Health Insurance Mandate Increases the Federal Deficit….?

A new report by the Congressional Budget Office (CBO) suggests that eliminating the mandate for purchasing health insurance would actually reduce the federal budget deficit by $305 billion. How? Because the estimated additional 14 million people in 2025 who would choose not to be insured would save the government roughly $311 billion on subsidies and health care expenses, while sacrificing $6 billion in revenues from the expected penalties (or taxes, depending on how you follow Chief Justice Roberts’ logic).

Two important observations:

  1. 14 million uninsured people?! Yes…but that would be the expected total to 41 million in 2025 (meaning even with Obamacare as it currently is, the CBO expects 27 million uninsured people anyhow).
  2. Another consequence of eliminating the mandate: insurance premiums for those who DO purchase insurance are estimated to go up another 20% on top of existing expected rate increases. This reflects the free-riding problem that led to the mandate being implemented to begin with: people who have low expected health care expenses (i.e., healthier people) are the very ones most likely NOT to buy insurance. Without the healthier people in the risk pool, the expected cost of caring for those who DO buy insurance goes up, which increases the cost to the insurer–and that cost is going to be passed along to the people who buy the insurance. So without the mandate, the health care costs are covered by the people who value the insurance enough to participate (i.e., the ones who expect to benefit from having it available). The mandate forces healthier people (who expect not to need medical care) to subsidize the cost of care for everyone else by paying more into the risk pool than they expect to get back from it.

You can see the CBO’s preliminary estimates here.