When Congress passed a massive tax overhaul into law last week, it also knocked out one of the key pillars of the Affordable Care Act: the individual mandate.
Though there is an open debate among health care experts as to just how effective the mandate and its penalty has been over the past few years at pushing young and healthy people to sign up for health insurance, nearly all agree that the repeal will be a severe blow to the nation’s health care system, driving up premiums, scaring away insurers, and swelling the ranks of the uninsured.
While President Trump has repeatedly and inaccurately declared that by killing the mandate he has essentially killed Obamacare in its entirety, health economists predict that even in the worst case scenario, the ACA will manage to survive—bloody and bruised but very much alive.
The principal anticipated impact of gutting the mandate, health care experts told TPM, is a large drop off in the number of people with insurance coverage. The non-partisan Congressional Budget Office estimates that 13 million people will either voluntarily drop their insurance or be priced out of the market by rising premiums, sending ripple effects throughout the nation’s health care system.
“We’re going to see higher instances of uncompensated care,” said Matt Fiedler, a fellow at the USC-Brookings Schaeffer Initiative on Health Policy. “Some of the people who are no longer insured are going to get sick, end up at the hospital, and not be able to pay for it. Or they’re not going to seek out the care they need, and that will have major consequences for health outcomes.”
Fiedler expects the individual health care market to shrink without the mandate, and for sicker people who require significant care to comprise a larger share of the risk pool, making insurers hike their prices to account for that risk. While the majority of people will be protected from those increases by federal subsidies, about seven million people nationwide who do not receive subsidies will be hit hard.
Yet as the country ventures into uncharted health policy territory, the exact impacts are unknown.
“The result would be a substantial reduction in insurance coverage. What we’re debating is how large,” Fiedler explained. “The choices people make about whether to obtain insurance coverage or not are not always rational. There are a lot of people currently who could get zero-premium plans, or who are eligible for Medicaid, but haven’t signed up. Many underestimate the likelihood they’ll get sick, or they’re deterred by the upfront hassle of signing up. So it’s sort of mystery what will happen.”
Another open question is how many insurance companies will flee the individual markets in states and counties where they are already struggling to turn a profit, potentially leaving consumers with no options at all.
“One of the biggest concerns is that some insurers will say: ‘It’s not clear how many people will drop out and what their health status will be. We don’t know how to price for this. We’ll just pull out of the market and wait this out,'” said former Health and Human Services senior counselor Aviva Aron-Dine, now a senior fellow at the Center on Budget and Policy Priorities. “You could see insurers panic, for want of a better word.”
Carrot or stick?
Part of the uncertainty as to how heavy a blow to Obamacare’s markets repealing the mandate will be is the age-old debate over whether carrots or sticks are more effective in convincing people to enroll in health insurance.
Fielder called the individual market’s federal subsides “a powerful anchor to keep the market functioning.”
“The majority of individual market enrollees receive subsidies that will offset any premium increase,” he said.
But Aron-Dine worries that many people will not investigate their options without the “nudge” of the individual mandate.
“The ACA was always a combination of carrots and sticks, which is more efficient than carrots alone,” she said. “We know that a lot of people wouldn’t have looked for a plan without the mandate, but then they find they get a low-premium plan or they’re eligible for Medicaid.”
Without the stick of the mandate, Aron-Dine said, you’re going to need a lot more carrots.
“The only way to get the coverage back is to dramatically increase subsidies and increase outreach,” she said.
A pair of proposals offered by Sen. Susan Collins (R-ME)—bills she initially demanded be passed before the tax bill but whose fate is now uncertain at best—would somewhat function as a carrot, mitigating the damage done to the nation’s health care markets by repealing the individual mandate. One bill would to restore government subsidies to insurance companies, known as cost sharing reduction (CSR) payments, that the Trump administration cut off earlier this year. Another would set up a temporary federal reinsurance program aimed at lowering premiums. But Aron-Dine says the paltry amount of funding and the short-term nature of the policies won’t cut it.
“She’s talking $5 billion a year in temporary reinsurance funding,” she said. “But if the government is saving $300 billion by repealing the mandate, they would need to spend more than $300 billion to get that same coverage level back.”
Could states step up?
With the tax bill signed into law, and the mandate’s repeal going into effect in 2019, several states controlled by Democrats are discussing implementing their own state-level mandate systems to keep their health care markets functioning. But even in the most pro-ACA states, setting up a penalty for the uninsured will not be easy, though California, New York,New Jersey, Connecticut and Maryland are all considering such a move.
If no state steps up, Massachusetts, which implemented a precursor to Obamacare years before Congress passed the ACA, will be the only state with an individual mandate.
“This would be a very sensible things for states to pursue,” Fiedler said. “A well-designed plan could reverse most or all of the damage.”
But to enact an unpopular tax penalty—what he calls “the spinach of the ACA”—Fiedler notes that states would probably have to throw in some other provisions to sweeten the deal.
“They could substantially expand subsidies or implement a robust reinsurance program,” he said. “In that package, bringing the individual mandate back would not be out of the question.”
Aron-Dine agrees, noting that such a formula worked in Massachusetts.
“Massachusetts provides extra CSRs and extra subsidies. It really could be a model,” she said. “And what you have there are near-zero uninsured rates.”