterday, the Supreme Court took on the constitutionality of Obamacare’s individual mandate—and in the opinion of nearly every observer, things did not go well. It’s hard to say how much the Supremes will be influenced by the Solicitor General’s underwhelming performance, especially since most legal analysts seem to think the mandate, regardless of how well the administration defended it, is perfectly constitutional. But for a moment, let’s imagine a possible outcome of the case: The Court strikes down the mandate but upholds the rest of the law. What would happen to American health care?

Two recent papers offer some perspective. The first, from MIT’s Jonathan Gruber, argues that without the mandate, the Affordable Care Act would “cover significantly fewer persons, with more erosion of employer insurance, and lead to significantly higher premiums.” Gruber estimates that the number of newly-insured individuals would fall from 32 million to just eight million and that premiums in the nongroup insurance market would shoot up 27 percent. (The CBO, for its part, predicts a “new coverage” drop of 16 million people and premium increases in the nongroup market of 15 to 20 percent.) These increases would occur in large part because of what economists call “adverse selection”: As fewer young, healthy people pay buy insurance, the remaining insured group would be less healthy, and therefore more likely to consume health care—which, with fewer people in the pool to spread the cost, would make health care much pricier. A 2012 RAND study, while much less pessimistic, nonetheless reaches that same conclusion. Using a different method from Gruber and the CBO, RAND found that premiums in the nongroup market would increase by 2.4 percent. However, RAND found that more than 12 million people who would otherwise have coverage would be uninsured, and costs would increase considerably for the federal government—in fact, government spending would more than double per newly insured individual. As the study concludes, “the mandate, therefore, is important not only to achieving near universal coverage, but also to yielding a high ‘bang for the buck’ in terms of the government’s cost per new enrollee.”