Policy experts suggested various replacement options for the individual mandate.

Jan. 17—Around 6.5 million Americans paid penalties for failing to purchase health insurance in 2015, new IRS data shows. And that is nearly 19 percent fewer than the 8 million who paid in 2014.

In the wake of Republican congressional vows to repeal the Affordable Care Act (ACA), new IRS data shows the impact of the individual mandate, which requires people to purchase health insurance or pay tax penalties. The IRS collected $3 billion in penalties, which averaged $470 per person.

About 12.7 million taxpayers claimed one or more health care coverage exemptions in 2015—up from 12 million exemptions in the previous year.

If the “guaranteed issue” and other ACA insurance reform regulations remain, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimate that repealing the individual mandate would increase the number of individuals without insurance by about 15 million, predicting an uninsured population of 43 million by 2026.

An Urban Institute estimate concluded that repealing the insurance subsidies, Medicaid expansion, and individual mandate could leave 22.5 million without insurance. The Urban Institute calculated that the number of uninsured would increase from around 29 million now to 58.7 million in 2019. The additional 7.3 million would lose coverage because of “the near collapse of the nongroup insurance market.”

Robert Graboyes, senior research fellow at the Mercatus Center at George Mason University, said the IRS data contained no surprises.

“It enumerated how many claimed tax credits and showed the extent to which the IRS clamped down,” Graboyes said in an interview. “It showed that the roof didn’t cave in on this particular provision. The subsidies are based on18-month-old data, a complex system of people evaluating their current status based on old data.”

Graboyes, who opposes mandatory health insurance coverage, said since World War II America’s health system has focused reform efforts on the demand side and ignored the supply side.  

“The ACA attempts to clean things up by changing the way people pay for care,” Graboyes said. “Over the decades our system created a means for maintaining a certain number of doctors and hospitals and equipment and a set of recipes for how you combine those resources to provide care.  The ACA didn’t change the quantities of those resources or the recipes for combining them.

This has to start at the state level in the way medicine is practiced and the ACA didn’t touch this or many other important things,” Graboyes said.

Unaddressed cost drivers include  the Food and Drug Administration’s drug and device approval process--which restricts supply and raises costs—and hospital certificate of need programs--which restricts specialty hospitals and limits competition. Other cost drivers include state restrictions on the practice of telemedicine and scope of practice and licensure laws controlling the number of doctors and nurses.

Mandate Replacement

So what will Republicans propose to replace the individual mandate to convince the young and healthy to buy insurance?

Megan Neuburger, managing director at the credit rating firm Fitch Ratings, said replacement legislation will probably involve traditional elements of GOP health reforms, such as tax credits, block grants, health savings accounts, high- risk pools for those with pre-existing conditions, and continuous coverage as incentives to buy insurance.

“But we haven’t seen any proposals,” Neuburger said.  “They are sending an inconsistent set of messages.”

Neuburger said that several Republican leaders announced that they intend to replace a few things at a time, which “never really works.”

The Republican majority in Congress should maintain the individual mandate until a new health plan is implemented, said Joseph Antos, a health policy expert with the American Enterprise Institute.

“It would give them time to get things ready and avoid the bad headlines of throwing 15 million people off health insurance,” Antos said in an interview. “The GOP has said it wants people to have health coverage and wants to keep some of the subsidies. The point of the mandate is to get people to buy insurance.”

Antos said the only real surprise in the IRS letter is that the agency actually billed people and collected that money.

“There are 14 ways to get exempt from the penalty, which was not a huge amount of money and not sufficient to convince people who were not inclined to not buy insurance,” Antos said. “It started weak and just got weaker.”

Antos endorses an automatic enrollment approach.

“Right now the assumption is that you are not insured,” Antos said. “But we can change that to be the assumption that you are insured. And if people are auto enrolled, they become eligible for a subsidy.”

He also promoted the traditional Republican idea of health savings accounts (HSAs) to reward the young and healthy who retain continuous insurance coverage.

“Right now any subsidies go directly to the insurance companies,” he said. “People don’t actually see that in their hands. And so young healthy people don’t have much incentive to purchase insurance.”

But setting up individual HSAs would allow people to spend any remaining money in those accounts, rewarding consumers who spend wisely and balancing the risk pool, Antos said.

Other Incentives

The individual mandate is the most unpopular component of the ACA, said Marc Goldwein, senior vice president for the Committee for a Responsible Federal Budget.

One potential way to replace the mandate would be loosening restrictions on age rating, Goldwein said. The ACA allows insurers to charge someone 64 or older only three times as much as someone 20 years old, even though the cost of covering someone that age on average is far greater.

“This would lower prices for young people if you charge older people four times as much,” he said. “And that would encourage more young people to buy insurance.”

He also said that lowering the minimum insurance plan criteria--offering less generous insurance coverage--could also make insurance cheaper.

Goldwein said that Trump’s suggestion to allow people to purchase health coverage across state lines may lower insurance rates by fostering competition between plans.

“That offers a little bit of savings,” Goldwein observed. “It would probably increase coverage and lower prices, but only by a small amount.”

Mark Taylor is a freelance writer based in Chicago

Publication Date: Tuesday, January 17, 2017