How does the individual mandate work?
To understand how the repeal of the individual mandate affects Obamacare, it's important to first understand how it works.
Basically, the individual mandate took effect in 2014, requiring the majority of Americans and companies to provide health insurance for themselves and their employees. If one can afford health insurance but chooses not to buy it, a penalty, called the "individual shared responsibility payment", may need to be paid.
By mandating a large number of Americans to participate in health insurance coverage makes Obamacare affordable for everyone, keeping premiums low.
Why is it seen as necessary to Obamacare?
However, if this mandate is eliminated, premiums will rise, causing healthier Americans will be less motivated to purchase insurance. With lesser young and healthy customers participating in Obamacare plans, health expenses will rise for lower for older, sicker customers who need health insurance.
The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimates that the number of uninsured will increase by 13 million by 2027 if the individual mandate is repealed. Furthermore, health insurance premiums may increase by an estimated 10 percent each year over the next 10 years in the individual market.
The mandate’s repeal may potentially drive insurers out of the market, resulting in some parts of the country with no ACA marketplaces.
Results of CBO and JCT’s Analysis (full report):
Federal budget deficits would be reduced by about $338 billion between 2018 and 2027 (see Table 1).
The number of people with health insurance would decrease by 4 million in 2019 and 13 million in 2027 (see Table 2).
Nongroup insurance markets would continue to be stable in almost all areas of the country throughout the coming decade.
Average premiums in the nongroup market would increase by about 10 percent in most years of the decade (with no changes in the ages of people purchasing insurance accounted for) relative to CBO’s baseline projections.
As such, regardless of the extent of the potential rise in premiums, these projections do show that repealing the individual mandate will result in fewer Americans purchasing health insurance, even though the extent is debatable.
It's also worth noting that ...
these effects could be overstated as the fine for not purchasing healthcare is considered low compared to purchasing health insurance. As such, some may argue it is not as effective as it seems.
Still, it’s what’s not clear is exactly how effective the mandate is for getting people to sign up for healthcare in the first place. It’s a pretty low fine, capped at $695, or 2.5 percent of income, whichever is higher. That’s still far less than what most people would spend on health insurance in a year, and so its effect on enrollment could be overstated.
However, it does make consumers think twice about skipping coverage.
The idea was to create a fine that wasn’t quite as expensive as purchasing insurance but was high enough that it would make consumers think twice about skipping coverage.