The voices of Urban Institute's researchers and staff
July 26, 2017

Without these three essential supports, insurance markets will topple

Much like building a stool requires three legs, ensuring that insurance markets are stable and strong for all people, regardless of their health status, requires three essential components:

  • regulations that prohibit insurers from excluding people altogether, excluding coverage for preexisting conditions, or charging people more based on their health status;
  • financial assistance to help people who cannot afford insurance on their own; and
  • strong incentives to attract and keep healthy people enrolled in health insurance coverage.

Cut off one leg of the stool, and it falls over. Similarly, removing one of these components—as “skinny repeal” seeks to do—could cause insurance markets to collapse:

  • Without regulations, insurers have incentives to exclude high-risk people from coverage and use strategies to avoid covering significant portions of their costs.
  • Without financial assistance, people with modest incomes cannot afford to enroll in adequate coverage.
  • Without incentives to enroll when healthy, people will wait until they get sick to seek coverage, driving up the average claims costs of enrollees and making coverage unaffordable for many of those with incomes too high to qualify for financial assistance.

The Affordable Care Act (ACA) was designed with these three legs in mind. The law includes regulatory reforms to the private nongroup insurance market that make comprehensive coverage accessible to all, regardless of any current or past health conditions, at the same price charged to the perfectly healthy.

The ACA grants states the option of expanding Medicaid eligibility  so their lowest income populations could access free or nearly free care. Meanwhile, premium tax credits and cost-sharing subsidies lower the cost of coverage and out-of-pocket costs for those with incomes up to 400 percent of the federal poverty level who enroll in private nongroup insurance.

Finally, the so-called individual mandate assesses a tax penalty on those who choose to remain uninsured when they have access to insurance deemed affordable. This encourages the healthy to enroll in or maintain coverage. Three legs in place.

The individual mandate is disliked, but most everyone agrees we need one

An individual mandate can take many forms. A mandate is some type of penalty imposed on a specified group of people for going without insurance coverage for a specified length of time. Without a doubt, the individual mandate is the least popular component of the ACA, while the provisions which prohibit discrimination against the sick are the most popular.

Policymakers across the political spectrum have begun to understand that you can’t have the second of these without the first, though many Americans may not always see the connection between the two.

For example, in 2015, Republican legislators introduced the Patient Choice, Affordability, Responsibility, and Empowerment Act, which included a continuous coverage requirement. As we have explained elsewhere, that requirement is a different form of an individual mandate, one where going uninsured potentially carries the penalty of being shut out of future access to health insurance.

The House of Representatives ACA repeal-and-replace bill, the American Health Care Act, includes a premium surcharge for those experiencing a gap in coverage, another individual mandate structure where the penalty is not paid until the uninsured person decides to purchase insurance.

The Senate’s Better Care Reconciliation Act (BCRA) includes still another individual mandate structure. Once an uninsured person seeks coverage, BCRA imposes a six-month waiting period before insurance begins.

These mandates all have different designs, but all are penalties imposed on some people who have experienced a period of being uninsured, with the intent of encouraging people to get and maintain insurance coverage. Each policy recognizes that insurance pools without these incentives in place cannot be effectively sustained while keeping the door open to people with health problems.

There has been widespread understanding and acceptance of a need for some form of individual mandate. But we have yet to identify an individual mandate option that we believe would be as fair and as effective as the ACA’s structured tax penalty.

Skinny repeal would make a two-legged stool

Recently, legislators have turned to skinny repeal of the ACA. Jettisoning their more expansive repeal-and-replace efforts, Senate leadership are now focused on what Secretary Price refers to as “the lowest common denominator,” or repeal of the individual mandate and the employer mandate.

While repealing the employer mandate would have little effect on insurance coverage, eliminating the individual mandate would have substantial negative implications for the stability of the nongroup insurance markets. Healthier individuals would drop coverage, premiums for those ineligible for the ACA’s financial assistance would rise, and more people would have to drop coverage as it became increasingly unaffordable.

The evidence clearly shows that simply eliminating the ACA’s penalty for remaining uninsured would be irresponsible policy.

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