Alternative Estimates of the Individual Mandate

On Monday, we presented a budgetary analysis of the effect the Supreme Court decision on the Affordable Care Act could have on the budget. Naturally, we relied on CBO for the estimates, but in the case of eliminating the individual mandate alone, there have been a variety of estimates about what could happen.

There is great uncertainty surrounding the effects of striking down any part or all of the law, but the effect of striking down the mandate alone has caused much debate in the health policy world about the magnitude of the effects. Some believe that the lack of a mandate would have a huge effect on the individual insurance market. Some young and healthy people would forgo getting coverage, leaving insurers to cover a sicker pool of people. Premiums would rise, continuing to push out relatively healthy people who decide getting coverage is not worth it, and the pattern would continue until only the sickest people have insurance and premiums are exorbitantly high.

Some are more optimistic about repeal of the mandate, arguing that the subsidies for individuals to purchase health insurance and the Medicaid expansion are generous enough to keep healthy people in the risk pool, limiting the increase in premiums. In addition, even though the Affordable Care Act limits the amount by which insurers can charge different premiums based on age, insurers are still able to have at least some differential, which would limit the premium increase that would have to occur overall as the pool of insured people became relatively older on average.

CBO estimates that about 16 million fewer people would get coverage under ACA if the mandate is repealed (or half of the total coverage expansion). Premiums in the individual market would rise by 15 to 20 percent on average compared to what they would be with full implementation of ACA. The net effect would reduce the deficit by $280 billion through 2021 (or $340 billion through 2022 by our estimate).

Here are what some other estimates say:

• Jonathan Gruber: MIT economics professor Jonathan Gruber is in the "huge effect" camp when it comes to the mandate. He estimates repealing the mandate would result in 24 million fewer people getting coverage (three-fourths of the expansion) while premiums would rise by an average of 27 percent. According to Gruber, the cost of the coverage expansion would be 30 percent lower without the mandate, compared to CBO's estimate of 25 percent.
• Urban Institute and Robert Johnson Wood Foundation: A joint study by the Urban Institute and the Robert Johnson Wood Foundation in January came to a similar conclusion as CBO. The two authors, Matthew Buettgens and Caitlin Carroll, looked at what the hypothetical effect of the ACA would be in 2011 if it were fully implemented with and without the mandate. They found that between 14 and 16 million fewer people would be covered. In addition, they found that premiums in the health insurance exchange would rise by 10 percent if there was high participation and 25 percent if there was low participation and low utilization of the subsidies. Removing the mandate would lower government spending in that year by between $10 billion and $25 billion (3 to 7 percent).
• Lewin Group: A Lewin Group study by John Sheils and Randall Haught last September shows relatively smaller effects than other estimates. Similar to the previous study, they estimate the effects of ACA in 2011 assuming full implementation. Because their model assumes that the mandate would not be a particularly effective enforcement method, their results show that only about 8 million fewer people would gain coverage. At the same time, individual market premiums would rise by an average of 12.6 percent. Although they do not specifically analyze the budgetary effects of eliminating the mandate, it is very likely that the fiscal impact would be more limited than CBO or the above studies suggest.
• RAND Corporation: A RAND Corporation study by Christine Eibner and Carter C. Price, using a different methodology than other studies, also shows relatively modest effects. They look at the mandate's effect in 2016 on insurance coverage and premiums. Their estimate shows that 12.5 million fewer people would get coverage, and that premiums in the individual market would rise by 9.3 percent on average. Interestingly, their study estimates that government spending (including by states) would rise by $10 billion in 2016 in absence of the mandate, since the cost of more uncompensated care and the lost revenue from the mandate penalties would more than offset lower spending on the coverage expansions.

These estimates show the impact for just one of the Court's possible decisions. Should other insurance reforms be thrown out with a repeal of the mandate, that would have another impact on premium levels. It is important to note that if premiums increase as these experts have projected, per-capita costs of coverage will surely increase even if total costs go down.

Projections always come with uncertainty, especially for a policy that has not been implemented yet on the national level. The wide range of estimates for repealing the mandate is a perfect example of this uncertainty.