The individual mandate may not be “essential” to the Affordable Care Act’s successful implementation, a new study published yesterday in Health Affairs has concluded. Researchers John F. Sheils and Randall Haught agree that removing the incentive for younger and healthier people to purchase coverage would increase overall premiums (and create a premium spiral), but argue that “other provisions of the law that would greatly mitigate this effect” resulting in a slightly lower than expected premium increases and smaller coverage loss rates.
“We estimate that if the mandate were lifted, premiums in the individual market would increase by 12.6 percent—somewhat less than other estimates—with 7.8 million people losing coverage, versus other estimates for coverage loss of 16–24 million people,” the study says. “In sum, the Affordable Care Act would still cover 23 million people who would have been uninsured without the law”:
The premium subsidies provided under the act would also serve to restrain a premium spiral by absorbing much of the impact of premium increases. According to the Congressional Budget Office, about two-thirds of people with nongroup coverage under the act would receive premium subsidies. These subsidy amounts are tied to the premium for the second-lowest-cost of the “silver” plans offered by insurers through the health insurance exchanges (one of five plans of different actuarial values that are to be offered in the exchanges). Thus, any increase in the premium for that plan results in increased subsidy amounts, which will cover much or even all of the increase in premiums, depending on the plan a family has selected. [...]
For example, the act also permits plans to limit enrollment to an annual “open enrollment period” of about six weeks beginning in October of each year. Open enrollment periods, which are used by many employer health plans, typically limit enrollment of workers to one month of the year. Limiting this period of enrollment encourages people to take coverage by forcing them to forgo insurance for up to eleven months before they have another opportunity to enroll. The risk of going without coverage over that long a period causes many workers to take up insurance when they can.
There is great uncertainty surrounding these estimates — previous research by Jonathan Gruber, for instance had found that “the number of uninsured people would increase by twenty-four million people in the absence of the mandate” and the Congressional Budget Office (CBO) reported that 16 million could lose coverage.
The problem is that if you take away the mandate, you’re really eliminating any strong incentive for younger individuals who would otherwise forgo coverage to purchase insurance, balance out the risk pool and drive down costs. If you’re not attracting that population in the first place and only enrolling sicker individuals who need coverage (and can take advantage of the tax credit), that doesn’t sound like a terribly sustainable model — and certainly not one that the insurers or tax payers who are footing the tax credit bill will agree to live with.