Obamacare Mandate Failing to Stabilize Health Insurance Marketplace

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By Sara Hansard

Obamacare’s individual mandate is failing to stabilize the health insurance marketplace.

That’s the assessment of the chairman of a House Ways and Means Committee panel that held a hearing Jan. 24 on the effectiveness of the Affordable Care Act requirement that most people buy health insurance or pay a penalty. The ACA has resulted in health insurance becoming “less and less affordable for our constituents,” Rep. Vern Buchanan (R-Fla.), chairman of the oversight subcommittee, said in his prepared opening statement.

Supporters of the law argue the mandate is necessary to keep people from waiting until they are sick to buy coverage. But insurance on the ACA exchanges is so expensive that in 2015 about 19.2 million people either paid the penalty or sought an exemption from it, compared with 7.3 million people who got subsidies to buy exchange plans, according to testimony at the hearing.

Executive Order Appears to End Mandate

On his first day in office Jan. 20 President Donald Trump issued an executive order requiring the Department of Health and Human Services and other agencies implementing the ACA “to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement” of the ACA that would impose a fiscal burden on states or individuals. The Obama administration had been accused of weak enforcement of the mandate to buy coverage, and Trump’s order is widely interpreted to mean that the mandates on individuals and small businesses to buy coverage will be waived altogether.

“The individual responsibility requirement of the ACA is a core mechanism to ensure a healthy risk pool and more stable premiums in a guaranteed issue market that bans the practice of medical underwriting and pre-existing condition exclusions in the individual health insurance market,” John McDonough, Harvard School of Public Health professor, testified.

“To eliminate the mandate and to leave in place guaranteed issue is a sure and proven formula for major disruption in the individual health insurance market nationally,” McDonough said. Eight states implemented guaranteed issue requirements that insurers sell coverage to applicants regardless of their medical status beginning in the 1990s without an individual mandate, he said.

State Experience: Disruption Without Mandate

The result in those states, which included Massachusetts, New York, New Jersey, Vermont, New Hampshire and Kentucky, was that many people bought coverage when they needed it and dropped out of the market after they received services, damaging the risk pool and leading to rising premiums and more people dropping out, McDonough said.

“Americans love guaranteed issue and don’t want to lose that, but guaranteed issue without some kind of coverage requirement creates a serious market disruption which people would not want to see,” he said.

House Speaker Paul Ryan (R-Wis.) included in his Better Way health-care proposal a requirement that people maintain continuous coverage in order to be able to buy health insurance without paying a surcharge.

But continuous coverage requirements are “far more onerous and punitive” for consumers, and would likely result “in a very short period of time tens of millions of Americans who will then fall back into the circle of people who will be newly subject to medical underwriting and have their ability to buy insurance rated based upon their medical history,” McDonough said.

The individual mandate was intended to spur people, especially young, healthy people whose medical costs are relatively low, to buy coverage in the exchanges. But most of the people who have gained coverage since the primary provisions of the ACA took effect in 2014 are in Medicaid, John Graham, a senior fellow with the free-market oriented National Center for Policy Analysis, testified.

Most ACA Gains From Medicaid

In 2016 the Congressional Budget Office estimated that Obamacare would result in 68 million people in Medicaid or the Children’s Health Insurance Program through 2019, an increase of almost a third from 2015 CBO estimates, Graham said.

Low-income people, who make up most of the uninsured, can’t afford to pay the penalty under mandate, Graham said. About $3 billion was raised by the fine in 2015, which contributed a small share to help finance the $3.2 trillion spent on health care in the U.S. that year, he said.

“The individual mandate has consistently remained the most intensely unpopular provision of the new health-care law since it first took shape,” Thomas Miller, a resident fellow of the conservative American Enterprise Institute, testified.

Unaffordable Coverage

“Trying to force people to buy insurance they cannot afford, or pay much more for such coverage than it actually appears worth to them, remains politically and economically difficult,” Miller said. Millions of individuals have calculated that it’s “much less expensive to pay the penalty than to purchase mandatory insurance,” he said.

Miller listed a number of alternative policies that could be pursued in place of the mandate, including:

  •  extending protections against health status risk-rating to people who maintain continuous coverage;
  •  imposing higher premium surcharges when people fail to obtain qualified coverage;
  •  tightening eligibility for signing up for coverage outside of normal open enrollment periods;
  •  enrolling people automatically in default minimum coverage if they don’t opt out;
  •  providing more generous taxpayer subsidies for obtaining qualified coverage in the individual market; and
  •  giving insurers incentives to offer less expensive coverage that is more attractive to potential uninsured customers.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

For More Information

Information on the hearing is at https://waysandmeans.house.gov/event/39843170/.

Trump's executive order is at https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-01799.pdf.

Information on the Better Way health care proposal is at http://abetterway.speaker.gov/?page=health-care.

The 2016 CBO estimate on federal subsidies for health insurance coverage for people under 65 is at https://www.cbo.gov/sites/default/files/recurringdata/51298-2016-03-healthinsurance.pdf.

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