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Individual Mandate Costs Explained

 |  By Margaret@example.com  
   April 04, 2012

The scene outside the Supreme Court last week was a lively and peaceful exercise in civil expression. The scene inside the courtroom was lively in its own right. Consider Justice Antonin Scalia's line of reasoning likening healthcare to food in what has come to be called the 'broccoli mandate.'

 

It's easy to get distracted by soundbites surrounding complex topics. But while the nation's attention was largely on the spectacle, healthcare industry researchers were hard at work assessing the potential effect of the individual mandate on health insurance and premiums.

Two studies show that the individual mandate and penalties for noncompliance would directly affect only a small number of Americans, that government subsidies will enable most of the affected to cover their health insurance costs, and that without the mandate, government spending will actually increase by $10 billion.

This isn't information the Supreme Court justices will consider as they work toward a decision, but from a dollar and cents standpoint, these studies seem to make the case for the economic value of the individual mandate.

The studies also point to a significant problem for the individual mandate: True analysis of its value involves a dizzying array of statistics. In the court of public opinion, it's much easier to object to the individual mandate with a simple soundbite about the 'government takeover' of healthcare.  Here are two scenarios and supporting stats reflecting the analyses by the Urban Institute and RAND.

Scenario 1: Individual Mandate Upheld
According to an Urban Institute analysis, about 8% of the total population, or 26.3 million uninsured Americans will be required to get health insurance coverage or pay a penalty. With the individual mandate in place, here's how the study breaks that number down:

 

  • About 8.1 million will be eligible for free or close to free health insurance through Medicaid or CHIP and can avoid mandate penalties if they exercise those options.
  • Another 10.9 million will be eligible to purchase subsidized nongroup coverage through health insurance exchanges (HIX) to meet the coverage requirements.
  • That leaves only 7.3 million or 3% of the total population that will be required to purchase insurance, but would not qualify for Medicaid or any subsidies under the ACA.

The catch is that is that although only a relatively small number would be affected by keeping the individual mandate requirement, "the overall benefit to the population would be large," explained the Urban Institute's Linda J. Blumberg in a press statement.

"Insurance markets would be more stable and the premiums for insurance that people buy themselves would be 10% to 20% lower than without a mandate."

Scenario 2: Individual Mandate Struck Down
Meanwhile, a computer modeling study from RAND examined how the lack of an individual mandate would affect the number of people insured, premium costs in health insurance exchanges, and government spending on health coverage. Among the findings:

 

  • Fewer people would be insured without the mandate. Under the ACA, with the individual mandate an estimated 252.2 million Americans will have health insurance coverage in 2016. Without the mandate, that number drops to 239.7 million.
  • The effect on premiums would be minimal. Assuming that HIX survive, the lack of an individual mandate will have only a marginal affect on the cost of policies purchased through HIX. Taking into account the age of enrollees, it's estimated that premiums will increase by only 2.4%.

That's good news for HIX. According to the report, the premium increases will not be enough to "trigger catastrophic failure of the exchanges" because many enrollees will perceive "little or no change in their contribution even when premiums increase." That will reduce the chance of a "large scale exodus from the market."

The relative stability of the individual exchange market reflects federal exchange subsidies, which would keep some of the so-called young invincible in the market, and rate banding, which would provide some premium price stability even if older, sicker enrollees outnumber the younger, healthier members.

  • The increase in total government spending would be modest. Without the individual mandate total government spending would increase by what the report terms is a "modest" $10 billion. The increase would be driven by higher premiums, the loss of revenue from mandate penalties, and increased spending on medical care for the uninsured.
  • Taxpayer spending for newly insured individuals would increase. Without subsidies and other incentives, many of the uninsured would forego health insurance coverage, which would more than double government spending per newly insured individual from $3,659 to $7,468.

That's because without the individual mandate, fewer young and healthy individuals would purchase insurance. That means more of the newly insured would tend to be sicker and require more federal subsidies.

Taken together, the Urban Institute and RAND studies provide a good picture of how far-reaching the individual mandate really is. The Supreme Court may flip the switch on the individual mandate (and possibly) the ACA as early as June. All of us will live with the financial burden of that decision for years to come.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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