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Assessing Alternative Modifications to the Affordable Care Act

Impact on Individual Market Premiums and Insurance Coverage

by Christine Eibner, Evan Saltzman

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Research Questions

  1. How might potential changes to the ACA, including eliminating the individual mandate, eliminating the law's tax-credit subsidies, and combined scenarios that change these and other provisions of the act, affect 2015 individual market premiums and overall insurance coverage?
  2. How might individual health insurance market premiums in 2015 change as the share of young adult enrollees in the Affordable Care Act (ACA)-compliant market changes?

The goals of the Affordable Care Act (ACA) are to enable all legal U.S. residents to have access to affordable health insurance and to prevent sicker individuals (such as those with preexisting conditions) from being priced out of the market. The ACA also instituted several policies to stabilize premiums and to encourage enrollment among healthy individuals of all ages. The law's tax credits and cost-sharing subsidies offer a "carrot" that may encourage enrollment among some young and healthy individuals who would otherwise remain uninsured, while the individual mandate acts as a "stick" by imposing penalties on individuals who choose not to enroll.

In this report, the authors use the COMPARE microsimulation model, an analytic tool that uses economic theory and data to predict the effects of health policy reforms, to estimate how eliminating the ACA's individual mandate, eliminating the law's tax credits, and combined scenarios that change these and other provisions of the act might affect 2015 individual market premiums and overall insurance coverage. Underlying these estimates is a COMPARE-based analysis of how premiums and insurance coverage outcomes depend on young adults' propensity to enroll in insurance coverage.

The authors find that eliminating the ACA's tax credits and eliminating the individual mandate both increase premiums and reduce enrollment on the individual market. They also find that these key features of the ACA help to protect against adverse selection and stabilize the market by encouraging healthy people to enroll and, in the case of the tax credit, shielding subsidized enrollees from premium increases. Further, they find that individual market premiums are only modestly sensitive to young adults' propensity to enroll in insurance coverage, and ensuring market stability does not require that young adults make up a particular share of enrollees.

Key Findings

Eliminating the Affordable Care Act's (ACA's) Tax Credits Would Cause Large Declines in Enrollment and Substantial Increases in Premiums

  • Without the ACA's premium support, premiums rise by nearly 45 percent, and enrollment falls by nearly 70 percent.
  • By subsidizing coverage, the federal government helps to lower premiums in the ACA-compliant market.

Eliminating the ACA's Individual Mandate Would Cause Large Declines in the Number of People Insured

  • Without the ACA's individual mandate, the number of people enrolled in the individual market falls by more than 20 percent, and premiums rise by about 7 percent.
  • This suggests that the mandate is important to achieving the Affordable Care Act's goal of nearly universal coverage.

Reduced Young Adult Enrollment Is Associated with Slight Premium Increases

  • A 1 percentage point reduction in the share of young adult enrollees in the individual market is associated with a 0.44 percent increase in premiums.
  • The ACA's tax credits incentivize young people who are tax-credit eligible to remain enrolled.
  • A majority of enrollees at all ages have spending low enough to benefit the risk pool. In fact, for any given expenditure level, an older person is better for the risk pool than a younger person, because the older person can be charged more.

Alternative Subsidy Structures, Such as Vouchers, Could Cause Premiums to Be More Sensitive to the Age Composition of Enrollees

  • With a fixed-dollar voucher, a 1 percentage point reduction in the share of young adults enrolled in the market would be associated with a 0.73 percent increase in premiums.
  • The ACA's premium tax credit structure protects enrollees against premium escalation because, once they have met the required income contribution, the cost of additional premium increases are fully borne by the federal government.

This research was sponsored by the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation and was conducted in RAND Health, a division of the RAND Corporation.

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