Nine months ago, I wrote about the current state of our healthcare system and discussed the House version (American Health Care Act [AHCA]) of the Affordable Care Act (ACA)/ObamaCare repeal. After the House passed the AHCA, the Senate voted on three separate versions of their own ACA repeal. All three versions failed to pass, with the final attempt, Healthcare Freedom Act (“Skinny Repeal”), going down 49-51 (Collins, McCain, Murkowski voting no). Several Republican senators (e.g., Ron Johnson, Lindsey Graham, Bill Cassidy) even voted in favor of this version despite believing that the standalone bill was a disaster. They argued (perhaps disingenuously) that voting in favor of Skinny would move the repeal process forward, with the hopes that conference negotiations with the House would ultimately lead to a more palatable bill (for Senate Republicans).
Skinny was the least “ambitious” of the Republican repeal efforts (including Graham-Cassidy bill, which never got a floor vote). It retained Medicaid expansion, kept the premium tax credits for exchange health plans, and retained most of the ACA taxes. So, what did Skinny Repeal include? There were some more minor provisions (e.g., delaying a tax on medical devices, additional flexibility for state waivers); however, the primary provision was a repeal of the health insurance individual/employer mandates. In July, the Congressional Budget Office (CBO) estimated that the Skinny Repeal bill would result in 16 million more uninsured and higher premiums, primarily due to the repeal of the insurance individual mandate.
So why are we talking about all this? The recently passed Senate tax bill (Tax Cuts and Jobs Act) essentially includes its own version of the “Skinny Repeal”, with a provision eliminating the health insurance individual mandate. There are still some unknowns – first off, the House and Senate will likely use the conference process to resolve differences between their tax bills. The House tax bill did not include a repeal of the individual mandate; however, there is no reason to believe that House Republicans will have issues voting in favor of adding this provision. Second, Senator Susan Collins justified her vote in favor of the Senate tax bill by getting “commitments” from leadership that they would advance separate legislation to help lower health insurance premiums. This legislation includes the Bipartisan Healthcare Stabilization Act (commonly known as Alexander-Murray) as well as her own bipartisan bill (Lower Premiums Through Reinsurance Act).
Very pleased @SenateMajLdr committed to support passage of two impt bills before year's end to mitigate premium increases: Alexander-Murray proposal to help low-income families afford insurance & my bipartisan bill to protect people w/ pre-existing conditions via high-risk pools. pic.twitter.com/UmOIbd0CQn
— Sen. Susan Collins (@SenatorCollins) December 2, 2017
However, even assuming both of these pieces of legislation pass the Senate separately, there is no guarantee that Paul Ryan and the House pass them as well. In the past, House Republicans have completely balked at attempts to stabilize the ACA exchanges. In addition, the CBO recently stated that passing Alexander-Murray to supplement a repeal of the individual mandate would have little impact on premiums and the number of people uninsured.
Due to aforementioned unknowns, I’m going to assume that Congress repeals the insurance individual mandate, as part of Congress’s final tax bill, and that they do not pass any other major healthcare-related legislation. The focus of the rest of this post will be on the impact of repealing the mandate, from a healthcare and political perspective.
Impact on the Healthcare System
An entirely separate post would be needed to assess the impact of the individual mandate repeal from a public health standpoint. Matthew Fiedler, a fellow at Brooking (and former economic adviser to Obama), does partially tackle this question in an article about the harms associated with repealing the mandate. With that being said, the focus of this section is on the impact to the uninsured rate and healthcare premiums.
We’ll start with the CBO since their forecast is the most commonly cited by members of Congress and by the press. Assuming a repeal of the insurance individual mandate, the CBO estimates:
- The number of people with health insurance would decrease by 4 million in 2019 and 13 million (including 5 million under Medicaid) by 2027.
- Average premiums in the individual market would increase by about 10% in most years of the decade (with no changes in the ages of people purchasing insurance accounted for) relative to CBO’s baseline projections.
- Federal budget deficits would be reduced by about $338 billion between 2018 and 2027. The estimated reduction in the federal deficit comes from fewer people enrolled in Medicaid and fewer exchange enrollees who would be eligible for premium/cost-sharing subsidies.
The CBO states that these “effects would occur mainly because healthier people would be less likely to obtain insurance and because, especially in the non-group market, the resulting increases in premiums would cause more people to not purchase insurance”. In other words, the uninsured rate would increase as result of 2 key factors: 1) healthy people would decline to buy health insurance in the non-group/individual market because there would no longer be a financial penalty, and 2) as a result of healthy people leaving the marketplace, unsubsidized premium costs would go up (due to a sicker risk pool), making insurance even more unaffordable for those who would otherwise enroll. For a deeper dive into the CBO modeling, you can also look at their presentation at the 2017 Annual Meeting of the American Academy of Actuaries.
Aside from the CBO report, one popularly cited recent analysis about the impact of the individual mandate repeal comes from analysts at S&P Global Ratings. The S&P analysts estimated that repealing the individual mandate would only increase the number of uninsured by about 3 to 5 million by 2027. Despite this being a more favorable analysis for Senate Republicans, I would wager that they would not want to make a bigger deal of the report since the federal deficit savings would also be much lower ($60 to $80 billion in savings over the next 10 years, instead of $338 billion). In the S&P press release, they cite financial incentives (for both Medicaid and healthcare exchange enrollees) as the key driver for enrollment and not the individual mandate. They elaborate on this assessment with the following few key points:
- The individual mandate penalty is currently weak.
- The vast majority of Medicaid enrollees do not pay a premium or have cost-sharing requirements. Similarly, in the individual market, close to 60% of enrollees receive a subsidy in the form of advanced premium tax credits (APTCs) that significantly offset the cost of their insurance.
- For unsubsidized enrollees in the individual market, although some may enroll because of the mandate, the majority today are signing up because they need health insurance.
Despite the more conservative estimate, the S&P credit analyst, Deep Banerjee, also states that repealing the individual mandate will “definitely reduce support for the ACA individual insurance marketplace. This marketplace, though improving, is still fragile as it suffers from declining insurer participation, lack of adequate scale, and a higher-than-initially expected morbidity pool. It would benefit from a stronger mandate, not a nonexistent one”.
Aside from the CBO and S&P analysis, there have been several other economic papers and analyses that have evaluated the potential impact of an individual mandate. Most recently, Molly Frean, Jonathan Gruber, and Benjamin Sommers published a paper in the Journal of Health Economics with the aim of evaluating the ACA coverage effects of premium subsides, the individual mandate, and Medicaid expansion. Unlike prior papers, this analysis looked at data from the ACA rather than relying on other healthcare systems (e.g., RomneyCare in Massachusetts). The CBO modeling presentation also included this paper, though I’m unsure what impact it had on their final numbers (if any).
The researchers estimated that about 60% of the coverage increase from 2012/13 to 2015 could be attributed to Medicaid and individual market/non-group premium tax credits. The remaining 40% could not be explained by their model, but would include an array of non-financial factors. Overall, the paper found negligible effects of the individual mandate in 2014 and 2015 coverage. The authors offer the following possible explanations:
- Lack of consumer awareness about the intricacies of the tax penalty rules and exemptions.
- The low levels of the mandate penalty in the early years, though the authors found no increase in the mandate’s effect in 2015 even with steeper penalties.
- The mandate may exert a generalized effect that encourages people to get coverage in a way that is independent of its precise details and whether one is even subject to it.
For what it’s worth, a Kaiser Family Foundation (KFF) survey found that most non-group marketplace enrollees would continue to buy health insurance even in the absence of a penalty/mandate.
Overall, I think the CBO assessment is correct in that some people will voluntarily leave the market with a repeal of the mandate and some will involuntarily leave after being priced out (due to higher premiums as healthier people exit the marketplace). Premiums will inevitably go up as a result of the mandate repeal; however, the 13 million more uninsured is likely an overestimation (at least in my humble opinion). The other key unanswered question is what proportion of the increased uninsured rate will come from voluntary vs. involuntary healthcare disenrollment.
Looking ahead, various other Trump or Republican actions will make it difficult to accurately assess the direct impact of the individual mandate repeal on premiums and uninsured rates. Trump and Congress have taken several other steps to “sabotage” the individual marketplace. Most notably, the enrollment window for the federal healthcare exchange was shortened from 3 months to 6 weeks. In addition, the Trump administration cut funding for cost-sharing subsidy payments to insurers, which already increased premiums for 2018 (and will continue to increase them year-by-year barring appropriations from Congress).
Political and Electoral Ramifications
Let’s begin at the micro level with the individual mandate itself. Repealing the mandate is a de facto tax cut for those who voluntarily choose to go without health insurance and for those who would like to buy insurance but choose not to because it’s unaffordable (i.e., tax penalty is less than purchasing a health plan). In 2017, the penalty for not having insurance is calculated in 2 different ways, with the tax filer paying whichever is higher:
- 2.5% of household income (maximum: the total yearly premium for the national average price of a Bronze plan sold through the Marketplace)
- $695 per adult and $347.50 per child under 18 (maximum: $2,085)
The New York Times recently posted a great article describing who actually pays the individual mandate penalty. Using 2015 tax return data, an estimated 4.5% (6.7 million) of tax filers paid the mandate penalty.
The majority of tax filers who were subject to the penalty were low to middle class filers. These groups also paid the highest share of the mandate penalty payments.
Now, I’m not an expert on the entirety of the tax bill or how the other provisions will impact these same people, but I’d venture to guess that many of those penalized for not purchasing insurance will be relatively happy to avoid this penalty. The one caveat, which is going to become a recurring theme here, is that many of those who pay the penalty do so because health insurance is unaffordable. These people may be happy that the penalty is gone, but many will likely start to shift the blame to Trump and the Republican Congress (rather than Democrats) for the continued rise in healthcare and health insurance costs.
The next group of people directly affected by the individual mandate repeal are Medicaid and ACA exchange enrollees. As discussed above, Medicaid enrollees have little to no financial liability from a premium or cost-sharing perspective – those who decide to disenroll, or future new candidates for coverage who choose to forgo enrollment, are not directly affected from the mandate repeal. Even if you assume the CBO forecast is right and Medicaid enrollment decreases by 5 million (vs. existing law), this would be considered a “voluntary” drop in coverage which shouldn’t result in direct political consequences for Republicans (aside from the generally poor optics of the uninsured rate going up).
The other question to answer is how the mandate repeal will impact those currently enrolled and those who would like to enroll in the exchanges. Based on 2017 final enrollment data, 12.2 million people enrolled in the federal/state exchanges. Of those, 83% (10.1 million people) received some level of APTCs. If you break it down further, the average APTC covered about 78% of the gross premium cost, resulting in an average premium after the APTC of $106 per month. Some APTC recipients may drop coverage if a penalty is no longer enforced; however, this is likely a relatively small subset of people. In addition, the mandate repeal will increase gross premiums (CBO estimates by 10%), but the true cost for APTC recipients will remain relatively stable. This is because the financial assistance for enrollees qualifying for APTCs also increases as gross premiums go up. As a result, most APTC recipients will likely see little to no change to their actual premium payments as a result of the mandate repeal. As a prime example of this, you can see that the average monthly premium after APTC remained stable despite the gross premium hike from 2016 to 2017.
This leaves us with the 17% of exchange enrollees who are currently completely unsubsidized (i.e., people making > 400% federal poverty line [FPL]) and the millions of uninsured who are exempt from the individual mandate penalty. For unsubsidized enrollees, you’ll likely see some drop off in coverage absent a penalty; however, remember that these people are already paying very high premiums and are likely choosing to do so because of medical need. From an electoral perspective, the number of people affected positively/negatively will likely be a wash and not significant. In contrast, for the millions of uninsured people who are exempt from the penalty, unaffordability will likely continue as the number one barrier to getting health insurance, and this will only worsen without the individual mandate. Which leads me to my final discussion point – what will the electoral / political consequences be at a more macro level, if the individual mandate repeal is the only real “healthcare reform” legislation passed by Congress?
The individual mandate has always been one of, if not the most unpopular/controversial provisions of the ACA. However, the ACA’s lukewarm/negative reception over the last few years has been driven by more than just an unpopular mandate. Unlike what was promised, the ACA did not contain or reduce the rate of growth in premiums and deductibles in the individual market. Similar upward trends occurred for those receiving employer-sponsored coverage. As I documented in my earlier post, total healthcare costs also continue to rise for consumers and these costs continue to capture a higher percentage of our national gross domestic product.
However, assuming the final Senate tax bill includes the individual mandate repeal and no other major healthcare legislation is passed, we’ll be left with what amounts to Skinny Repeal 2.0. As discussed above, this will not only result in a higher uninsured rate (with some debate about the difference), but also increased insurance premiums in the exchanges. It also means we’ll have no healthcare reform directed at tackling the root cause – the skyrocketing cost of healthcare, which impacts everyone, not just those in the healthcare exchanges.
Since Republicans started their ACA repeal efforts earlier this year, we’ve seen the ACA reach some of its highest favorability/approval ratings. This bounce was likely aided by the unpopularity of Republican healthcare bills across all demographics.
Exit polls aren’t always accurate or the source of truth, but if you look back at the 2016 election, Trump actually got a surprising 18% among voters who thought the ACA/ObamaCare didn’t go far enough. I would also venture to guess that the overall percentage of voters who thought the ACA went too far would be slightly lower now, as voters have gotten a glimpse of what alternative proposals look like.
Polling also shows that reducing healthcare costs is a major priority for voters of both parties. This is an important trend – while most of the press coverage is on the individual market/exchange premiums, a majority of Americans under the age of 65 get their health insurance coverage through their employer. As discussed above, the same trends, albeit somewhat hidden to employees, has also occurred for these people (higher premiums, deductibles, and total out-of-pocket spending).
We’ve really only had one major election since Trump/Republicans won in 2016 and that was the recent Virginia Governor race. Healthcare was chosen by a plurality of voters as the issue that mattered most to them in deciding how to vote (admittedly, the choices were poorly crafted, with “economy” not even listed). The Democratic candidate (Ralph Northam) won this group easily, 77% to 23%. On a side note, Maine also voted to expand access to Medicaid under the ACA, making it the first state to do so through a ballot measure (59% yes to 41% no).
Collectively, I think this shows that the voters do not want the status quo. While a repeal of the individual mandate provides some “winners” and some “losers”, a significant portion of the country wants more than just a modest change to the healthcare system. Republicans, like Obama and Democrats before them, will now be faced with being accountable for everything that happens within the healthcare realm, and that also means being blamed for a lack of improvement in reduction of overall healthcare costs.
This is what Democrats need to focus on – it’s not enough to say that 5 to 13 million people will lose their insurance. The narrative should be that the country needs to be more forward thinking. People already feel that they spend too much out-of-pocket for healthcare and we still have millions of people who remain uninsured, not by choice, but because of affordability. The solution isn’t to go backwards to a fictitious pre-ACA environment where people were supposedly happy with the healthcare system. The ability of Democrats to drive this narrative and give an alternative vision will decide how politically and electorally damaging the Skinny Repeal is for Republicans.
