Tax Credit Structure Ensures Individual's Costs are Same, Regardless of "Sticker Price" of Insurance Premium

Ezra Klein has a new, strange, and incorrect defense of the individual mandate in the Senate bill:

I think some on the left would say that they just want to remove the individual mandate. But if they do that, then the healthy will leave the plan, and the average premiums will be the average premiums for unlucky people, like this reader, and those premiums will quickly become unaffordable.

The argument simply does not fit with the language in the bill, and is pure nonsense. How much average premiums cost on the new subsidies exchanges have almost zero effect on how much any individual below 400% of FPL would pay for their individual premiums.

In the bill, tax credits are based on percent of income limits. For example, someone making $32,500 a year (300% FPL) would get sufficient tax credits, so that the second cheapest "silver" plan would cost them only $3,185 (9.8% of their income). Now, if that plan cost $3,300, the tax credit would be $115, but if that plan cost $8,000, the tax credit would be $4,815. Either way, this individual is paying the exact same amount of money for the insurance plan, regardless how much it technically costs.

As long as premiums exceed the tax credit thresholds for everyone in the individual market below 400% of FPL (and every indications is that they always will) the technical cost of the premiums is irrelevant. The only people who would be hurt by slightly higher premiums on the individual market exchange is the extremely small group of people with incomes above 400% FPL and no employer health insurance. In the Senate bill, the exchange for small business is completely separate from the individual market exchange and its risk pool, so there should not be bleed-over into the small group market.

The argument that removing the individual mandate would price unemployed people, like the reader, out of the individual market is not true. Even if the individual mandate technically held down premiums on the exchange, it would not affect how much the vast majority of people using the individual market exchange would personally pay.

Most importantly, the individual mandate does not go into effect until 2015. I'm simply arguing progressives hold it hostage in exchange for better reforms down the road. The industries will have four years to offer progressives better reforms in exchange for progressive support of the individual mandate. There is no need to pass that provision now since it will affect nothing until 2015. This is how you lay a strategy for "fixing it later."