The Obamacare Mandate Is Up for Repeal -- What That Could Mean for You

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Healthcare reform might be gone from the legislative docket, but the Senate has found a way to build it into its tax reform bill, the "Tax Cuts and Jobs Act," by adding a clause repealing the Affordable Care Act mandate. If the bill is signed into law, the mandate repeal would both reduce the federal budget deficit and make significant progress in unwinding Obamacare. However, it will also make health insurance both more expensive and more difficult to get for many Americans.

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What is the ACA mandate?

The Obamacare mandate is the rule that everyone must have qualifying health insurance coverage or pay a tax penalty (the term you'll see on your tax forms is "individual shared responsibility payment"). In 2018, the penalty for going without health insurance will be the greater of 2.5% of the taxpayer's adjusted gross income or $695 per uninsured adult. If the Senate tax act passes, complete with the mandate repeal, it will take effect in 2019.

Effects of repealing the mandate

The Congressional Budget Office (CBO), a nonpartisan agency that analyzes economic and budgetary proposals, estimates that repealing the mandate would reduce the federal deficit by about $338 billion over the next 10 years. On the other hand, the CBO forecasts that the number of uninsured individuals would rise by 4 million in 2019 and by 13 million in 2027. The CBO also reported that health insurance premiums would go up by an estimated 10% for nongroup purchasers (meaning those who buy individual health insurance instead of buying into a group plan, such as employer-sponsored health insurance). This is on top of the nearly 50% average increase in individual health insurance premiums slated for 2018.

The Senate used that extra $338 billion to include more tax cuts in its tax reform bill. In particular, it bumped the Child Tax Credit from $1,650 in the initial draft to $2,000 per child (the existing Child Tax Credit is capped at $1,000 per child). The new draft of the Tax Cuts and Jobs Act also reduced some of the proposed income tax brackets, dropping the 22.5% tax bracket to 22%, the 25% tax bracket to 24%, and the 32.5% tax bracket to 32%.

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What you can do about it

If the mandate repeal passes, health insurance premiums that are already flirting with unaffordability will climb even higher. However, the CBO reports that this increase should only affect non-group policies. If you can find a group healthcare policy to join, you can minimize the impact of the premium increase on your own budget.

The obvious place to get a group healthcare policy is through an employer. If you work for a small company that can't afford to provide health insurance, or if you're self-employed, you'll need to be a little more creative. Some professional and trade organizations can hook you up with a group healthcare policy; if you don't belong to such an organization, a quick internet search may find one to your liking. And if the organization in question gives you access to group rates on health insurance, you may save more than the annual membership fee through the lower premiums alone. However, be sure to compare the organization's insurance premiums with those of individual health insurance plans; some of these organizations will simply connect you to an insurance broker rather than providing a true group plan.

Picking up a high-deductible health insurance plan paired with a health savings account (HSA) is another way to keep your insurance premiums as low as possible. You can stick some of the money you're saving on premiums into the HSA and use that money for any medical expenses that pop up during the year (or hang on to it until you hit age 65 and spend it on anything you like). The beauty of this system is that you're sending less money to an insurance company (which is guaranteed to keep that money regardless of whether you actually use the insurance) and saving more for use on actual medical expenses.

Repealing the ACA mandate could be the first step in getting rid of Obamacare entirely, and even if it's not, the financial impact for many Americans could be severe. However, since the repeal won't take effect until 2019 (if it passes at all), at least we'll have time to prepare for the change -- and budget for the resulting increase in premiums.

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