Would Premiums Without A Mandate Really Only Be 2.4% Higher Than With A Mandate?
I just read about a RAND study that found that eliminating the individual mandate from the ACA would only increase premiums for individual health insurance purchased via the exchanges by 2.4%. This is from a per-person perspective assuming person X is buying health insurance with the mandate in place, the premium would be Y dollars. Then assuming there is no mandate, that same persons premium is estimated to be Y dollars plus an additional 2.4%. If you dont look at it from a per-person basis though, and instead consider the overall premiums for everyone insured through the exchanges, the RAND study predicts that average total premiums would be 9.3% higher without a mandate. But this is because they assume that the majority of people who would choose to forego health insurance (assuming theres no mandate) would be younger, healthier individuals. Premiums vary sharply based on age (under the ACA, premiums for older individuals can be up to three times as high as premiums for younger people), so the average premium without a mandate would be skewed higher based on the fact that the average insured would be older.
When I see numbers like this, I wonder whether they would hold up in a long-term scenario. Would the difference in premiums still be 2.4% five years down the road? Without a mandate, people will basically be able to come and go as they please in the health insurance market. If the mandate is repealed or found to be unconstitutional, but the guaranteed-issue provision is left in place, there will be little incentive for people to purchase health insurance until if and when they need it. There could be open enrollment periods like the January and July open-enrollments for child-only plans in Colorado, but even with open-enrollment there is room for some adverse selection. People who elect to go without health insurance know that theyre never more than five months away from an open enrollment window. Obviously some situations are emergencies and cant wait, but some people might choose to put off treatment for a nagging medical condition until after theyre able to obtain health insurance during an open-enrollment. Any way you look at it, there seems to be ample room for people to pay for health insurance if and when they need healthcare and not pay for it when they dont. This doesnt seem like a sustainable long-term solution.
The RAND study found that far fewer people would obtain new health insurance if the individual mandate were removed from the ACA, and also predicted that the government would end up spending far more per person in federal health insurance subsidies both of those are negative outcomes associated with eliminating the individual mandate.
But even if we disregard things like the higher number of uninsured people and the increased federal spending, I have to wonder about the long-term implication for premiums if the individual mandate isnt part of the ACA when the guaranteed issue provision kicks in starting in 2014. Ive written before about the dramatic differences between the individual health insurance market here in Colorado (no mandate, no guaranteed issue rules) and the market in states where individual health insurance is guaranteed issue, but no mandate is in place requiring everyone to obtain coverage.
In addition, I just did a little comparison shopping with updated 2012 numbers for my own family. CoverColorado provides guaranteed issue health insurance here, but the premiums are subsidized so they dont really reflect the claims expenses of the insureds in the program. Small group premiums are a better indicator of what it actually costs to insure people without regard for their health history. Now that maternity coverage is included on all individual plans in Colorado (this used to be a major difference between group plans and individual plans), its easier to compare group coverage and individual coverage. Its still not an apples-to-apples comparison, but its the closest thing we have, so well go with it.
If my family were qualify for a group of one plan (meaning that Jay or I would have to be self-employed and meet the definition of a group of one), wed be eligible for the state mandated Basic or Standard plans offered by all carriers. These policies are guaranteed issue, and include PPO and HMO options. For my comparison, I looked at Anthem Blue Cross Blue Shields Basic and Standard quotes. Our familys premiums would range from $1350 a month to $3750 a month, depending on whether we picked a PPO or and HMO, and whether we went with the Basic or Standard plan.
When I expanded the range of quotes beyond just the state-mandated guaranteed-issue Basic and Standard options for groups of one, I found small group premiums for our family that ranged from $811 a month (for an HSA-qualified plan with a $5000 deductible) to almost $3500 a month for a comprehensive HMO plan.
Since were all healthy (knock on wood), we dont purchase our health insurance in the group market or through a guaranteed-issue option like CoverColorado. Weve had individual health insurance for ten years now, and although weve raised our deductible over the years to keep our premiums affordable, weve never come anywhere near the premiums that wed be paying under a group (guaranteed issue) policy. If we were to shop for a new policy in the individual market right now, wed see premiums that go as low as the $200 $300 range for our family (admittedly, those are for policies with $10,000 and $25,000 deductibles, so they probably arent a good option for most people, including us), and lots of plans with premiums in the $350 $600 range. If we wanted to really spend, we could get a $500 deductible (from Humana) with $35 office visit copays, and the premium would be $1670 a month. This is the most expensive individual option I could find, and yet its right in the middle of the price range of the small group plans I looked at.
Keep in mind that all of those prices are based on the fact that the individual policies are medically underwritten (which means that the rates can be increased during underwriting or the application can be denied based on medical history), while the group plans are guaranteed issue and the rates cannot vary based on the groups health status. Theres a huge range of options available, both in the individual and small group markets. But the premiums in the small group market for our family of four (parents in their 30s with two young children) would be roughly double what they are in the individual market.
Although I realize that the RAND study is important and useful, I wonder why the real-life scenario of individual versus small group premiums is so different. And although the ACA does put a cap on how much greater premiums can be for older people versus younger people, it doesnt stipulate what the base premiums have to be for the younger people. Premiums have to follow the MLR rules (with insurers spending at least 80 85% of premiums on medical expenses), but they will reflect claims expenses pretty closely.
Time will tell. We still have to see what the Supreme Court decides regarding the individual mandate, and well also have to see how this years congressional elections turn out. A lot could happen between now and 2014 when the main provisions of the ACA are scheduled to take effect. But if all continues as currently planned but with the individual mandate eliminated, I would expect premiums in the long run to be significantly higher than they would be with the individual mandate in place.
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