As most middle- and upper-income Americans already have employer-sponsored insurance coverage, the uninsured are largely the poor and those who have recently lost jobs. The Obama administration in 2016 therefore exempted 23 million of the 30 million uninsured from the individual mandate’s penalty, while only 1.2 million uninsured Americans had incomes high enough such that they would face a penalty exceeding $1,000. As I noted in a 2017 report, such a mandate should be expected to drive few of the uninsured to purchase plans — as they could cost families $25,000 per year before yielding medical benefits.
But even if the penalty had been higher, it is not clear that the mandate would have successfully lowered premiums. A recent assessment observed that an individual mandate penalty also increases the ability of large insurers to inflate markups. Furthermore, mandating that healthy people buy plans that are of little value to them tends to force them into mere compliance by purchasing the skimpiest permitted plans, and may serve to drive better quality coverage out of the market.
The ACA’s individual market has been saved from this dysfunction by the creation of subsidies, which automatically expand to guarantee affordable coverage to low- and middle-income Americans. This has sustained Obamacare as an entitlement in disguise after it has ceased to function as a viable insurance market. Unsubsidized enrollment has continued to slump from 9.4 million in 2014 to 5.2 million in 2018.