RAND research says insurance cost would not spike if court strikes individual mandate


Eliminating the individual mandate, the part of healthcare reform that requires all Americans to have health insurance, would sharply lower the number of people with coverage, according to results of a RAND Corporation study released Feb. 16. However, the study finds, dropping the mandate would not dramatically increase the cost of buying policies through new insurance exchanges.

The study comes as the U.S. Supreme Court prepares to hear arguments next month regarding the constitutionality of the individual mandate, a key provision of 2010's Affordable Care Act (ACA).

A model created by the RAND Comprehensive Assessment of Reform Efforts (COMPARE) program calculates the number of Americans predicted to get coverage in 2016 under the ACA would drop from 27 million to 15 million if the individual mandate were eliminated.

Despite that drop, the study estimates that eliminating the individual mandate would increase an individual's cost of buying insurance through the individual exchanges by just 2.4 percent.

Under health care reform, health insurance exchanges will be established to provide policies to individuals who do not have work-based coverage and those who work for small employers. A key issue underlying the relatively small increase in premiums relates to the manner in which premiums in the exchanges are allowed to vary by age.

"Our analysis suggests eliminating the individual mandate would sharply decrease coverage, but it would not send premiums into a 'death spiral' that would make health insurance unaffordable to those who do not qualify for government subsidies," said Christine Eibner, the study's lead author and an economist at RAND, a non-profit research firm.

Nonetheless, another consequence of repealing the individual mandate would be a sharp increase in the amount of government spending for each person newly enrolled in a health insurance plan. Because most individuals who remain enrolled if the mandate is eliminated are eligible for significant government subsidies, government spending for those newly insured would more than double, rising to $7,468, according to the RAND Health study.

"The individual mandate is critical not only to achieving near-universal health care coverage among Americans, but also to yielding a high value in terms of federal spending to expand coverage," Eibner said.

"Without the individual mandate, the government would have to spend more overall to insure a lot fewer people."

ACA supporters say the mandate is necessary to encourage young, healthy adults to get coverage, and help spread costs and risks across a larger, healthier group of insured individuals.
RAND notes that if the mandate is eliminated, there is concern that the insurance exchanges established under the Affordable Care Act would suffer from "adverse selection" as only sicker, higher-risk adults would sign up for coverage. Such a trend could lead to higher per-member spending and drive insurance premiums higher.

The RAND analysis focuses on the annual increase that might be faced by individuals, taking the age of enrollees into account.

Under ACA, individuals cannot be charged higher premiums because of preexisting medical conditions or current health problems. But the law allows older people to be charged as much as three times more than younger people for health insurance.

The simulations done by RAND and other researchers suggest that most of those who would forgo health coverage if the individual mandate were eliminated would be younger. That would leave the insurance exchanges with proportionately more people purchasing insurance in the older age brackets, where premiums are higher.

Taking those age issues into consideration, RAND researchers estimate that the premiums paid by individuals using the exchanges would be 2.4 percent higher if health reform moves ahead without the individual mandate. That is a more modest impact than other researchers have predicted, according to RAND.

When the individual perspective is dropped, RAND's estimate of the overall average increase is roughly in line with the studies done by other groups. The overall average premium among all people using the exchanges would be 9.3 percent higher -- an increase caused largely because a disproportionate share of people left buying policies after the mandate is repealed would be in older, more-expensive age brackets.

The study is available here.

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