I was asked a couple of questions about the new Congressional Budget Office estimate of the impacts of repealing the individual mandate. I’ll walk through them as best I can:
■ Federal budget deficits would be reduced by about
$338 billion between 2018 and 2027 (see Table 1).
■ The number of people with health insurance would
decrease by 4 million in 2019 and 13 million in 2027
The 13 million people without insurance in 2027 are broken down as about 5 million fewer people with Medicaid, 5 million fewer people in the individual market and about 2 million people losing their insurance through work.
So what’s happening?
The deficit reduction is straightforward. As fewer people are covered, the federal government spends less on healthcare. It spends less on Medicaid, it spends less on advanced premium tax credits and it receives slightly higher income taxes as more compensation is being paid in cash instead of health insurance.
The CBO model thinks that the individual mandate pushes people to be more engaged with health insurance. It projects a reverse woodworker effect for Medicaid. People who don’t think that the are qualified for Medicaid won’t go to an Exchange and enter their information. If they went to the Exchange and entered their information, they would be directed to enroll in Medicaid. As time goes on and more people who are currently on Medicaid churn off, there won’t be normal in-flows. This is how Medicaid enrollment decreases.
The individual mandate has a “taste for compliance” . The existance of the mandate pushes relatively healthy people to sign up. As relatively healthy people don’t buy insurance, average claims costs increases which means premiums increase. Subsidized buyers are protected. Non-subsidized buyers are hit in the nose with the price increase. Some of them will be priced out of the market.
Finally, the drop in employer sponsored insurance (ESI) comes from some firms dropping coverage as they don’t need to make their compensation package as attractive.
Those are the trade-offs involved in the individual mandate.
ken
I know the GOP would use the $338B for tax cuts, but suppose they used a chunk to eliminate the income ceiling on APTC availability so no one would have to pay over, say, 10% of their income for premiums. I saw a paper earlier saying that would cost only $6B/year, which seems low to start, and I assume would need to be adjusted upward to reflect the elimination of the mandate and other sabotage. Still, there’s a lot of money potentially available and it seems it could eliminate the problem of people with income 400%+ FPL paying thru the nose for insurance. If everyone has a maximum premium cap of 10% of income it seems many of ACA’s problems go away.
Brachiator
What does this mean? People who cannot get insurance?
Also, there was a recent story about people in Colorado choosing to pay the individual mandate instead of getting insurance. A supposed example was a penalty of $900 vs a monthly insurance premium of $1412.
There is an exemption if insurance is Unaffordable. But can there be a grey area where insurance is “affordable” but still too expensive?
rikyrah
Thanks for breaking it down, Mayhew.
Major Major Major Major
The party of personal responsibility!
Yarrow
After Tuesday’s election results, is there any thinking that the healthcare law can be improved? Something else passed? I know Congress hasn’t changed, but they saw what happened. I know in a lot of ways we just have to get through 2019, but I was wondering if there was any chatter in health wonk world.
Marcopolo
As one of the folks who was asking questions let me say thanks for the answers. It’s not always clear how changing aspects of the ACA lead to specific outcomes like how cutting CSR payments results in the gov’t spending more money (which I now understand).
Bob Hertz
I have wanted to see an income cap like this for a long time, but the cost will be more than $6 billion a year.
Here is how:
Assume that 7 million buyers are unsubsidized due to incomes above 400%.
Assume they are single and their average income is $60,000.
A 10% cap means that their premiums would be capped at $6000 a year or $500 a month.
This is by and large an older group.
In the death spiral states, it is common to see a 55 year old having to pay $800 a month.
On that basis, the subsidy would be $300 a month or $3600 a year.
$3600 times 7 million is about $25 billion a year, not $6 billion.
I still think we should do this………..but it would eat up the tax cut.
ken
@Bob Hertz: I agree the $6B looks low, but here’s the article, which finds some savings in the improved risk pool (and hence lower premiums and lower APTCs) that would follow if more folks got subsidies. Now, with the latest round of premium increases and other sabotage, the article is somewhat dated.
http://www.commonwealthfund.org/publications/issue-briefs/2017/jul/marketplace-tax-credit-extension
Bob Hertz
I remember the Commonwealth article. It was a decent effort, but it undercounted the number of unsubsidized customers in the first place.
I try not to sell my own ideas with the premise that they will ‘improve the risk pool.’ I take more of a social insurance approach, like Medicare or Medicaid. Which is to say, we insure people or subsidize people because it is the generous and right thing to do. If the risk pool gets worse, then so be it and we raise taxes as needed.