RAND Review News for Spring 2012

Eliminating Individual Mandate Would Decrease Coverage, Increase Spending

Eliminating the Mandate Will Decrease the Number of Americans with Health Coverage and Increase Government Spending, Particularly for Newly Insured Enrollees

A. Without the Individual Mandate, 12.5 Million Fewer Americans Will Have Health Coverage Under the Affordable Care Act (ACA) in 2016

Without the Individual Mandate, 12.5 Million Fewer Americans Will Have Health Coverage Under the Affordable Care Act (ACA) in 2016

B. Removing the Individual Mandate Will Modestly Increase Total Government Spending Under the ACA in 2016

Removing the Individual Mandate Will Modestly Increase Total Government Spending Under the ACA in 2016

C. Removing the Individual Mandate Will Significantly Increase Government Spending Per Newly Insured Enrollee Under the ACA in 2016

Removing the Individual Mandate Will Significantly Increase Government Spending Per Newly Insured Enrollee Under the ACA in 2016

If the individual mandate requiring all Americans to have health insurance were eliminated, it would sharply reduce the number of people gaining coverage and slightly increase the cost for those who do buy policies through the new insurance exchanges, according to a RAND study.

Utilizing the Comprehensive Assessment of Reform Efforts (COMPARE) model — a microsimulaton model created by RAND — researchers showed that, in 2016, 27 million people would become newly insured with the mandate, compared with only 15 million without it, as reflected in panel A of the figure. The year 2016 is the first in which the Affordable Care Act will be fully implemented.

One concern about eliminating the mandate is that the insurance exchanges established under the Affordable Care Act would suffer from “adverse selection,” meaning that mostly sicker, higher-risk individuals would sign up for coverage, and that this could lead to greater spending per insured member, thus driving insurance premiums higher.

However, “Our analysis suggests that if the individual mandate is eliminated, premiums for people with policies bought through the exchanges will increase by only 2.4 percent,” said Christine Eibner, the study’s lead author and an economist at RAND. “These relatively modest premium increases will not be enough to trigger catastrophic failure of the exchanges — a ‘death spiral.’ Because of insurance subsidies, many enrollees will perceive little or no change in the amount of their contribution even when premiums increase.”

Total government spending would also increase slightly if the mandate were eliminated, caused by higher (sometimes subsidized) premiums, the loss of revenue from mandate penalties, and increased spending on care for the uninsured (panel B). But because so many low-income Americans would forgo coverage, the amount of government spending per newly insured individual would more than double, from $3,659 to $7,468 (panel C).

“The individual mandate is critical, not only to achieving near-universal health care coverage among Americans but also to yielding a high value in terms of federal spending to expand coverage,” Eibner said. “Without the individual mandate, taxpayers would have to spend more overall to insure a lot fewer people.” square

For more information:

The Effect of the Affordable Care Act on Enrollment and Premiums, With and Without the Individual Mandate, RAND/TR-1221-CMF, 2012.

Video:

The Individual Mandate for Health Insurance in the U.S.: Likely Effects of the Mandate's Potential Elimination. Watch RAND economist Christine Eibner discuss the ramifications of the individual mandate’s potential elimination.