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Health Care Reform Without the Individual Mandate

Health Care Reform Without the Individual Mandate

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Jonathan Gruber finds that no alternative to the individual mandate can cover more than two-thirds as many uninsured as the Affordable Care Act does.
Jonathan Gruber finds that no alternative to the individual mandate can cover more than two-thirds as many uninsured as the Affordable Care Act does.

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Published by: Center for American Progress on Feb 09, 2011
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1Center or American Progress | Health Care Reorm without the Individual Mandate
Health Care Reform without theIndividual Mandate
Replacing the Individual Mandate would Significantly ErodeCoverage Gains and Raise Premiums for Health Care Consumers
Jonathan Gruber February 2011
 A cenral pillar o he recenly enaced Paien Proecion and Aordable Care Ac is heindividual mandae, he requiremen ha all individuals or whom insurance is aord-able purchase such coverage or pay a ax penaly. Ye his is also one o is mos conro- versial elemens. In recen public opinion polls, he individual mandae is raed as oneo he leas popular elemens o he new healh law. And recen cour decisions on heconsiuionaliy o he individual mandae have reached mixed conclusions, wih wocours upholding he mandae and wo sriking i down.So wha happens o healh care reorm i he mandae is repealed? And is here a reason-able alernaive? Tis issue brie answers boh o hese quesions. In paricular, I con-sider he wo mos-discussed alernaives o he mandae and esimae heir impac oninsurance coverage, public secor coss, and insurance prices. I nd ha boh alernaivessignicanly erode he gains in public healh and insurance aordabiliy made possible by he Aordable Care Ac.
Reform with and without an individual mandate
 We have a airly good sense o how he world will look i healh care reorm includes heindividual mandae. Boh he Congressional Budge Oce and independen modelerssuch as mysel nd ha he majoriy o he uninsured would be covered.
CBO and I boh esimae ha Aordable Care Ac will cover abou 60 percen o hose who would be uninsured absen he law. We boh nd ha here would be a very modes reduciono employer-sponsored insurance, ha premiums in he nongroup insurance marke orhe same qualiy produc would all, and ha here would no be much eec on premi-ums in he employer-provided insurance marke.
2Center or American Progress | Health Care Reorm without the Individual Mandate
Tese esimaes are consisen because we have a clear example o draw on in his case,he sae o Massachusets, which our years ago enaced a plan ha is very similar o henew ederal healh reorm law. In Massachusets we have seen more han 60 percen o he uninsured gain coverage wih litle eec on employer-sponsored insurance premi-ums. We have seen a seeper drop in nongroup premiums ha esimaes sugges or he Aordable Care Ac, however. According o insurance indusry gures, nongroup premi-ums have allen by 40 percen in Massachusets while rising by 14 percen naionally.
 Tis much seeper drop in Massachusets arises because he sae has also given usa glimpse o wha he world would look like i he mandae were sripped rom he Aordable Care Ac. In he mid-1990s, Massachusets along wih several oher norh-easern saes passed insurance marke reorms similar o hose in he Aordable Care Ac, eliminaing or resricing he abiliy o insurance companies o discriminae againshe ill eiher in prices or coverage exclusions. Te resul in each sae was very high non-group insurance prices as insurance companies worried ha only he sick would enrollin insurance and priced heir producs accordingly. We do no, however, have an example o a sae ha has included he oher majorelemen o he Aordable Care Ac—exensive subsidies or low-income individu-als o buy insurance. Tis will ose o some exen he “adverse selecion” ha drivesup premiums in he nongroup marke by bringing some healhier individuals ino hemarke. Te exen o such ose, however, is unclear. CBO esimaes ha removing heindividual mandae rom he new ederal healh law will cu he number o individualsnewly insured in hal (rom 32 million o 16 million), while I esimae ha i will cu henumber o newly insured individuals by hree quarers (rom 32 million o 8 million).CBO esimaes ha he reducion in employer-sponsored insurance will double wihno mandae; I esimae ha i will riple. CBO esimaes ha premiums in he nongroupmarke will rise by 15 percen o 20 percen; I esimae hey will rise by 27 percen.Finally, CBO esimaes ha removing he mandae would lower ne governmen spend-ing by $47 billion in 2019, or roughly 25 percen o he coss o he policy. I esimae acos reducion o 30 percen.
So here is agreemen beween CBO and mysel ha a bill wihou he individualmandae will cover signicanly ewer persons, wih more erosion o employer insur-ance, and lead o signicanly higher premiums. Moreover, we boh agree ha removinghe mandae would signicanly lower he “bang or he buck” o healh policy, reduc-ing coverage by 50 percen o 75 percen while only lowering coss by 25 percen o 30percen. Bu here is more uncerainy and divergence in he esimaes. And his is a key poin o highligh abou removing or replacing he individual mandae—i will raiseour uncerainy abou wha healh care reorm can accomplish. One advanage o heindividual mandae is ha we have an example o build on; alernaives pu us in a muchless clear world.
3Center or American Progress | Health Care Reorm without the Individual Mandate
Alternative: Auto-enrollment
I we were o replace he mandae, hen here are wo common alernaives ha have been proposed. One is “auo-enrollmen,” whereby individuals would be auomaically enrolled in insurance as a deaul bu could “op ou” i hey decide hey don’ wan cov-erage. Tis has been called a “sof mandae” because i doesn’ orce individuals o buy insurance, bu i does orce hem o ake armaive acion o avoid coverage. I someo he lack o enrollmen in pensions (or healh insurance) is due o “inatenion,” hensuch a policy could grealy increase coverage.Tis alernaive is inspired by research by David Laibson and Brigite Madrian aHarvard Universiy along wih various collaboraors, which shows ha such deaulchanges in he conex o so-called dened-conribuion 401(k) pension plans cansignicanly increase paricipaion in such plans, reducing he number o nonenrolledemployees rom 50 percen o 10 percen.
Evidence rom a broader universe o rmsrom money manager Fideliy Invesmens suggess ha he eec is smaller, whichcould be due o a higher willingness o “op ou” a smaller rms. Fideliy nds haauo-enrollmen raises paricipaion rom 53 percen o 81 percen.
Ta is, o he47 percen o employee ha choose no o volunarily enroll in 401(k) plans, 19 percenchoose o op ou o auo-enrollmen. Applying his nding o he conex o healh insurance is dicul, bu several consid-eraions sugges ha we would see a larger op-ou rae or healh insurance han or401(k) plans. Firs o all, employers acively encourage a broad cross-secion o employ-ees o paricipae in 401(k) plans because i is criical o mee nondiscriminaion essha allow hem o ax deer he 401(k) conribuions o higher-income employees.Tere is no such need or employers o encourage paricipaion in healh insuranceplans, where nondiscriminaion rules appear o be nonbinding. Indeed, employersshould acively oppose auo-enrollmen or healh insurance: even i i encourageshealhier employees o join, oal employer spending rises.Second, healh insurance enrollmen is a decision o which employees, paricularly  young employees, have already given much more consideraion han o 401(k) enroll-men. Te larges auo-enrollmen eecs are ound or young employees, or whomreiremen is disan and so who probably weren’ considering 401(k) accouns beore being auo-enrolled. Tese same young employees will have given much more consider-aion o he near-erm decision abou wheher or no o insure.Indeed, Fideliy daa show ha among 20- o 29-year-old employees, only 30 percensign up or a 401(k) wihou auo-enrollmen, ye only 23 percen op ou when auo-enrolled, a very large eec. Ye among workers 20 o 29 years old who are oered healhinsurance, 88 percen enroll oday.
Clearly, his is a decision ha young workers areaking more seriously—and as a resul he “inatenion” ha resuls in auo-enrollmen

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