Cost and Coverage: The Impact of Implementing Various State Health Care Reform Proposals Nationally. Individual Mandate

Under an individual mandate to purchase health insurance, individuals would be required by law to obtain health insurance coverage.  A mandate of this kind would be precedent setting (Tanner, 2006).  As noted by CBO in 1994, “the government has never required people to buy any good or service as a condition of lawful residence in the United States” (Hartman & van de Water, 1994).  Thus far, only one state, Massachusetts, has legislated an individual mandate for health insurance coverage.  As one component of their comprehensive health care reform program, Massachusetts has implemented an individual mandate that requires all residents in the state to have health insurance or pay a financial penalty.  Tax filings are used to verify coverage, and exemptions are made when the cost of coverage does not meet the affordability standards defined by the state.

• The Role of a Mandate

  • An individual mandate is meant to address the phenomenon of “free-riders,” or individuals without coverage who nonetheless access care but do not have the financial resources to pay for it.  The cost of this “uncompensated care” is paid for through increased provider rates, higher insurance premiums, and Federal and state subsidy programs for health care institutions that are funded with taxpayer dollars.  It is believed that if all individuals are insured, uncompensated care costs will be reduced or eliminated, thus decreasing provider rates and health insurance premiums and abolishing the need for Federal and state uncompensated care subsidy programs.

    In addition, because many of the uninsured are young and healthy individuals who forgo coverage due to a perceived lack of health care needs, the covered population tends to be disproportionately sicker.  By requiring the young and healthy to enroll, their participation in health insurance pools will spread the risk and reduce adverse selection.  Their good health will improve the overall health rating of the pool, reducing overall premium costs.

    However, a mandate for coverage does not guarantee access to health care for everyone.  Many individuals have coverage, whether public or private, and still have limited or no access to certain providers and specialists because their insurer’s provider network does not have contracts with an adequate number of these types of doctors or practices.  As well, purchasing health insurance does not necessarily relieve the purchaser of some out-of-pocket costs associated with the services they receive.  Many policies have deductibles and almost all have co-payments, which for some may make accessing care unaffordable.  So while individuals would be fulfilling their legal obligation to be covered by purchasing a policy, they would not necessarily have improved their circumstances for accessing medical care.

• A National Individual Mandate

  • ASPE worked with The Lewin Group to design and model a national individual mandate for the purchase of health insurance.  The key design elements of the model include:

    • Premium subsidies – full premium subsidies are available to those below 150% FPL, while availability of premium subsidies for those with incomes between 150% and 300% FPL is on a sliding scale basis with the subsidy decreasing as income increases (same as outlined for the Health Insurance Premium Subsidy Programs section);
    • Mandate exemption – Individuals and families with incomes above 300% FPL would be exempt from the mandate if their premiums would exceed a certain percent of their income, as outlined in the following table:
       

      Income as Percent of FPL	Premium as Percent of Income
      300% - 350%	5.5%
      350% - 400%	6.5%
      400% - 500%	7.5%
      500% - 600%	8.6%
      Above 600%	No exemption

    • Insurance market reforms – guaranteed issue is required for all insurers, and premiums cannot vary by health status; and
    • Crowd out – to prevent the substitution of private coverage for public coverage, individuals must be without insurance for 6 months or longer to be eligible for the subsidy program.

    Several design specifications were varied to produce a series of coverage and cost estimates.  Consistently using the above four design elements, The Lewin Group modeled the individual mandate with the following five variations on enforcement mechanisms:

    • Penalty – mimicking the Massachusetts program, individuals who do not obtain coverage are subject to a penalty equal to one half the cost of insurance under the minimum standard plan (same as the minimum benefit requirements outlined in the Health Insurance Premium Subsidy Programs section), except as exemptions apply (see above);
    • Automatic enrollment through the tax system – based on tax filings, individuals would be enrolled in an insurance program;
    • Automatic enrollment through other income tested programs – individuals would be identified and enrolled in an insurance program based on participation in various publicly funded programs such as food stamps and other social services programs;
    • Automatic enrollment through the school system – all school-aged children and their parents would be enrolled if the parents or responsible adults could not show proof of insurance coverage; and
    • Combined approach – automatic enrollment would occur through all three mechanisms described above.

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