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Is 'Auto-Enrollment' Even Worse Than Obamacare's Individual Mandate?

Jeffrey H. Anderson

It is an amazing fact that the individual mandate to buy health insurance largely originated with policy wonks and politicians on the conservative side of the aisle. This ill-conceived and unconstitutional (despite the opinions of five justices) idea eventually became perhaps the most despised part of Obamacare. Yet even as the individual mandate is about to be killed off (Congress is poised to reduce its penalty to $0, thereby effectively repealing it), some center-right policy wonks and politicians are trying to give life to a new idea that might be even worse—“auto-enrollment.”

Here’s how it would work: If an American citizen were made eligible for a tax credit for health insurance, but chose not to use it, the government could then “auto-enroll” that citizen in a health insurance policy of the government’s choosing. It would use the “tax credit” to pay for it. This is a terrible idea on its face, but here are five specific reasons why it is so:

1. It is paternalistic. Under Obamacare’s individual mandate, private citizens are ordered to buy a product or service of the federal government’s choosing for the first time in all of American history. Even under Obamacare, however, the government doesn’t buy people’s insurance for them. (It sometimes pays for it, but at least people have to summon the minimal motivation to enroll themselves.) In having the government sign people up for insurance, “auto-enrollment” goes beyond even Obamacare’s individual mandate—and hence is arguably even more of an affront to self-reliance, liberty, and limited government.

Proponents of “auto-enrollment” claim these concerns are mitigated because state governments, not the federal government, would do the “auto-enrolling” (albeit with federal taxpayers’ money), and because any American could fill out a form and thereby opt out of being “auto-enrolled.” But Americans shouldn’t have to opt out of being enrolled in insurance, and no level of government should be “auto-enrolling” them. (Was Massachusetts’s individual mandate okay because it was imposed by a state?)

2. It would be a free-for-all for cronyism. Under “auto-enrollment,” taxpayer money would flow directly to insurance companies on behalf of people who may not even want the insurance being bought for them, or may not even know that they have it after it is purchased on their behalf. If it’s possible to design a provision that’s even more pro-insurer than the individual mandate, this is it.

3. It would be very expensive. It costs a lot of money to buy insurance for millions of people who have given no indication they even want it.

4. It would feature federal spending that’s masquerading as tax cuts. A direct payment to an insurance company is not a “tax credit”; it is an outlay. Obamacare already hides some $104 billion in spending as “tax cuts,” because government scorekeepers have falsely labeled its direct subsidies to insurers as “tax credits,” and Republicans haven’t insisted they do otherwise. Conservatives shouldn’t follow suit and embrace this disingenuous practice of hiding federal spending.

Obamacare’s direct payments to insurers don’t offset or reduce anyone’s taxes and therefore don’t meet the Government Accountability Office’s definition of a “tax credit.” If such false accounting is allowed to take root beyond Obamacare, even greater problems will ensue. Get ready for “free college” in which direct federal payments to colleges are scored as “tax credits,” not as outlays. Indeed, all outlays under Medicare, up to the amount that a given senior pays in income taxes, could be labeled as “tax credits“—and hence “tax cuts“—rather than spending. This is a novel and dangerous way to mask any federal spending that’s tied to a particular taxpaying individual.

5. It would raise premiums. Advocates of “auto-enrollment” propose giving insurers the entire sum of money that someone is eligible to receive as a tax credit. This would undercut efforts to encourage people to shop for value, as a key aspect of such encouragement is letting people put any savings from not using their whole tax credit into a health savings account. So, for example, if a 36-year-old woman is eligible for a tax credit of $2,100 (the dollar amount for which she’d be eligible under the plans advanced by the 2017 Project, Tom Price, the Hudson Institute, Ed Gillespie, and Scott Walker) and finds a “catastrophic” plan she wants for $1,500, she could put her $600 worth of savings into an HSA that she would control.

But under “auto-enrollment,” if she elects not to use her tax credit, an insurer would get the full $2,100—not just $1,500—on her behalf. Under such an arrangement, insurers might not even bother to offer plans that cost less than the values of the tax credits. Why jeopardize their sweetheart “auto-enrollment” deal?

Given these major drawbacks, where is the idea for “auto-enrollment” even coming from? It is being pushed by those who are obsessed with coverage projections from the Congressional Budget Office.

Rather than playing on Democrats’ turf, Republicans ought to focus on three numbers from the CBO (to the extent that they focus on the CBO’s notoriously inaccurate projections at all): The number of people projected to be on private health insurance versus Obamacare (let Democrats tout how many people they are dumping into Medicaid); the projected cut in federal spending versus Obamacare; and the number of people projected to be eligible for tax breaks (under the Republican alternative), versus the number of people eligible for subsidies (routed through insurance companies) under Obamacare.

An ideal GOP alternative would be competitive with Obamacare on private insurance coverage numbers, would save more than $1 trillion in federal spending (over a decade), and would give tax breaks to far more Americans than get Obamacare subsidies. (A good alternative would also greatly lower premiums, but the CBO’s projections might not reflect that—or at least not fully.)

An alternative that results in roughly as many people having private health insurance (freely bought, rather than coercively mandated), cuts spending by more than $1,000,000,000,000, and provides tax breaks to millions of Americans who get nothing from Obamacare but the tab, would be a political and policy winner. “Auto-enrollment” would be neither.

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