Requiem for the Individual Mandate

Requiem for the Individual Mandate
I’ve always liked the word “requiem,” which the dictionary says means “a ceremony or remembrance of someone who has passed away.”

In this case, I’d like to tell you about the short life and sudden death of the individual health insurance mandate, an idea that could have gone a long way toward making today’s individual health insurance market stable and open to everyone regardless of how sick they are.  Remember, this same market serves 12 to15 million people nationwide, including nearly 200,000 in Louisiana.

In the tax bill Congress passed last month, they reduced the fines in the Individual mandate to $0, effectively killing it.

I want to make one thing abundantly clear up front: the change of the penalties in the Individual Mandate from the current level to $0 does not happen until the 2019 tax year and is NOT retroactive. The penalties still apply for the 2018 tax year, so you are still at risk of having to pay a tax penalty if you do not have healthcare coverage for this year.

How Was this Concept of the Individual Mandate born?
Given the legal name “the Individual Responsibility Requirement,” the individual health insurance mandate was born on March 23, 2010, as a bouncing baby “nudge,” designed to encourage younger and healthier folks to purchase health insurance and keep it. (I’ve spoken at length about why those folks’ presence is critical to individual health insurance markets surviving.)

At the tender age of two years, many folks tried to render this mandate ineffective by challenging it in the U.S. Supreme Court. The mandate survived; now it had to perform, going into effect on Jan. 1, 2014.

Since that time, people on both sides of the political aisle have had many arguments about whether this toddler law was up to the challenges it would face, and if it would be capable of achieving everything its parents conceived it to do.

But, this new law was born with serious problems that would ultimately cripple its ability to do its job:

The mandate was too small
The penalty for not complying with the mandate was too small to be effective. For a single, 40-year-old person making less than $35,000 a year, the fine worked out to be $695 maximum, versus buying (individual) health insurance that cost roughly 10 times as much (by 2017), without a ton of federal assistance.

If you really didn’t feel like you needed health insurance (e.g. you were young and/or healthy), it was much cheaper to pay the fine than to actually buy insurance. Even if you had a very high income, say a single, 40-year-old person making $100,000 a year, the fine was still only about one-third of the cost of insurance in 2017. To top it off, the Internal Revenue Service (IRS) said it wouldn’t even collect the penalty UNLESS you had a refund, and they would take it out of there.

From birth, it was just too small to be effective, and this problem was never addressed by increasing the penalty or more strongly enforcing penalty payments.

The mandate was weakened over time, a lot
This rule was born with exceptions. There were originally only three, which didn’t weaken it very much at all. To go without buying insurance and avoid the penalty in 2014, you either had to be a registered member of an Indian tribe, low-income in a non-Medicaid expansion state, or a member of a healthcare sharing ministry.

Today, special interest adjustments have increased that exemption count to 28. Yes, as I write this, there are 28 different ways to get out of paying the penalty. This mandate has so many exemptions, you’d definitely want to get professional tax advice before you paid it.

The mandate became a flash point in an ugly divorce between the Parties
Imagine a law changing the way 18 percent of all the goods and services produced by the United States each year are managed and paid for. Then imagine this massive rule was passed without a single vote from the opposing party. That’s what the birth of the Affordable Care Act looked like. For many, the individual mandate was even more controversial than the ACA itself.

It survived on very shaky ground. Even when the Supreme Court said it was legal for the IRS to enforce it, they basically said, “Congress has the ability to tax anything it wants, and so this individual mandate is a tax on the ABSENCE of health insurance.”

This meant that a huge section of the population, the ones who have resented the ACA since day one, felt cheated by the law and fought very hard to make it go away. The battles over the mandate and the rest of the ACA have been fought in every election since 2010.

This component of the ACA was a political football from birth, which is not a good way to manage something as important as your health insurance.

So Mike, the history lesson is fine and all, but what does this thing going away mean for my rates?
If you get your health insurance through a job or through someone you’re related to who gets it through a job, odds are this will have no impact on what you pay through your employer health plan.

But, if you are buying your own health insurance, zeroing these fines in 2019 means another nudge to the young and healthy to stay insured has been pulled away. More young and healthy folks passing on health insurance will definitely drive up the costs in the individual health insurance pool. Definitely.

But how much will costs go up?
That’s the question, isn’t it? I’ve seen actuarial estimates as high as 10 percent or more each year (on top of other, usual rate increases that would occur anyway) through 2024. That’s without some sort of balancing action from Congress, like federal funding of higher-risk individual insurance pools. Because the mandate has already suffered since birth from all the things I mentioned above, I believe it’s possible the loss could have a smaller effect on rates. But, no one knows for sure.

We’ll just have to wait this one out and see how many younger, healthier people disappear from our risk pools in the individual market and how that affects rates. If Congress and the administration remove the individual mandate without a fully funded market stabilization package or other legislation with workable substitutes that encourage more people to sign up for coverage and balance the risk pool, premiums will likely go up, and there will be fewer choices.

Remember, this doesn’t go into effect until 2019. You still will be subject to the Individual Responsibility Requirement (mandate) through 2018.

Straight Talk on the individual mandate is: A sound policy idea that was weakened through political action until it was killed off. Rest in peace, individual mandate.