When Republicans effectively repealed Obamacare’s individual mandate two years ago, it seemed like a rash move that augured serious trouble for the law’s insurance markets. The requirement that Americans either buy a health plan or pay a fine was considered by many to be a linchpin of the law. Without it, the Congressional Budget Office predicted millions more Americans would go without coverage and premiums would rise significantly.
But as data have rolled in for 2019, the first year that the mandate’s penalties were phased out, it’s become increasingly evident that killing off the rule had less of an impact than some worried it might. This fact has been apparent for several months now, but this week it became even clearer.
Health-care experts used to believe that repealing Obamacare’s mandate would lead younger, healthier Americans to drop their coverage, which in turn would force insurers to raise their premiums, pricing out more customers. In a worst-case scenario, some markets might even see a “death spiral” where increasing costs and declining enrollment caused insurers to just give up and leave.
In reality, pretty much the opposite occurred in 2019.
First, premiums didn’t skyrocket. Rather, they fell for the first time since Obamacare’s exchanges revved up in 2014, with the average cost of a benchmark silver plan on Healthcare.gov dropping by an average of 1.5 percent. This was just a modest decline, and there was a good deal of regional variation. But it was a sign that insurers weren’t worried that the mandate’s demise was about to destabilize the market.
Second, enrollment in the marketplaces held up. As the Kaiser Family Foundation reported this summer, 10.6 million people were enrolled in coverage through Obamacare’s exchanges in 2019, the same as the year before.
And third, insurers made a healthy profit. On Monday, a new Kaiser report showed that carriers earned a healthy $131 in gross margins per enrollee in 2019. This was important, because insurers are only going to sell coverage on Obamacare’s exchanges if they can make money on it. When many carriers were racking up losses and dropping out of the market, the entire system’s sustainability seemed to be in doubt. That’s no longer a concern.
In fact, insofar as insurers had any problems last year, it was that they earned too much money. Yes, that’s actually a concern. Under Obamacare, carriers are required to spend 80 percent of the premiums they take in on medical claims, leaving 20 percent for overhead expenses and profits (this rule is called the “medical loss ratio”). If they fail to hit the 80 percent mark, they are required to rebate the extra that they charged back to customers.
And for the past two years, insurers have had to pay out a lot of rebates. In 2018, medical loss ratios fell to 71 percent, way below the necessary mark. In 2019, the average was 75 percent, still less than that magic 80 percent.
That probably goes a long way toward explaining why average premiums fell once again for 2020; insurers quite literally had no choice but to lower their prices for the second year in a row. Falling costs for consumers also seem to have helped keep enrollment figures fairly stable; according to the government, 8.3 million Americans signed up for coverage on the federal exchange this year. That’s a slight, 2 percent drop from 2019, but we have yet to see compete data from states that run their own marketplaces, which could change the picture.
All of this positive news has ultimately drawn more insurers into Obamacare’s markets. The average number of insurers per state and share of customers with three or more carriers to pick from rose for both 2019 and 2020. Again, this is the opposite of a death spiral.
It is possible that the market for Obamacare coverage shrank last year in ways that just don’t show up in the data yet. We still don’t have any data on how many shoppers bought coverage off of the exchanges, either through brokers or directly from insurers, for instance. That group was fairly large in 2018—2.5 million enrollees—and given that people in it don’t qualify for Obamacare’s insurance subsidies, they might have been especially likely to drop their health plans the moment the mandate was gone. But for now, Kaiser is guesstimating their numbers have held above 2 million.
Take it all together, there’s simply no real sign of a post-mandate crisis. Premiums are down two years running. Enrollment is steady on the exchanges. Insurers are making money and hopping into the market. Why has the mandate’s disappearance been such a nonissue? The answer appears to be pretty straightforward. The vast majority of people buying coverage on the ACA market—9.3 million of them in 2019—receive subsidies that cap their premiums as a share of income. For them, the insurance is still a pretty good deal, and they’ve kept buying it even though they’re no longer threatened with a fine if they don’t. That durable customer base has kept the whole thing standing. The subsidies have turned out to be the key, not the threat of a tax penalty.
This whole situation underlines a couple of things. First, Obamacare appears to be stabilizing at precisely the moment that yet another Republican-backed lawsuit is threatening to strike it down. Ironically, the case is premised on the idea that the statutory rump of the individual mandate that the Republicans left behind when they effectively ended it is now unconstitutional, and that the rest of the law cannot be separated from it, so must be struck down, too. We are now getting a real life demonstration that, in fact, the mandate isn’t all that important to Obamacare, if it ever was.
What it also suggests is that, if Obamacare survives and Democrats decide to reform it rather than scrap the whole system and start their next health-care reform [isj from scratch, they don’t have to bring back the mandate, which was never politically popular. If absolutely all else fails, they could probably pass a pretty uncontroversial and popular bill that mostly just increases the value of the law’s subsidies and extends them to many more families. That wouldn’t deal with the deep dysfunctions underpinning America’s health care cost crisis and would be deeply unsatisfying to those of use who spend a lot of time thinking and writing about far-out ideas in health-care reform. But if congressional moderates killed off anything more ambitious, a bulked up, more generous version of the system we have now would at least work. Which is something.