Healthcare plans are already raising premiums and deductibles through the roof, but they will have to raise them even higher if the individual mandate is removed and healthier consumers leave the plans. Those rising prices could drive even more consumers to forego coverage, since they could do so without fear of a penalty.
The only consumers who stick with the exorbitantly expensive health plans will be the ones whose healthcare expenses would be even higher. That's a progression that cannot end well for insurers, health plan leaders and analysts say.
Removing the individual mandate would upset the balance built into the ACA for health plans, leaving them with the obligation to cover sicker consumers at an artificially low cost without requiring the sign-up of the healthier people that keep the companies profitable.
The individual mandate is the one brake stopping the healthcare system from rolling back to the pre-ACA days, says CEO John Baackes of L.A. Care Health Plan, which covers more than 2 million Medi-Cal members.
"There is no question that the penalties associated with the ACA's individual mandate motivated people to enter the marketplace. Enrollment here at L.A. Care more than doubled when the minimum penalty rose to $695 last year. Without a penalty, the motivation to buy in is gone, and younger, healthier people are more likely to drop out," he says. "Those who stay in the market will have to pay more. But really, everyone is going to pay more. There's no way around it."
The repeal of the individual mandate is included in the tax bills being finalized on Capitol Hill. The Congressional Budget Office has estimated that premiums on the marketplaces will increase by at least 10% in 2019 if the individual mandate is repealed, notes Brady Bizarro, an attorney with The Phia Group, a consulting company that focuses on healthcare cost containment.
"Without the mandate, insurance companies may find it exceedingly difficult to make a profit and are likely to leave the marketplace, especially the individual exchanges that tend to insure the sickest people," Bizarro says.
No one knows for sure how many young, healthy individuals will drop their health insurance coverage if the mandate is repealed, Bizarro says. For employer-sponsored plans, especially self-funded plans that tend to be less expensive than their fully-insured counterparts, it may be that healthy workers keep their coverage as part of their overall benefit packages.
However, it is certain that a significant number of consumers who pay full freight for their own policies will drop their coverage, and they are generally going to be a healthier group, Bizarro says. This could leave health plans in an untenable position: forced to provide coverage for consumers with high utilization, without the balance of the individual mandate providing consumers with low utilization.
The end of penalties will mean a return to the old system of more consumers turning to the ER for services, and the resulting high-cost care will be another reason for all providers to raise premiums, Baackes says. Some health plans will find that they just can't be profitable under those conditions.
"As a not-for-profit entity, L.A. Care will be among the last ones standing as it is part of our mission to provide health coverage to the most vulnerable communities," Baackes says. "But an end to the mandate penalties would certainly begin the death spiral of the ACA."
The ACA addressed the problem of unaffordability for individuals with preexisting conditions through its "guaranteed-issue" and "community-rating" provisions, he explains. Together, they prohibit insurance companies from denying coverage to these individuals or charging them higher premiums based on their health status.
"These provisions do not address the problem of healthy individuals choosing to forego coverage until they become sick. This is a phenomenon known by health policy experts as adverse selection, and, if left unsolved, it inevitably leads to a death spiral in which only the sickest people remain in the health insurance market," Bizarro says. "In fact, the guaranteed-issue and community-rating provisions make this problem worse, since insurers would be forced to cover these individuals and be barred from charging them higher rates."
That can only lead to higher premiums, says Jennifer Riley, vice president of product development for Hodges-Mace, a benefits management company.
"While unpopular among many, the individual mandate is one leg of the three-legged stool that attempts to stabilize the individual insurance market while also providing expanded access. If you knock out that leg, the stool becomes increasingly unstable," she says. "Insurance is based on the principle of pooling risk and as you take away one of the incentives and, potentially the only incentive for the healthiest in the risk pool, insurance providers will have to increase premiums in response. Couple this with the grim future of cost-sharing reduction payments from the federal government and the result is a continued upward spiral in cost."
The decline in the number of uninsured and the rise in individual coverage under the ACA were sparked not just by the individual mandate, but also the improved access and subsidies, she notes. That means losing the individual mandate likely would not see a return to pre-ACA levels in enrollment.
"Nevertheless, the progress made by marketplaces to increase the number of insurers available in certain regions will likely see a decline as insurers pull back to the markets where they are most comfortable," Riley says.
Gregory A. Freeman is a contributing writer for HealthLeaders.