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ObamaCare death spirals and the individual mandate

In response to HHS: 24 Percent of Enrollees Between 18 and 35:

I know this will sound brutally cynical, but I find it necessary to assume every report pertaining to ObamaCare has been fudged or manipulated in some way, until proven otherwise.  The 24 percent number of young enrollees from the report you cited is horrific – far, far below what ObamaCare needs to survive, when projected across the vast American population – but I suspect even that figure is higher than the unvarnished truth we’ll discover in a few months, maybe after some oversight hearings.  

But let’s play along with 24 percent for the time being.  How many of those young folks are true Young Invincibles – young, healthy, and willing to pay jacked-up premiums for virtually useless insurance in perpetuity?  Young people with significant pre-existing conditions are not financial assets on the ObamaCare balance sheets, and yet I suspect they’re probably a strong component of the early customers in the 18-35 demographic.

And, if I might be forgiven for putting this indelicately: how many of that young 24 percent has a clue how lousy their new ObamaCare policies are?  A recurring theme emerging from anecdotal accounts of young folks encountering ObamaCare is their mistaken belief that they were getting some kind of “free” full-coverage no-expenses policy.  On the contrary, they’re paying exorbitant premiums to get coverage that won’t do a bloody thing for them until they shell out $8000 or more in out-of-pocket expenses in a single year.  I suspect a lot of them don’t really understand how that works, and they might grow reluctant to pay those big premiums after the first time they attempt to use their benefits.

At which point they’ll run afoul of the notorious individual mandate, which (of course) uses a super-complicated formula that begins spiraling dramatically upward next year to compute the absurd and offensive “tax/penalty” you’ll pay for refusing to buy insurance from the government’s Little Partners in the insurance industry.  Byron York cites industry expert and ObamaCare critic Bob Laszewski wondering if the mandate can survive a political backlash after it begins escalating:

“In the first year, the mandate is useless,” said Laszewski. “One percent isn’t strong enough. The IRS can’t really collect it anyway from anyone who wants to flaunt it. Then we get to the second and third year. Two percent in 2015 and 2.5 percent in 2016. Now we have real money. The IRS still can’t collect it, but lots of people will still be troubled by it because they won’t like getting nasty letters from the IRS.”

As Laszewski sees it, the mandate could become extremely unpopular — it’s already by far the least popular part of Obamacare — if policies are not what the public wants to buy. Who would want to be forced to buy something he or she doesn’t want? That something is not insurance itself — it is insurance that is ill-fitting and overpriced. “The problem is that the government will be hard pressed to collect a fine on something lots of people don’t believe has value,” Laszewski said. “This is when it will become a huge political albatross. At the core Obamacare is not sustainable, and the mandate/fine is not politically sustainable, if there are lots of middle class people who see Obamacare as a poor value.”

What he means by “the IRS can’t really collect it anyway from anyone who wants to flaunt it” is that the individual mandate is siphoned from the annual tax returns of victims.  The Democrats were afraid to write stronger collection mechanisms into the Affordable Care Act, or have the mandate begin in 2014 at the crushing $695 average level it will eventually reach, because they didn’t want the public to freak out.  

As it stands, the IRS has no way to collect the penalty from people who don’t get a tax refund.  Most young people do, and since some of them might still fail to understand how the trans-Constitutional tax/penalty system works, the next couple of Tax Days should be interesting.  (I wonder how all those businesses that specialize in offering tax refund advance loans – ranging from cash loans to discounts on new car purchases – are going to deal with not knowing if any given customer is a potential individual mandate target.)  

The mandate will become, in effect, a regressive tax on young and low-income people who really love those Tax Day “free money” windfalls from Uncle Sam.  That might actually be a useful life lesson, because it’s always a bit nauseating to watch Big Government purchase goodwill from financially ignorant people with their own money.  But I suspect Laszewski is right about the political backlash, particularly after the mandate begins growing.  

And if the insurance industry is locked in a bailout-infused death spiral, who’s to say the individual mandate will remain at even its projected Year Three maximum… or that the IRS won’t using more aggressive collection methods?  Without the individual mandate, the only things keeping ObamaCare alive are huge infusions of deficit funny money, and industry controls that lock competitors out of the government’s pseudo-socialized insurance racket.  If the American public calls ObamaCare’s bluff and rebels against the mandate, the insurance industry will flip out, but it’s actually rather difficult to imagine the public meekly accepting those huge hits to their tax returns as punishment for failing to purchase a product they don’t consider valuable.  Most pertinently, let’s see what happens to the percentage of young and healthy ObamaCare consumers if the IRS isn’t holding their tax returns hostage.

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