The Individual Mandate Penalty Is Ending. Californians May Pay the Price.

The federal tax overhaul enacted in December 2017 eliminated the Affordable Care Act’s (ACA) individual mandate penalty, which encourages consumers to maintain health insurance to avoid a fine. The rule changes next year. A new Harvard study supported by the California Health Care Foundation in partnership with Covered California offers a sneak preview of the possible impact this federal policy change will have on Californians.

Researchers asked Californians with individual market coverage in 2017 if they would have purchased insurance that year if the individual mandate penalty had not been in effect. The survey respondents included those buying coverage on the state’s ACA health insurance marketplace, Covered California, as well as those buying in the individual market outside of Covered California.

Lower levels of participation by enrollees with low medical spending would have increased premiums per enrollee by 5 to 9%.

The survey, which the authors described in a March 1 Health Affairs Blog post, found that:

  • 18% of respondents said they would not have purchased insurance in 2017 if not for the penalty. That implies 378,000 fewer enrollees in California’s individual market.
  • Enrollees with the lowest levels of predicted medical spending were more likely to say they would not have purchased insurance, compared with those at higher levels of predicted spending.
  • Lower levels of participation by enrollees with low medical spending would have increased premiums per enrollee by 5% to 9%.

Unlike other studies that projected how the removal of the individual mandate penalty would affect the uninsured rate and premiums, the Harvard survey relies on answers from consumers.

Shortly after the release of the study, CHCF hosted a webinar press call with John Hsu, MD, MBA, the study’s principal investigator; Peter V. Lee, executive director of Covered California; and Jeanette Thornton, senior vice president of commercial, employer, and product policy for America’s Health Insurance Plans.

Hsu said that it’s important to understand that this study examines the effect of the penalty elimination in isolation. The premium projections and coverage estimates don’t take into account changes in the market that could result from federal or state policy changes. For example, additional uncertainty around federal funding could decrease plan participation, thereby increasing premiums.

Damage to Consumers on the Individual Market

Lee stressed that while Covered California would be able to adjust and remain a stable health insurance marketplace, consumers would be left hurting. Higher premiums would be most damaging to consumers who purchase insurance on the individual market and earn too much to be eligible for federal premium subsidies through Covered California. (Those who are eligible for subsidies will be more protected, because subsidies increase to cover rising premiums.) Of the projected 378,000 Californians who would roll the dice and go without coverage, 60,000 would likely to end up with medical expenses of more than $10,000.

Thornton emphasized that the impact of the mandate penalty repeal in other states is likely to be worse than in California, which has generally enjoyed more robust health plan participation, lower premium increases, and stronger consumer protections than many other states. She stressed the need for federal legislation to stabilize the individual market, including reliable funding for re-insurance and cost-sharing reductions.

You can read coverage of the study in the Modesto Bee and the Los Angeles Times.

The findings from the Harvard study are particularly relevant in light of a new paper from the UC Berkeley Center for Labor Research and Education. The report describes what we know about affordability barriers in the California individual market and outlines near-term policy options California can pursue to make individual market coverage more affordable.

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