The Senate tax bill, which is scheduled to come to the floor for consideration this week, is set to include a repeal of that provision of the Affordable Care Act, which requires most people1 to have health insurance; those who do not buy coverage must pay a fine. Getting rid of the mandate is meant to help fund tax cuts, but if Congress does succeed in repealing it, that could have an unintended side effect. It could start to answer a question that has been nagging at policy wonks for years: What exactly does the individual mandate do?
We know what it’s supposed to do. The idea is that by requiring most people to have coverage, insurance prices are kept lower for everyone because healthy as well as sick people buy in. Healthy people tend to pay more in premiums than the insurance company pays for their care, and that surplus helps subsidize the cost of treating sicker people. The mandate also ensures that people are covered in the event of a catastrophic incident, like a serious car accident, which helps reduce the odds that people will be unable to pay for treatment they need — unpaid medical bills drive up the cost of care. To make sure everyone complies, individuals who don’t enroll are penalized.
We also know what the Congressional Budget Office, Congress’ official scorekeeper for the economic impact of legislation, thinks the mandate does. The CBO has estimated that repealing the mandate would save the federal government about $338 billion between 2018 and 2027, savings that would come from spending less on health insurance premiums and on Medicaid, as some people would drop coverage in the absence of the mandate. In total, the office estimates that 4 million fewer people would sign up for insurance in 2019, and 13 million fewer would be insured 10 years from now if the mandate were repealed. Since most of those people dropping their insurance would be healthy, that would leave behind a sicker pool of people with higher medical costs buying on the ACA marketplaces, which means prices for private insurance would go up by about 10 percent.
The Rand Corporation has drawn similar conclusions in the past, as has the liberal Urban Institute and the American Academy of Actuaries, though all three groups show some decrease in federal savings and an increase in insurance coverage in comparison to the CBO. The CBO has said that it’s revising its methods, and the changes will likely put its estimates more in line with those of other organizations.
Those changes come after criticism of the agency’s estimates, criticism that is part of a larger debate about just how effective the mandate is, or whether it’s effective at all.
Conservatives have been highly critical of the CBO’s belief that millions will leave Medicaid if the mandate is repealed since, they argue, it doesn’t make sense that so many people would choose to forgo coverage that is essentially free. (The CBO estimates that five million fewer people would participate in the public insurance program for people with low incomes, at a projected $179 billion in savings to the federal government over 10 years.)
Another argument is that the mandate as a whole is ineffective because the penalty isn’t large enough to convince people to buy insurance that costs many times more than the penalty they’d pay for going without coverage. Chris Pope, a senior fellow at the conservative Manhattan Institute, recently pointed to research suggesting that helping people buy insurance (by subsidizing premiums) is effective, while penalizing people who don’t buy at all (by making them pay a fine) is not. (One of the paper’s authors, Dr. Benjamin Sommers, doesn’t think that’s the right takeaway from his and his coauthors’ research. While the study allowed the authors to look at the impact of the subsidies by comparing people who got big ones with people who got none, but since the law applies to everyone in the country, there’s no way to compare a control group of people who weren’t subject to the ACA with those who were. “There’s a fairly big portion of [the increase in insurance coverage] that’s attributable to the law as a whole. There’s no way to know what is attributable to the different provisions,” the Harvard University physician and health economist said.)
Still, there’s evidence that the mandate does encourage insurance coverage. In Massachusetts, a statewide bill similar to the ACA became law several years before the national legislation was passed. There, when the mandate went into effect, researchers found a clear uptick in insurance coverage among people who received subsidies, even though they were receiving the subsidies before the mandate kicked in. That was a surprise to one of the paper’s authors, Harvard professor Amitabh Chandra, who had thought the mandate would only be effective for people who didn’t qualify for subsidized insurance. Instead, the state saw the pool of subsidized enrollees get younger and healthier after the mandate was in place. When thinking about the impact of the mandate, “I tend to rely on what we did in Massachusetts, because that was a clean experiment,” Chandra said.
Then there’s the question of how the mandate factors into insurers’ decisions. Even if it’s true that the current penalty structure isn’t very effective in getting people to enroll — and many experts believe that’s the case — there’s still a risk that insurers will abandon the marketplaces without it. A letter from some of the nation’s top health plans and other medical groups asking Congress not to repeal the mandate suggests as much. At the very least, because repealing the mandate would lead to more uncertainty over who would enroll, premiums would increase as a result.
While it’s uncertain how many people would go uninsured and how much money the move would save, it’s clear who would be most hurt by the repeal: middle-class people earning too much to qualify for subsidies but who still want to buy insurance. Even if insurers don’t stop selling private insurance altogether, most analyses agree that ending the mandate will push premiums up even more, which would increasingly mean that the private market would only work for those who qualify for subsidies — for everyone else, the coverage would be too expensive. Because the subsidies would still be in place, the withdrawal of middle-class people from the market wouldn’t lead to a full death spiral where costs rapidly increase, causing healthy people to leave and pushing prices up until they are untenable, because the people who receive subsidies won’t feel those increases. But it would leave some members of the middle class in a financially precarious position.
When people learn these details, they tend to like the mandate better. Less than a third of Americans think tax reform should be a top priority, according to a poll released Wednesday by the Kaiser Family Foundation, but more than half think the reform bill should include a repeal of the individual mandate. At least, until they hear that the individual mandate helps keep costs down. When they learn that premiums would go up, support for repeal drops to 34 percent.
At the end of the day, a repeal would address some of these questions about the individual mandate’s role and how effective it has been at encouraging people to enroll in coverage. Only then could we really know how much money a repeal could save the federal government and how many people might lose insurance coverage. Getting the answers, however, would have real-world consequences — likely leaving the country with either millions more uninsured or, if the projected decrease in the number of insured people never materializes, billions of dollars added to the federal deficit.