Could Ending The Individual Mandate Drain The Risk Pool?

By Susan Rupe InsuranceNewsNet

Senate Republicans are attempting to kill two birds with one stone by including a repeal of the Affordable Care Act's individual mandate in their proposed tax reform bill.

The individual mandate is one of the ACA's most despised provisions. Its foes say the mandate imposes a financial burden on consumers, as it requires them to purchase a product that many find to be unaffordable, or else pay a tax penalty. The mandate's proponents insist that the requirement to have health insurance is necessary to maintain a healthy risk pool.

This week, President Donald Trump called on Congress to include the mandate in its tax overhaul. The Senate's version accomplishes the GOP's goal of ending the mandate by 2019, as well as further lowering some of the individual tax rates.

But whether the mandate is kept or is voted away, Congress is not addressing a core issue that is keeping people out of the risk pool, according to one agent association leader.

"People aren't afraid of the penalty," said B. Ronnell Nolan, president and CEO of Health Agents for America. "People are choosing not to enroll because they are finding it easier to pay that penalty than it is to come up with the money to buy insurance they can't afford. This proposal does nothing to address that issue."

How much are consumers paying for not having insurance? For tax year 2017, the penalty is 2.5 percent of total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085.

"Until Congress starts talking about the cost of health care and the cost of medicine, they are not going to do anything to bring the cost of health insurance down," Nolan said.

Loss of the mandate would save more than $300 billion over 10 years, but would leave one million Americans without health insurance in the first years and 13 million without coverage by 2027, the Congressional Budget Office said in an analysis.

Individual Mandate vs. Guaranteed Issue

The Senate Republican proposal to end the individual mandate doesn't do anything to abolish one of the ACA's most popular features. That is the provision that guarantees coverage for those with pre-existing conditions and is one that Trump himself says he wants to keep.

So how do you keep enough people in the risk pool to enable insurers to provide guaranteed coverage?

A number of studies found that this would result in a dramatic rise in the uninsured population and higher premiums compared to health reform with a mandate.

A 2012 Milliman study looked at states that enacted guaranteed issue and community rating reforms in the absence of an individual mandate in the years bedore the ACA. The report found that these states’ individual insurance markets went downhill as consumers experienced higher premiums, coverage disruptions and loss of choice.

What's Next?

How do you get rid of the individual mandate without collapsing the health insurance marketplace? One compromise bill is aimed at stabilizing the markets.

The bill, authored by Republican Sen. Lamar Alexander of Tennessee and Democratic Sen. Patty Murray of Washington, would fund the ACA's cost-sharing subsidies for the next two years, while providing more flexibility to states to adapt the ACA's regulations to their needs. It would also open up "copper" plans, which have lower premiums but higher deductibles, to enrollees older than age 30, while requiring the Trump administration to spend $106 million on outreach and enrollment assistance in 2018 and again in 2019.

Earlier this week, Murray slammed Republicans for saying they would repeal the individual mandate.

“This is the exact opposite of where we should be going ... It would make absolutely no sense to stabilize health care with one hand while devastating it with the other," Murray said in a statement. “I am really hopeful we don’t go down that path."

The Alexander-Murray bill has been described as a plan that would help stabilize the marketplace in 2019 because government funding would allow insurers who offer plans at lower premiums. Democrats said, however, that gutting the individual mandate through a tax bill first would further destabilize the system.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.