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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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12/20/2012

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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
Introduction
 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wih wocours upholding he mandae and wo sriking i down.So wha happens o healh care reorm i he mandae is repealed?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.
1
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.
2
 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.
3
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.
4
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.
5
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.
6
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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