The Effect of the Affordable Care Act on Enrollment and Premiums, With and Without the Individual Mandate

Short abstract

This analysis used a RAND microsimulation model to predict the effects of a possible Supreme Court decision invalidating the individual mandate provision in the Patient Protection and Affordable Care Act and keeping the rest of the law intact.

Abstract

This article describes the results of an analysis using RAND's COMPARE (Comprehensive Assessment of Reform Efforts) microsimulation model to predict the effects of a possible Supreme Court decision invalidating the individual mandate provision in the Patient Protection and Affordable Care Act of 2010 while keeping the other parts of the law intact. The authors predict the effects of such a decision on health insurance coverage overall and for subgroups based on income. They also estimate where people will obtain insurance in scenarios with and without the mandate and how the elimination of the individual mandate will affect insurance premiums.

The analysis predicted that, if the individual mandate were to be eliminated: (1) 12.5 million people who would have otherwise signed up for coverage will be uninsured. (2) Premium prices in the non-group market will increase by 2.4 percent. (3) Total government spending will increase modestly, from $394 billion to $404 billion in 2016. (4) The amount of government spending per newly insured individual will more than double, from $3,659 to $7,468. The study estimates a smaller effect on premiums than comparable studies because the RAND team uses a method that accounts for the difference in the age composition of enrollees with and without the mandate.

Perhaps no provision in the Patient Protection and Affordable Care Act of 2010 (ACA) has received as much scrutiny as the individual mandate, which requires all Americans to either obtain health insurance or pay a fine. In the spring of 2012, the legality of the mandate will be settled by the Supreme Court, which could invalidate the entire ACA outright or invalidate only the individual mandate while leaving the remainder of the law intact.

Economists in support of the law have argued that the individual mandate is justified because the chance of unforeseen illness or injury makes it impossible for citizens to fully opt out of the market for medical care.* Further, to the extent that existing laws require hospitals and emergency departments to provide care to everyone in acute need,** the costs of treating those who are uninsured will unavoidably be passed on to the rest of society (Pauly et al., 1991). Others have argued that without the mandate, people will obtain coverage only when they foresee high health expenditures, leading to adverse selection (Blumberg and Holahan, 2009; Chandra, Gruber, and McKnight, 2011). Still others have argued that the mandate is necessary to achieve the goal of universal health insurance, simply because—even with substantial subsidies—some people will not get around to enrolling in health insurance unless they are compelled to do so (Krueger and Reinhardt, 1994).

In this analysis, we use RAND's Comprehensive Assessment of Reform Efforts (COMPARE) microsimulation model to predict the effects of a possible Supreme Court decision invalidating the individual mandate while keeping the other parts of the law intact.*** We predict the effects of such a decision on health insurance coverage overall and for subgroups based on income. We also estimate where people will obtain insurance in scenarios with and without the mandate. Finally, we estimate how the elimination of the individual mandate will affect insurance premiums. Several other groups, including the Congressional Budget Office (2010), Jonathan Gruber (2011), the Lewin Group (Sheils and Haught, 2011), and the Urban Institute (Buettgens and Carroll, 2012), have estimated the effect of eliminating the individual mandate. However, our work differs from previous estimates in that we estimate the premium increase that a given individual could expect with the repeal of the individual mandate. In contrast, prior models have estimated the change in average premiums, an approach that combines the change in premium per enrollee with compositional effects, such as changes in the age and tobacco use composition of the enrolled population.

We find that the elimination of the individual mandate leads to a 12.5-million–person reduction in the number of newly insured individuals and increases government spending per newly insured individual by a factor of more than two. While we find that average exchange premiums increase by approximately 9.3 percent when the individual mandate is eliminated, this finding is mostly driven by compositional effects. The increase in premiums that would be faced by any given individual is only 2.4 percent. Given the high uncertainty about the likely effects of the ACA, estimates from a variety of models are useful for gauging the likely implications of policy changes.