In response to the bounty hunt on the BCRA, posted by /u/besttrousers, here's what I got. This is my first R1, and I’m not an economist, so this charitable effort to mercifully review my understanding of the issue and get me to read an actual book is a good cause.

There's plenty to unpack about the issue, and I know we all have our ideal economic solutions. I’ll be content to show why this Heritage Foundation piece is bad economics because it proposes replacing the individual mandate with worse attempts to boost enrollment. But first, let’s take a step back...

Universal healthcare coverage is good economics

Everyone wants accessible healthcare, nearly everyone will end up needing it, and an economy is A+ when we can smooth over the often catastrophic costs of healthcare:

Health systems oriented toward UHC, immensely valuable in their own right, produce an array of benefits: in times of crisis, they mitigate the effect of shocks on communities; in times of calm, they foster more cohesive societies and productive economies. The economic benefits of investment in grand convergence are estimated to be more than ten times greater than costs—meaning that early stages on the pathway to UHC, focused on high pay-off convergence interventions, will have high value relative to the cost of raising revenue, including the deadweight (or welfare) cost of taxation, or (in most cases) to the value of its use in other sectors.

Obamacare is an improvement

We want universal healthcare, but healthcare and health insurance are problematic markets. Unlike other markets, health customers have little grasp on what they need, and the price of what that is. But a healthy person knows how healthy they are much better than an insurance company. If an individual is confident in his or her health, the insurance company cannot offer a price low enough to entice that individual to buy. This leads to many healthy customers who refuse to pay for insurance, and choose to try their luck with fate. This is a problem called "information asymmetry".

On top of this, providers by law (and ethics) cannot refuse to give treatment. And so while everyone needs healthcare, not everyone can afford it. Even the cost of insurance is too high. A classic market doesn’t work in health care.

Obamacare significantly mitigates these problems and pushes towards greater coverage in three main ways: 1. mandate to coverage pre-existing conditions 2. subsidies for low-income persons to buy health insurance, and expanding Medicaid 3. an individual mandate to force healthy individuals into the health insurance market.

The Heritage foundation speaks repeatedly about undoing Obamacare's "damage." This implies that Obamacare is very bad, but that's partly a matter of perspective. If you're on medicaid, have a disability or mental illness, use Planned Parenthood, are an older person under 65, or have a pre-existing condition, then Obamacare is good. Contrary to the Heritage piece, the self-employed and entrepreneurs also are in better shape thanks to Obamacare

But as we saw before, overall the economy stands to benefit from Obamacare because it helps the problematic healthcare market, and moves us toward the economic benefits of universal coverage. There is also a strong moral argument to be made for offering healthcare to as many people as possible if a society can afford to. Much of these benefits rely on the individual mandate.

The Individual Mandate

The Heritage piece says:

Like the House bill, the Senate bill repeals Obamacare’s individual mandate and employer mandate. It also repeals the limitation on age rating of premiums. These changes allow states to set age-rating parameters that more closely align insurance premiums with age-related differences in average medical expenses.

So it repeals the individual mandate and instead hopes that cost of insurance will lower, encouraging enrollment for the healthy. Republicans also suggest a penalty for lapsing coverage.

In the proposed penalty, healthy individuals can even more easily opt out of buying insurance, and provide a perverse incentive to stay out, while part of the penalty itself is even locking you out for six months. Not a good recipe for higher enrollment. Many insurance lapses are very temporary, but this could make them permanent:

You’re just kind of putting up these obstacles to all these people who are really the types of people that an insurance company wants,” he said. Mr. Graves said that such a penalty might act as a stronger incentive to people with known health problems, who would be careful to keep their paperwork in order and avoid any lapse in coverage.
On Monday, the Congressional Budget Office, in its assessment of the bill, largely agreed with the experts. Although the C.B.O. said the provision might slightly increase the number of Americans with coverage, that increase was too small for it to even calculate.

Lower prices for health insurance would do little against the information asymmetry discussed before. The evidence for this can be seen in the success and failure of various healthcare systems. The original "Obamacare" implemented in Massachusetts, found success with an individual mandate. Other systems failed:

In contrast, insurance reform without subsidies and mandates has consistently failed. In the five states that have tried comprehensive insurance market reform without an individual mandate, healthy people chose to stay out of insurance, sick people took it up, and premiums increased. Only broad participation in insurance markets can end the cycle of insecure coverage and high costs.

Moreover, successful multi-payer healthcare systems around the world rely on a strong individual mandate:

Switzerland, Singapore, and Germany have achieved universal coverage and made insurance affordable even for their citizens with highest health care costs by instituting an individual mandate. One major difference, however, is that unlike the ACA, the mandates instituted by these countries are reinforced with effective penalties for nonparticipation, thus ensuring that lower-cost enrollees - generally healthier individuals - balance out the costs of the others who require more medical resources.

Many in the insurance industry itself recognize that the problem is the mandate is too weak:

Many of those I spoke with in the insurance industry were especially frustrated with the individual mandate, which they found to be too weak and poorly enforced, leading to lower-than-expected enrollment among healthy, young adults. The White House hoped that young adults would make up 38 percent of enrollees; right now they’re about 28 percent of the marketplace population.

It's no wonder the CBO report disagrees with the notion that the BCRA will encourage more enrollment. Quite the contrary:

CBO and JCT estimate that, in 2018, 15 million more people would be uninsured under this legislation than under current law—primarily because the penalty for not having insurance would be eliminated.

Conclusion

The BCRA takes us much farther away from universal coverage by giving a worse substitute for an individual mandate that is already too weak (not to mention by cutting Medicaid). It does not follow precedent or evidence of what we know works, but misleading ideology of state’s rights. Perhaps we should look to a much... different think tank for real solutions.

But maybe small-government folks shouldn’t feel the need for ideological opposition, as this economist argues:

“Some of my libertarian friends balk at what looks like an individual mandate. But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on the government is not libertarian.”