A year of relentless Republican sabotage of the Affordable Care Act culminated with the repeal of the ACA’s so-called individual mandate — the requirement that most Americans for whom health insurance is deemed affordable by ACA standards obtain insurance or face a tax penalty.
The mandate is the trade-off for “guaranteed issue,” the ACA’s provision that anyone can purchase comprehensive health insurance, regardless of pre-existing conditions, and for the same price as anyone else of the same age (leaving aside federal subsidies to help lower-income enrollees afford their coverage). Along with the premium subsidies currently accessed by a bit more than half of those who buy their own health insurance, the mandate ensures that healthy as well as sick people will enroll.
Without a mandate, the experience of several states, including New Jersey, shows that guaranteed-issue provisions can trigger a death spiral: Sick people are more likely to buy coverage than healthy people, leading insurers to hike premiums, which in turn drives out more healthy people. New Jersey instituted guaranteed-issue coverage in 1993. Within five years, premium increases ranged from 48 percent to 155 percent. By 2001, enrollment in the state’s individual market was half of what it was in 1993. Premiums were among the highest in the nation.
The ACA marketplace is protected from a complete death spiral by the premium subsidies available to people with incomes up to four times the federal poverty level ($48,240 for an individual and $98,400 for a family of four). Still, the Congressional Budget Office estimates that mandate repeal will reduce private plan enrollment by 5 million nationally by 2027 and drive premiums higher by 10 percent per year. The CBO also forecasts that mandate repeal will reduce Medicaid enrollment by 5 million.
How states can protect themselves
But states can protect themselves by instituting a state-based individual mandate. Nothing in statute prevents this. And if the state institutes the mandate, the state keeps the penalty revenue — while the federal government continues to pay premium subsidies.
The CBO forecast revenue from the mandate to reach $5 billion nationally by 2020. If New Jersey’s share is proportionate to its population, that would come to about $135 million per year.
That revenue could be dedicated to strengthening the state’s individual health insurance market. One possibility would be direct financial help for people who don’t qualify for ACA premium subsidies — a group hit particularly hard by the premium hikes of the past two years. Another option is to spend the money on enrollment assistance and outreach, which the federal government radically cut in 2017. A third option is to dedicate the funds to a state-based reinsurance program.
Reinsurance, which picks up the tab for enrollees with medical bills above a certain threshold, has been proven to sharply reduce premiums. The ACA began with a reinsurance program, which the law’s creators foolishly phased out after three years. When fully funded in 2014, it reduced premiums by 10 percent to 14 percent, according to the American Academy of Actuaries. Alaska, which has the highest premiums in the nation, was facing a crisis last year, with premiums projected to rise 42 percent for 2017. The state put a reinsurance program in place that held increases to 7 percent in 2017, followed by a 22 percent decrease for 2018.
An individual mandate won’t fully cover the cost of a reinsurance program for New Jersey. But the state can also seek federal reinsurance funding via an ACA “innovation waiver”, as HHS specifically suggested last spring. Funding may be granted as a “pass-through” of savings derived from lower premiums — since lower premiums mean lower subsidies, which are paid by the federal government.
It would be ironic if Republican sabotage ended up improving health insurance access in states with the political will to make the ACA work. With respect to mandate repeal, however, the remedy is in states’ hands. A state mandate will keep the flow of federal dollars for premium subsidies and Medicaid expansion, for which the feds foot 90 percent of the bill. The state’s capture of mandate revenue can further strengthen markets, boosting enrollment and improving risk pools as well as public health. If the Murphy administration bites the bullet and implements an individual mandate, it’s likely to pay rich dividends.