The end of the mandate to buy health insurance: Five questions with Scott KeeferDecember 22, 2017
Congress recently passed a tax bill that also impacts health insurance. Specifically, this legislation eliminates the tax penalty for not purchasing health insurance. The requirement to purchase health coverage, which was established as part of the Affordable Care Act (ACA) or Obamacare, is commonly known as the “individual mandate”.
While the full impact of this decision is not yet clear, eliminating the mandate is expected to reduce the size of the individual health insurance market and drive up health care costs.
We sat down with Scott Keefer to learn how this federal policy change may impact Minnesotans and what conversations Blue Cross is having with stakeholders to address the company’s concerns.
Why was there a tax penalty for not having health insurance?
When you think about the individual market for health insurance, picture a three legged-stool. If one leg is taken away, the stool becomes unstable.
In the case of the ACA, the three legs were:
- Guaranteed access to insurance (regardless of pre-existing conditions)
- The requirement that everyone have insurance
- Financial help for those who could not afford coverage.
The individual market has had its challenges, but the mandate was included in the ACA to facilitate premium stability. By motivating people to have continuous health insurance coverage, an insurance pool will have a balance of healthy and less healthy risk.
Without a requirement to keep coverage year-round, many people will understandably be less inclined to buy insurance until they need it. While that sounds like a good deal at the individual level, it’s a bad deal for the broader group insured individually.
A mandate promotes balance in the “risk pool,” or the total population of people who share risk in a particular insurance segment. The better the overall risk pool, the lower the prices. This requires having healthy people paying premiums to offset medical costs for those with higher costs. When that balance is disturbed, health care premiums will go up.
By eliminating the penalty for not purchasing insurance, Congress has created a completely voluntary market. If you’re healthy, you’re more likely to choose to stay out. If you have a clear medical need, you’re probably going to choose to stay in.
What impact will this have on the market?
The precise impact is unclear, but we know this will not help the Minnesota market.
The number of Minnesotans who purchase insurance through the individual market is a lot smaller now than it was a few years ago. Although the penalty is not formally eliminated until 2019, news of its removal may cause some to leave now and lead to higher insurance costs in 2018.
The independent and non-partisan Congressional Budget Office (CBO) estimates premiums will increase an additional 10 percent. This is a reasonable projection given that is a national estimate. However, the exact impact – like health costs – will vary by state.
Without a mandate, it’s likely that we’re going to see health related ripple effects in other areas— employer-based insurance, the overall economy, you name it. This won’t be limited to just the individual market.
Do we know anything from previous policy experiences with health reform?
The track record of what happens when there’s a completely voluntary health insurance market is not good. Historically, those markets collapsed under their own cost pressures.
While some market dynamics have changed since this was first attempted in the 1990s, it still serves as a cautionary tale and illustrates the reasons we need to find ways to keep healthy people in the market.
What should be done next?
Blue Cross has been actively engaging policymakers at the state and federal level to share our concerns and offer solutions. There are several solutions that should be used to promote continuous insurance coverage and a stable pool.
Rules are clear in both the employer insurance market and the Medicare system that collectively provide insurance for 200 million Americans. These systems have a specific and defined open enrollment period, and in Medicare, there are penalties for enrolling outside of that window.
Policy changes to promote “continuous coverage” and other adjustments, including funding for the so-called cost-sharing reductions and premium subsidies should be a top priority for Congress in 2018.
Will this affect my 2018 premium and coverage?
2018 premiums are unaffected but if healthy individuals drop out, costs may rise and impact 2019 health insurance prices. The degree of impact will depend on whether the pool becomes imbalanced. Again, we’re taking steps to see what we can do to mitigate these issues. Minnesota took action in 2017 to help stabilize the market and now with the elimination of the mandate penalty, Congress needs to urgently implement alternatives to promote continuous coverage.
About the Future of Health Reform series
This post is part of our Future of Health Reform series.
The Future of Health Reform is an ongoing series focused on the many changes taking place throughout the health insurance industry. Through this series, Blue Cross looks at various policy issues that are rapidly shaping the transformation of health care across Minnesota and the nation.
Previous posts in this series include:
- Future of Health Reform: Minnesota reinsurance program is a model to follow
- Future of Health Reform: A need for a path toward middle ground
- Future of Health Reform: A prescription for individual market stability
- Future of Health Reform: What’s needed next
- The Future of Health Reform: The individual market