Moneybox

Why We Still Don’t Really Know What Killing the Individual Mandate Did to Obamacare

An insurance agent helps someone shop for insurance under the Affordable Care Act at a table in a mall.
Still going.
Joe Raedle/Getty Images

Killing off Obamacare’s individual mandate was supposed to deal a serious blow to the health insurance market. At least, that was the conventional wisdom a year ago when, as part of their tax bill, Republicans effectively repealed the rule requiring Americans either to buy coverage or pay a fine. The nonpartisan Congressional Budget Office projected the move would lead 3 million fewer people to purchase insurance on their own in 2019, when the mandate was set to officially phase out.

So far, there’s been no sign of such a sharp drop. Last week, the Trump administration reported that approximately 8.5 million Americans bought coverage for next year on Obamacare’s federal exchange during the recent open enrollment period. The total was down just 3.4 percent from last year’s mark of 8.8 million.

Does that mean Obamacare is sturdier than the wonks thought? That the mandate wasn’t all it was cracked up to be?

It’s possible. Enrollment on the exchanges does seem to have stabilized in the mandate’s absence. If that stability is real and lasting, it’s almost certainly thanks to the law’s insurance subsidies for low- and middle-income families. Americans who make less than 400 percent of the poverty line are eligible for tax credits that cap their premiums at a percentage of their income, which keeps coverage reasonably affordable no matter how high the sticker price rises. This year, the Centers for Medicare and Medicaid Services reported that 83 percent of individuals enrolled in exchange coverage received subsidies. The fact that this group largely seems to be sticking with Obamacare, even without the mandate, suggests they think they’re getting a good deal.

But the insurance market for individuals might also be in worse shape than the government’s data let on. To understand why, you have to realize that in past years, millions of Americans purchased Obamacare-compliant insurance coverage off of the law’s official exchanges. Instead of shopping on healthcare.gov, they went to independent insurance brokers or called up Blue Cross Blue Shield directly.

As far as insurers are concerned, these people are just like any other Obamacare customers (in industry speak, they’re all part of the same risk pool). But because they don’t shop on the exchanges, they don’t show up in the official enrollment figures reported by the government. Instead, health care analysts have to guess their numbers using private data sources, which unfortunately aren’t very timely. The most recent estimate I’ve seen, from the Kaiser Family Foundation, suggests that during the first quarter of 2018, there were about 2.5 million Americans in Obamacare-compliant policies that they bought off of the exchange.

We don’t know whether that number is increasing or decreasing; there just isn’t data to tell us.1 But it’s reasonable to suspect that with the individual mandate gone, that group of 2.5 million will shrink significantly, and possibly all but disappear. That’s because people who buy coverage away from the exchange don’t receive federal subsidies. Rather, they have to pay the full cost of their premiums, which makes Obamacare a significantly worse value for many of those individuals than it is for lower-earning households that receive a tax credit. Now that they aren’t being forced to purchase an Obamacare plan or pay a fine, many of them may go uninsured or opt for the sort of cheap, short-term policies the Trump administration has been promoting as an alternative.

Why does it matter if the off-exchange market dries up? For one, it would likely drive up premiums further by leaving behind a sicker, smaller base of customers. While families who receive subsidies wouldn’t be affected, that would make a difference to sick people who need insurance but make too much to qualify for a tax credit. As always, they’re the group that’s in the most danger every time Obamacare prices rise.

If off-exchange enrollment does decline, it might also give some states a reason to consider taking more steps to shore up their insurance markets. Some might even consider passing their own version of the mandate (though New Jersey tried that, and its enrollment levels on healthcare.gov dropped slightly more than the national average, suggesting the move wasn’t super effective).

A major shift in enrollment patterns could also have important political effects. Republicans nixed the mandate to finance a tax cut tilted largely toward corporations and the rich (cutting the mandate supposedly saved money, since the government would spend less subsidizing people’s health care as more Americans went uninsured). We’re still waiting to find out just how irresponsible that decision really was. We should start to have a better idea by later next year—well before the 2020 race rolls around.

1 Just to double-check that I wasn’t missing something, I asked Obamacare enrollment guru Charles Gaba, of ACASignups.net, if he knew of a more up-to-date estimate of what’s happening on the off-exchange market. He said he wasn’t aware of any.