Where Will We Be Without the Individual Mandate?

The individual mandate to purchase health insurance is perhaps the most contentious element of the Affordable Care Act (ACA), President Obama’s signature health care reform legislation. Adding to the drama, the Supreme Court will likely decide on its constitutionality at the height of the 2012 presidential election campaign. (The Court is hearing arguments about the individual mandate as this post is published.)

What impact would a ruling of unconstitutionality have on health outcomes? Lewin Group* Senior Vice President John Shiels and Senior Director Randall Haught weigh the necessity of a personal mandate in their paper “Without the Individual Mandate, the Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Predicted” in the November 2011 issue of Health Affairs.

While the title of the piece emphasizes the authors’ conclusion that removing the individual mandate would not have the dire consequences often predicted, the study notes that without the individual mandate 7.8 million more individuals would be uninsured and premiums would rise by 12.6%.

Under the ACA, nearly all Americans are required to have health insurance by 2014. Those who do not comply will pay a penalty of $695 per person, $2,085 per family, or 2.5 percent of family income. Undocumented, incarcerated, and extremely poor individuals are exempt.

Many fear that without the individual mandate a “premium spiral” would occur “in which premiums soar and the number of people with coverage plummets.” Such spirals happen when people with low expected health care costs choose not to purchase insurance. As a result, only those with high health care costs maintain coverage. This causes premiums to rise such that individuals with slightly higher anticipated health care costs discontinue their coverage. The spiral continues. By mandating universal coverage, proponents of the mandate believe, costs will be spread across a broader population and premiums will rise more slowly.

Sheils and Haught find that the lack of an individual mandate would not result in such dire consequences. The authors model a variety of coverage scenarios, with their central challenge estimating the perceived risk of going insurance-free under the ACA. They conclude that, while there may be a small premium spiral without an individual mandate, the ACA would still cover 21 to 24 million people who would have been uninsured if not for the law. Their estimates of a premium increase of 12.6% and an increase in the uninsured population of 7.8 million people are both smaller than estimates by Jonathan Gruber of MIT and by the Congressional Budget Office.

The authors theorize that the spiral would be less severe because:

[T]wo-thirds of all people with nongroup coverage under the act are eligible for premium subsidies and would be protected against much or even all of the premium increase.

To reduce the risk of a premium spiral, Shiels and Haught recommend the creation of a short-term open enrollment period for insurance. Because Americans fear the risk of costly medical conditions while uninsured, they argue that limiting annual enrollment time would increase the likelihood of enrollment.

Shiels and Haught conclude that their finding of less drastic consequences of eliminating the individual mandate means that:

[A]lthough the mandate has important effects on premiums and coverage, it might not be essential to the act’s successful implementation. The premium increase and the loss of coverage might be judged acceptable if that meant preserving the remainder of the act.

*As disclosed in Health Affairs, “The Lewin Group is part of Ingenix Inc., which is a wholly owned subsidiary of the UnitedHealth Group. To ensure the independence of its work, the Lewin Group has editorial control over all of its work products.”