Why An Individual Mandate Is Important and What States Can Do About It: Lessons from Massachusetts

The sweeping tax reform package recently signed into law will eliminate the Affordable Care Act’s (ACA’s) individual mandate in 2019, which is projected to reduce the number of people covered by health insurance by 4 million in 2019 and 13 million in 2027, while increasing premiums in the nongroup market by about 10% annually.1 For taxpayers seeking protection from high health care costs, this is a potentially catastrophic result.
Say what you like about the individual mandate, it is clearly an essential component of the ACA’s “three-legged stool” that – along with guaranteed issue and premium subsidies – has been effective in expanding health insurance coverage to millions.

Why is an individual mandate important?

Several studies show that, in a market that requires insurers to cover individuals with pre-existing conditions, an individual mandate helps ensure a healthy risk pool, which in turn helps to manage cost, affordability and sustainability. We learned this in Massachusetts, in the early days of implementing our version of health reform (which later became the model for the ACA). We had something close to a “natural experiment,” in which we launched a subsidized healthcare program before we implemented the individual mandate (we put the carrots out before we brought in the stick, in other words). Researchers were then able to study what happened to the risk pool, before and after the mandate.

As illustrated below, when the Massachusetts individual mandate went fully into effect in late 2007, there was a much larger increase in the number of healthy enrollees compared with enrollees with a chronic illness.2 What’s remarkable is that nothing else had changed in the program – the subsidy amounts were the same, as were all of the other enrollment requirements. But once people in Massachusetts understood they had to purchase insurance, the number of healthy enrollees jumped up.

Based on these results, and other relevant studies, the following projections have been made regarding the impact of eliminating the individual mandate:

A 2015 RAND Research Brief3 found that the absence of the ACA’s mandate would lead to a 20% drop in individual market enrollment and a 27% drop in enrollment among young adults.

In January 2017, the CBO concluded that eliminating the individual mandate while retaining other market reforms such as guaranteed issue would “destabilize the nongroup market.”4

A potential option

So, in the absence of a federal requirement to purchase health insurance, what can states do to rebuild the stool? One potential pathway is to establish an individual mandate at the state level, as we have in Massachusetts. As part of the Commonwealth’s landmark 2006 health reform law, most taxpayers are required to have health insurance coverage that meets certain standards (known as Minimum Creditable Coverage or MCC). By law, tax penalties are set at half the premium of the lowest cost plan available to the individual through the state exchange – the Health Connector.

To manage this humanely, Massachusetts established an income-based affordability schedule was established which exempts those individuals for whom health insurance coverage costs exceed a certain threshold. (For example, in 2017 affordability was set at 0% of income for individuals earning up to 150% Federal Poverty Level and 8.16% at 400 FPL and over.) Exemptions may also be requested through the Health Connector based on financial hardship or sincerely held religious beliefs.

Key takeaways for states

States interested in pursuing an individual mandate should embrace the “three-legged stool” approach (including guaranteed issue, an individual mandate, and premium subsidies), because it is critical to ensuring a healthy risk pool and keeping more people insured. Fortunately, two of these three legs are still provided by the ACA, so states only need to address the second leg: the individual mandate. While the politics of requiring health insurance coverage may be difficult to navigate, the potential benefits of doing so are significant: a healthier risk pool which in turn helps manage cost; a higher number of people with health insurance coverage; and the ability for a state to have more control over its insurance market. It’s also worth noting that there is a robust level of participation of insurers in the Massachusetts individual marketplace, and there has been since inception of the Health Connector.

Other considerations for states include:

Government agencies need to work together to define, implement and administer individual mandate requirements (in Massachusetts, the Health Connector has worked closely with the Department of Revenue)

Tax penalties should be set at a level that encourages enrollment but doesn’t overly burden taxpayers

Reasonable exemptions to the mandate should be considered, and can be managed through the state exchange

Flexible affordability standards are key to ensuring low income individuals aren’t financially burdened

Premium cost affordability is important, but keeping out-of-pocket expenses affordable at time of service is also important and can be positively impacted through minimum coverage standards.

The author gratefully acknowledges the contributions of Ross Weiler, Principal at Day Health Strategies, to this blog. Rosemarie Day can be found on Twitter: @Rosemarie_Day1

Rosemarie Day operates Day Health Strategies and is the Former COO of the Massachusetts Health Connector.

1 Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate, November 2017

2 New England Journal of Medicine; Amitabh Chandra, Ph.D., Jonathan Gruber, Ph.D., and Robin McKnight, Ph.D., The Importance of the Individual Mandate – Evidence from Massachusetts, January 27, 2011

3 RAND Research Brief; Eibner C, Saltzman, How Does the ACA Individual Mandate Affect Enrollment and Premiums in the Individual Insurance Market? 2015

4 Congressional Budget Office, How Repealing Portions of the Affordable Care Act Would Affect Health Insurance Coverage and Premiums, January 2017



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3 replies »

  1. I agree that guaranteed issue cannot work in the absence of a mandate to purchase health insurance. Without it, premiums will continue to escalate due to adverse selection. At the same time, healthy people cannot be allowed to just wait until they get sick to sign up for insurance. There needs to be a permanent penalty in the form of an increased premium for each month of delay if they could have purchased insurance but chose not to. This is the way Medicare Part B works.

    One of the key flaws in the ACA, in my opinion, is the cliff phaseout of premium subsidies at 400% of FPL income. I think there should be no ceiling at all and nobody should have to pay more than 10% of pretax income for health insurance with reasonable coverage which I would define as an actuarial value in the 60%-70% range.

    Enrollment in Medicaid increased significantly since the passage of the ACA but 19 states opted not to participate in the expanded program. If they all participated, millions more low income people would at least have safety net level coverage which I think is good enough to satisfy society’s obligation to help low income people acquire coverage but bad enough so that nobody who has a choice to buy private coverage would want Medicaid.

    Finally, a partnership between the federal and state governments could establish reinsurance plans to cover most of the claims costs incurred by the highest risk, most expensive cases so that premiums for everyone else could be meaningfully lower.

    Of course, all of these ideas would cost money mainly at the federal level and revenue to pay for them would have to be raised somehow. While there is plenty of opposition to that idea, I wonder how many people with decent health insurance through an employer, Medicare, Medicare Advantage or a private individual market plan would be willing to trade places with people who need health insurance, especially if they already have health issues, but can’t afford it.

  2. I agree with the mandate but not when non-subsidized applicants are forced to buy insurance with obscene premiums because congress won’t fix the cost/profit problem.

  3. Thank-you for affirming the most obvious condition initially required for equitably available, ecologically accessible, justly efficient and reliably effective HEALTHCARE and its universal health insurance.