Assessing Alternative Modifications to the Affordable Care Act: Impact on Individual Market Premiums and Insurance Coverage
Oct 21, 2014
Photo by Fotolia
The Affordable Care Act (ACA) uses a "carrot-and-stick" approach to encourage Americans to obtain health insurance. The "carrot" consists of subsidies in the form of tax credits that help low- and middle-income individuals buy coverage in the individual health insurance marketplaces (where consumers buy directly from insurers rather than through an employer). The "stick" is the individual mandate, which requires most individuals either to have health insurance coverage or pay a fine.
The individual mandate, which took effect on January 1, 2014, is a requirement of the ACA that most citizens and legal residents of the United States have health insurance. People who do not have health insurance must obtain it or pay a penalty.
The individual mandate remains one of the ACA's most politically charged provisions. It survived a Supreme Court challenge in 2012, when the Court ruled that it was a tax and therefore constitutional. However, numerous policy alternatives have proposed to amend or abolish the individual mandate, and some commentators have claimed that the mandate is unnecessary to advance the ACA's goal of near-universal health coverage. (See Avik Roy, Transcending Obamacare: A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency, Manhattan Institute for Policy Research, 2014, for an example of the former, and Peter Ubel, "Do the Obamacare Insurance Subsidies Make the Individual Mandate Unnecessary?" Forbes, March 25, 2013, for an example of the latter.)
If not insured, pay whichever is greater: $95 or 1% of income
If not insured, pay whichever is greater: $695 or 2.5% of income
Penalty can be no more than cost of lowest-priced bronze plan
The individual mandate remains one of the ACA’s most politically charged provisions.
To address this question, a RAND team used the RAND COMPARE microsimulation model to estimate the effect of eliminating the individual mandate on the number of insured and premium prices in the individual market, assuming that other provisions of the ACA remain unchanged.
The analysis found that eliminating the individual mandate would cause relatively small increases in premiums, but large declines in the number of people insured. The relatively small effect on premiums suggests that the individual market would remain stable even without the individual mandate, owing largely to the effects of subsidies, which are structured to keep premiums low for eligible enrollees.
Related analysis by the COMPARE team found that subsidies exert a more powerful effect than the individual mandate on both enrollment and premiums in the individual market (Christine Eibner and Evan Saltzman, "How Do ACA Tax Subsidies Affect Premiums and Enrollment?" RB-9812/1, 2015). Eliminating subsidies nationwide would cause individual market enrollment to decrease by about 13.5 million and premiums to increase by 43 percent. The smaller effect of eliminating the individual mandate results partly from the fact that the mandate penalty is small relative to the size of the subsidy tax credits. In 2015, the average penalty for enrollees who are eligible for tax credits would be $320, compared with an average tax credit amount of $2,650 among the same group. However, eliminating the individual mandate has a large effect on the total number of people with insurance because it affects decisions of people who have employer coverage, in addition to those with individual market coverage.
Adult enrollment would fall by 4 million
19.8 million currently enrolled in the ACA would decrease by 20% to 15.8 million
A higher share of older, less healthy enrollees would remain
5.4 million currently enrolled in the ACA would decrease by 27% to 3.9 million
Total health insurance enrollment will decline
244.9M currently enrolled in the ACA would decrease by 3% to 236.7 million
Age-standardized individual market premiums
$3700 would increase by 7% to $3400