Hillary Clinton wants to fix it, and Donald Trump wants to repeal it, but either way, the Affordable Care Act -- and in particular its tax provisions -- is headed for an overhaul. And that will probably happen sooner rather than later, given Republican enthusiasm for abolishing the law and Democratic worries about its viability.
If Trump wins, repeal would be fairly straightforward, at least on the front end (the GOP promise of replacement would be much harder). But Clinton's promise to repair the ACA will be a major challenge under any scenario -- and maybe an impossible one. Any serious effort to revamp the law without effectively gutting it will require some fancy footwork around one of its central components: the individual mandate and its associated tax penalty.
The Exchanges Are Sick
The most serious problem afflicting the ACA is the viability of its exchanges. The law has other problems, including various unpopular tax provisions like the so-called Cadillac tax on high-end health plans and the much-maligned medical device tax. Both seem likely to disappear, even under a Clinton administration.
But the exchanges are facing a serious problem -- and one that's tough to fix. Insurers have grown increasingly skittish about selling ACA policies, and several big ones (Aetna, Humana, and UnitedHealth Group) have announced plans to scale back their participation or even exit the exchanges entirely.
Insurers have pointed to a central problem with the exchanges: Those buying policies have proven to be older, sicker, and less numerous than expected. That has pushed insurers' costs higher -- and premiums along with them. For some insurers, the whole market just isn't worth the trouble.
Problems with the exchanges are unlikely to destroy Obamacare anytime soon. As Sarah Kliff recently argued in a piece for Vox.com, the ACA is starting to look a lot like Medicaid, offering minimal coverage to low-income Americans who would otherwise be entirely uninsured. It might survive nicely in that limited role.
But if Obamacare is to remain a viable option for people other than the currently subsidized -- and deliver on its promise of remaking healthcare in America -- the exchanges need to be fixed. Specifically, policymakers need to find some way to expand the pool of customers buying ACA policies.
Carrots and Sticks
Why are the exchanges failing to attract the right sort of customers in the right sort of numbers? On the one hand, Obamacare plans often come freighted with a hefty deductible, limiting their use for anyone not confronting a catastrophic health problem. For people eligible for subsidies on the exchanges, that's not necessarily a bad thing -- some coverage is better than none -- and many purchasers of ACA policies report high satisfaction with their products.
For those ineligible for subsidies, however, the combination of high monthly premiums and high annual deductibles can make the policies much less appealing. Getting those potential customers into the exchanges will require either a tastier carrot, through expanded subsidies available to more people, or a bigger stick, in the form of a tougher tax penalty.
Indeed, the penalty tax is the key to fixing Obamacare. Healthy Americans aren't buying ACA policies in the requisite numbers because the individual mandate is simply too weak. For 2016 the penalty is set at 2.5 percent of total household adjusted gross income, or $695 per adult and $347.50 per child, with a maximum of $2,085. That's steep but apparently not steep enough.
"Obamacare's biggest problem is that it's not tyrannical enough," argued Ed Kilgore in a recent article for New York magazine. Other countries have managed to design health insurance systems that look a lot like Obamacare, including the purchase of health insurance from private companies. But those countries have made their systems work by imposing much harsher penalties on those who fail to participate.
In her Vox article, Kliff gives the example of Switzerland. "Anyone who moves there must purchase coverage within three months of arrival," she noted. "Few people try to evade coverage, but those who do can end up facing steep fines or even jail time."
Kliff quoted Princeton University health economist Uwe Reinhardt to underscore her point. "If you don't obey, and the Swiss find out -- which they often do when you get to the hospital -- they will go after you and garnish your wages," he explained. "They're very tough. And we've never gotten close to creating a system like that."
A Tough Sell Here
So that's the answer: Beef up the mandate and you'll get better participation. If we take incarceration off the table, which seems reasonable given that the current mandate has been structured entirely as a tax penalty, then the prescription for Obamacare seems obvious and simple: Just raise the tax.
To which I say: Good luck with that. I've never understood why anyone ever thought the individual mandate was going to fly in America. It's easy to exaggerate the power of anti-statist ideology in American political culture, but it's still very real. In his recent book, Liberty and Coercion: The Paradox of American Government From the Founding to the Present, historian Gary Gerstle explores the constitutional and political limits that have constrained central state authority.
Americans have long granted state governments considerable freedom to regulate their personal and commercial lives, building on expansive notions of the state's police power. But the federal government has operated within a much narrower ambit, constrained by traditions of classical liberalism that tend to elevate individual freedom over shared social objectives, no matter how desirable.
Over the centuries, of course, the federal government has found ways around those constraints, including reliance on its broad power to tax, Gerstle notes. But for the most part, activist taxation has been used to raise lots of money and engage in a modest amount of wealth redistribution. By contrast, strictly regulatory taxation -- designed to discourage or encourage specific behaviors -- has played a relatively minor role.
To be sure, a few regulatory taxes have had a good run. "Sin" taxes on alcohol and tobacco products are the best example, although their existence has often had more to do with their reliable revenue yield than any sort of concern for public health or morals. But other regulatory taxes -- including discriminatory commercial levies like the tax on oleomargarine designed to protect dairy farmers -- have been more limited and problematic.
Still, there's nothing un-American about regulatory taxes, no matter how removed they are from any genuine revenue function. But the use of federal regulatory taxes to coerce the purchase of particular consumer items (rather than discourage their purchase) is vanishingly rare.
Of course, the Supreme Court found tax-based coercion to be constitutional in the case of Obamacare. But that doesn't make it an easy sell, given the relatively narrow practice of regulatory taxation in America.
All the above paints a bleak picture for fans of Obamacare. Yes, the program may limp along indefinitely without a tougher mandate, expanding coverage for the neediest (as long as subsidies remain where they are). And that's still an important achievement.
But if the Democratic promise to fix Obamacare is going to include some effort to preserve its more ambitious goals -- including, perhaps, the gradual disappearance of our employer-based insurance model -- lawmakers will have to provide either broader subsidies or a tougher mandate.
If Democrats manage to capture both houses of Congress while also winning the presidency, they might be able to expand subsidies. Paying for them, however, would be a challenge, especially with the unpopularity of existing Obamacare taxes.
But larger subsidies are still more plausible than a tougher mandate. While popular with some healthcare experts, even the current mandate represents a departure from the American tradition of regulatory taxation. It's probably more likely to disappear than expand.