Modeling the Effects of the Individual Mandate on Health Insurance Coverage
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The Congressional Budget Office presentation discusses the individual mandate requiring health insurance coverage under the Affordable Care Act, detailing penalties for noncompliance and exemptions. It highlights the impact of Massachusetts' health care reform as a precedent for coverage increases and outlines the modeling framework used to estimate changes in health insurance coverage due to the mandate. Key considerations include nonfinancial factors influencing compliance, potential effects of repealing the mandate, and challenges in projecting future impacts based on historical data.
Modeling the Effects of the Individual Mandate on Health Insurance Coverage
- 1. Congressional Budget Office Modeling the Effects of the Individual Mandate on Health Insurance Coverage Presentation at the 2017 Annual Meeting of the American Academy of Actuaries Breakout Session on Modeling the Individual Mandate November 14, 2017 Alexandra Minicozzi Unit Chief, Health Insurance Modeling Unit
- 2. 1CONGRESSIONAL BUDGET OFFICE Individual Mandate Under Current Law ■ Unless exempt, people must obtain health insurance or pay a penalty. ■ Penalties are the greater of two amounts: 1. A fixed charge ($695 in 2016) for every uninsured adult in the household plus half that amount for each uninsured child, or 2. An assessment equal to 2.5 percent of the household’s income above the filing threshold for its income tax filing status. ■ Penalties are subject to caps and prorated.
- 3. 2CONGRESSIONAL BUDGET OFFICE Data on Collections and Exemptions John Koskinen, Internal Revenue Service Commissioner, letter to Members of Congress (January 9, 2017), www.irs.gov/pub/newsroom/commissionerletteracafilingseason.pdf. Common exemptions were for: ■ People whose income was low enough that they were not required to file a tax return. ■ People whose income was less than 138% of federal poverty level and who were ineligible for Medicaid because they lived in a state that had not expanded eligibility under the ACA. ■ U.S. citizens living abroad and certain categories of noncitizens, including unauthorized immigrants, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the marketplaces. ■ People whose premium exceeded a specified share of their income (8.05% in 2015; indexed over time). 14.3% 9.4% 4.8% 71.4% Tax Returns With Both Primary and Secondary Filers Under Age 65, Tax Year 2015 Exempt Had Coverage Nonfilers Filers 24% Paid the Penalty
- 4. 3CONGRESSIONAL BUDGET OFFICE Distribution of Individual Mandate Penalty Payments by Adjusted Gross Income, Tax Year 2015 Adjusted Gross Income Income Group’s Share of Individual Mandate Penalty Payments $100,000 or more 14% $50,000 to $99,999 28% Under $50,000 58% Internal Revenue Service, “Individual Income and Tax Data, by State and Size of Adjusted Gross Income, Total Files, All States,” www.irs.gov/statistics/soi-tax-stats-historic-table-2.
- 5. 4CONGRESSIONAL BUDGET OFFICE Timeline of Key Developments Related to the Individual Mandate SUPREME COURT DECISION MAKING MEDICAID EXPANSION OPTIONAL OPEN ENROLLMENT 2014 OPEN ENROLLMENT 2015 DEADLINE FOR FILING 2014 TAXES (PENALTY LARGER OF $95/ADULT OR 1% OF INCOME) OPEN ENROLLMENT 2016 DEADLINE FOR FILING 2015 TAXES (PENALTY LARGER OF $325/ADULT OR 2% OF INCOME) OPEN ENROLLMENT 2017 DEADLINE FOR FILING 2016 TAXES (PENALTY LARGER OF $695/ADULT OR 2.5% OF INCOME) 2012 2013 2014 2015 2016 2017
- 6. 5CONGRESSIONAL BUDGET OFFICE Theoretical Framework for the Individual Mandate ■ Estimates of changes in coverage produced by CBO’s Health Insurance Simulation Model (HISIM) are determined by shifts in the price of insurance and individuals’ responsiveness to those shifts (price elasticities). ■ Nonfinancial factors are translated into dollar amounts that shift prices. Shift in the Effective Price From the Individual Mandate: Shift in Effective Price = Effective Penalty + Shift Attributable to Nonfinancial Factors Statutory Penalty Amount * Probability That Penalty is Collected
- 7. 6CONGRESSIONAL BUDGET OFFICE Theoretical Framework for the Individual Mandate (Continued) Nonfinancial factors include: ■ Compliance effect. People tend to comply with laws. ■ Loss aversion. People respond more to penalties than to subsidies. ■ Social norm. Decision to obtain coverage is influenced by peers and the prevailing social norm that directs everyone to obtain health insurance. David Auerbach and others, Will Health Insurance Mandates Increase Coverage? Synthesizing Perspectives from Health, Tax, and Behavioral Economics, Working Paper 2010-05 (Congressional Budget Office, August 2010), www.cbo.gov/publication/21600.
- 8. 7CONGRESSIONAL BUDGET OFFICE Prior Empirical Evidence on the Effects of the Individual Mandate Key provisions of Massachusetts health care reform in 2006: ■ Required residents over age 18 to have insurance or pay a penalty, ■ Created a subsidized health insurance exchange, and ■ Expanded Medicaid eligibility. Coverage effects of Massachusetts health care reform: ■ Substantial increase in the rate of insurance and a decline in the overall uninsured rate (Long and Stockley 2011). ■ Increase in enrollment of low-income parents who were eligible for Medicaid before the law was enacted (Sonier, Boudreaux, and Blewett 2013).
- 9. 8CONGRESSIONAL BUDGET OFFICE Modeling Coverage Changes in HISIM Nonfinancial factors are translated into price changes in HISIM. Factors Unrelated to the Mandate Factors Related to the Mandate – Increased outreach and marketing for nongroup insurance – Easier shopping and enrollment for nongroup insurance – Ease of Medicaid sign-up – Compliance effect – Loss aversion – Social norm – Reduced stigma associated with Medicaid – Greater awareness about eligibility for subsidies
- 10. 9CONGRESSIONAL BUDGET OFFICE Calibrating the Price Shift From Nonfinancial Factors Related to the Mandate ■ Before the ACA was enacted, CBO relied heavily on evidence from Massachusetts. ■ CBO continues to calibrate HISIM annually to incorporate new information on: – Coverage, – Price changes and price elasticities, and – Effects of nonfinancial factors on coverage.
- 11. 10CONGRESSIONAL BUDGET OFFICE Health Insurance Coverage for People Under Age 65 in 2026, November 2017 Congressional Budget Office, Repealing the Individual Health Insurance Mandate: An Updated Estimate (November 2017), p. 2, www.cbo.gov/publication/53300. This budget option was estimated using CBO’s summer 2017 baseline. -2 -5 -5 13 0 20 40 60 80 100 120 140 160 Employment- Based Coverage Nongroup Coverage Medicaid and CHIP Other Uninsured If Individual Mandate Was Repealed Under Current Law Millions of People
- 12. 11CONGRESSIONAL BUDGET OFFICE Recent Empirical Evidence on the Effects of the Individual Mandate Disentangling the ACA-related causes of insurance coverage increases: Sample: 2012–2015 American Community Survey repeated cross-sections Specification: ■ Difference-in-differences with fixed effects for geographic areas and for income groups, and ■ Controls for demographics and local unemployment. Outcome Variable: Probability of being uninsured Explanatory Variables: ■ Medicaid eligibility (previously eligible, newly eligible, and eligible because of their state’s early expansion), ■ Size of nongroup premium subsidy, and ■ Size of potential tax penalty under the individual mandate. Molly Frean, Jonathan Gruber, and Benjamin D. Sommers, “Premium Subsidies, the Mandate, and Medicaid Expansion: Coverage Effects of the Affordable Care Act,” Journal of Health Economics, vol. 53 (May 2017), pp. 72–86, http://dx.doi.org/10.1016/j.jhealeco.2017.02.004.
- 13. 12CONGRESSIONAL BUDGET OFFICE Recent Empirical Evidence on the Effects of the Individual Mandate (Continued) Subsidies for Nongroup Insurance Medicaid Eligibility: Previously Eligible Medicaid Eligibility: Newly Eligible 0% 1% 2% 3% 4% 5% 6% 7% 40% 24% 17% 6% 13% – Increased outreach and marketing – Easier shopping and enrollment in new marketplace structures – Mandate compliance not directly related to penalty amounts – Regulatory protections in nongroup market – Macroeconomic changes – Applicability of mandate exemptions – Family income Nonfinancial Factors Affecting Coverage Measurement Error Medicaid Eligibility: Early Expansion Unexplained by Authors' Model Increase in the Rate of Insurance From 2012–2013 to 2015 for People Under Age 65 Change in Rate of Insurance Molly Frean, Jonathan Gruber, and Benjamin D. Sommers, “Premium Subsidies, the Mandate, and Medicaid Expansion: Coverage Effects of the Affordable Care Act,” Journal of Health Economics, vol. 53 (May 2017), pp. 72–86, http://dx.doi.org/10.1016/j.jhealeco.2017.02.004. Share of Total Coverage Increase
- 14. 13CONGRESSIONAL BUDGET OFFICE Interpreting the Analysis by Frean, Gruber, and Sommers (2017) ■ All studies will have difficulty disentangling the ACA’s coverage effects. ■ Caveats in interpreting Frean, Gruber, and Sommers (2017): – How much of the unexplained coverage effect that they identified is attributable to nonfinancial effects unrelated to the mandate? – To what extent is the social norm effect of the mandate included in their analysis of the coverage effect of the expansion of Medicaid eligibility? ■ Are there additional data or research results that inform estimates of the coverage effects of the mandate?
- 15. 14CONGRESSIONAL BUDGET OFFICE Challenges of Using Historical Data to Project Effects of New Policies Repealing the mandate is not the same as never having had a mandate. ■ How much will the knowledge about the benefits of having health insurance, subsidies, and the enrollment process that consumers have already gained affect their decisions in the future? ■ How much has the mandate permanently changed the stigma associated with Medicaid? ■ How much persistence in enrollment can we expect?
- 16. 15CONGRESSIONAL BUDGET OFFICE Key Questions for Discussion ■ What does the existing evidence tell us about the long-term effects on health insurance coverage of repealing the individual mandate? – On total coverage? – On Medicaid, nongroup, and employment-based coverage specifically? ■ What does the existing evidence tell us about the short-term effects of repeal?
- 17. 16CONGRESSIONAL BUDGET OFFICE References David Auerbach and others, Will Health Insurance Mandates Increase Coverage? Synthesizing Perspectives from Health, Tax, and Behavioral Economics, Working Paper 2010-05 (Congressional Budget Office, August 2010), www.cbo.gov/publication/21600. Molly Frean, Jonathan Gruber, and Benjamin D. Sommers, “Premium Subsidies, the Mandate, and Medicaid Expansion: Coverage Effects of the Affordable Care Act,” Journal of Health Economics, vol. 53 (May 2017), pp. 72–86, http://dx.doi.org/10.1016/j.jhealeco.2017.02.004. Sharon Long and Karen Stockley, “The Impacts of State Health Reform Initiatives on Adults in New York and Massachusetts,” Health Services Research, vol. 46, no. 1, pt. 2 (February 2011), pp. 365–387, http://dx.doi.org/10.1111/j.1475-6773.2010.01211.x. Julie Sonier, Michel Boudreaux, and Lynn Blewett, “Medicaid ‘Welcome-Mat’ Effect of Affordable Care Act Implementation Could be Substantial,” Health Affairs, vol. 32, no. 7, (July 2013), pp. 1319–1325, http://dx.doi.org/10.1377/hlthaff.2013.0360.