New Report Reveals How Wrong CBO Was about the Individual Mandate

Kudos to Philip Klein for calling attention to a footnote in a recent government report. The data points included in the footnote expose just how flawed the Congressional Budget Office’s (CBO) estimates were regarding the individual mandate, a key provision of the Affordable Care Act. This is big news precisely because CBO’s misguided mandate estimate helped bring the effort to repeal and replace Obamacare to a screeching halt.

The individual mandate assessed a tax penalty, known as the “Shared Responsibility Payment,” on people who did not have health insurance. The idea behind it was that it would compel younger people to sign up who would otherwise ordinarily forgo purchase of health insurance because they are healthy. Dating back to 2009, CBO’s Obamacare estimates have assumed that the mandate would have a strong impact on enrollment, and the modeling was not updated even though the actual numbers showed that the projections were greatly exaggerated.  For example, CBO initially said that enrollment in the health care exchanges would reach 21 million by 2016. In reality, enrollment only reached 12.7 million that year.

CBO still hadn’t updated its assumptions of the efficacy of the mandate when Republicans in Congress were trying to repeal and replace Obamacare. In March of 2017, CBO estimated that the American Health Care Act would lead to 14 million fewer people with health insurance coverage in 2018, mostly due to elimination of the penalty. Because of the backlash this projection caused, the Republicans added provisions to the bill specifically designed to increase enrollment, but nothing could overcome CBO’s flawed assumptions about the individual mandate.

Republicans were unable to repeal Obamacare, but the individual mandate was eliminated in the Tax Cuts and Jobs Act. In that instance, CBO’s flawed mandate assumption, which projected reduced outlays for Medicaid and coverage subsidies by $338 billion, helped offset a portion of the tax cut’s revenue estimate.

As Klein uncovered, the latest National Health Expenditures report from the Centers for Medicare and Medicaid Services included this footnote: “By 2019 the individual mandate repeal is anticipated to result in about 1.5 million fewer direct-purchase-market enrollees, who are expected to be somewhat younger and healthier than those who retain coverage, as well as about 1.0 million fewer employer-sponsored-insurance-market enrollees, than otherwise would have been projected. After 2019 the enrollment effects are expected to be smaller. Medicaid enrollment is assumed to be unaffected.”

We’ve pointed out on numerous occasions that CBO is a small agency with an outsized role in the policymaking process. This issue highlights why it is important to make sure that CBO is operating in an open way ... and making rational assumptions.