The Individual Mandate: Theory and Practice
- 1. The Individual Mandate: Theory & Practice Supported by a grant from the August 21, 2014 Amanda E. Kowalski, PhD Yale University Nancy Turnbull Harvard University You will be connected to broadcast audio through your computer. You can also connect via telephone: 800-745-9476 Slides available at: www.shadac.org/IndividualMandateWebinar
- 2. 2 Technical Items • All phone lines are muted • Submit questions using the chat feature at any time • Troubleshooting: • ReadyTalk Help Line: 800-843-9166 • Chat feature • Slides available at www.shadac.org/IndividualMandateWebinar
- 4. 4 About SHARE State Health Access Reform Evaluation (SHARE) • National Program of the Robert Wood Johnson Foundation • Part of the Foundation’s Coverage Team • Operates out of the State Health Access Data Assistance Center (SHADAC) • 33 research grants awarded since 2008 • 2014 grants to launch in October
- 5. 5 Amanda E. Kowalski, PhD Assistant Professor Yale University Department of Economics
- 6. Amanda Kowalski Assistant Professor of Economics Yale Department of Economics August 2014
- 7. Overview of Massachusetts Reform and theACA Methods and Data Results Coverage Costs Premiums Welfare Implications Implications for National Reform Forthcoming and Prior Research
- 8. Massachusetts Reform, April 2006 • Individual mandate – Penalty is up to 50% of basic plan by months without coverage • Employers mandated to provide coverage – >10 FTEs • Medicaid expansions – Up to 100% of FPL for adults – Up to 300% of FPL for children • Subsidized private plans through exchanges – Subsidies up to 300% of FPL • Insurance exchange – Administered by the “Connector” – Benefit tiers Bronze-Gold and YoungAdult Plans (YAPs) Reference: Kaiser Family Foundation National Reform, March 2010 • Individual mandate – Penalty is higher of 2.5% of income or $2,085 • Employers mandated to provide coverage – >50 FTEs – >200 FTEs automatically enroll • Medicaid expansions – Up to 133% of FPL • Subsidized private plans through exchanges – Subsidies up to 400% of FPL • Insurance exchanges – State level administration – Benefit tiers Bronze-Platinum and Catastrophic • Cost control measures
- 9. Under theory of adverse selection, the sickest people sign up for coverage first Reform in Massachusetts allows us to examine mandate as a practical response to adverse selection We know that the initial market was adversely selected if Coverage increased Insurer costs decreased on average (indicates that lower-cost individuals signed up for coverage)
- 10. Markups are the difference between what the insurer charges in premiums and pays in costs We know that markups decreased if Premiums decreased by even more than costs
- 11. Under adverse selection and markups, there is a welfare loss because consumer willingness to pay for insurance is higher than what it would cost insurers, but consumer willingness to pay for insurance is lower than the offered price Getting more low-cost people into the pool and charging consumers premiums closer to costs improves welfare
- 12. Arrive at changes in coverage, costs, and premiums by comparing MA to synthetic control group of other states before and after reform Shaded region is welfare gain, graph also gives optimal penalty
- 13. SNL Financial Database: 2004-2011 Compiled from NationalAssociation of Insurance Commissioners reports Detailed data at the firm-market-year level on ▪ Enrollment in member-months ▪ Costs to Insurers ▪ Premiums Universe of insurers in the individual market Drop insurers that offer Commonwealth Care Plans National Health Interview Survey (NHIS) Allows us to express insurance coverage in percentages Restrict the sample to individuals 18-64 earning more than 300% of the FPL to avoid ▪ Medicaid expansions ▪ CommonwealthCare plan expansion ▪ Variation in tax penalty
- 14. Coverage increased by 21.7 percentage points, starting from 70% in individual market 78% from adverse selection, rest due to lower markups
- 15. Insurer expenditures decreased by $459 per person per year (8.7% of pre-reform base of $5,271), indicating adverse selection
- 16. Premiums decreased by $1,368 per person (23.3 percent of pre- reform base of $5.871), reflecting less adverse selection and lower markups
- 17. Reform made participants in individual market better off by $299 per person per year – approximately $63.5 million overall per year spread over 212,000 individuals 80 percent of welfare gain from reductions in adverse selection (likely from mandate) Remaining 20 percent from decreased markups (likely from introduction of exchange, changes in individual/small group market)
- 18. Coverage increased, insurer costs decreased, premiums decreased Reform made participants in individual market better off by $299 per person per year Optimal minimal individual mandate penalty would be at least $1,462 (penalty under national reform is greater of $2,085 or 2.5% of household income)
- 19. Implications for National Reform MA already had community rating and guaranteed issue regulations, which are established by national reform The individual mandate mitigated adverse selection in the presence of these regulations National market would have had adverse selection similar to pre-reform Massachusetts had the Supreme Court struck down the mandate while keeping these regulations Other states could have different experiences
- 20. ACA Kowalski, Amanda “The AffordableCare Act and Adverse Selection State-by-State” Brookings Papers on EconomicActivity, Forthcoming September 11, 2014. Massachusetts Hackmann, Martin,Jonathan Kolstad, and Amanda Kowalski “Health Reform, Health Insurance, and Selection: EstimatingSelection into Health Insurance Using the Massachusetts Health Reform” American Economic Review (Papers and Proceedings). May 2012. Kolstad,Jonathan and Amanda Kowalski "The Impact of Health Care Reform on Hospital and Preventive Care: Evidence from Massachusetts.” Journal of Public Economics. December 2012.Vol. 96. 909-929. Kolstad,Jonathan and Amanda Kowalski “Mandate-Based Health Reform and the Labor Market: Evidence from Massachusetts.” NBER Working Paper #17933 (newer version on our websites)
- 21. ACA Kowalski, Amanda “The AffordableCare Act and Adverse Selection State-by-State” Brookings Papers on EconomicActivity, Forthcoming September 11, 2014. Massachusetts Hackmann, Martin,Jonathan Kolstad, and Amanda Kowalski “Health Reform, Health Insurance, and Selection: EstimatingSelection into Health Insurance Using the Massachusetts Health Reform” American Economic Review (Papers and Proceedings). May 2012. Kolstad,Jonathan and Amanda Kowalski "The Impact of Health Care Reform on Hospital and Preventive Care: Evidence from Massachusetts.” Journal of Public Economics. December 2012.Vol. 96. 909-929. Kolstad,Jonathan and Amanda Kowalski “Mandate-Based Health Reform and the Labor Market: Evidence from Massachusetts.” NBER Working Paper #17933 (newer version on our websites)
- 22. 22 Nancy Turnbull Senior Lecturer Harvard University School of Public Health
- 23. The Individual Mandate: Some Thoughts from the Ground in Massachusetts Nancy Turnbull Harvard School of Public Health Board Member, Health Connector
- 24. 24 Comparison of Massachusetts and US Health Care Reform Laws Massachusetts US Public Coverage for the Poor √ √ Subsidized Coverage for moderate income √ √ Reforms to private insurance market √ √ Health Insurance Exchange √ √ Individuals must buy insurance √ √ Employers must provide or pay penalties √ √
- 25. Differences between Massachusetts and Federal Reform relevant to impact of IM Separate program of subsidized coverage: Commonwealth Care ≤300% FPL Not eligible for Medicaid or ESI Not part of the individual market and risk pool Program run and financed by state (and feds) Separate standardized products and carriers Sliding scale subsidy This population will be part of individual market under ACA in other states (and now in Massachusetts) How will this affect premiums and selection?
- 26. Individual FPL Income (2013) Federal: Enrollee Monthly Premium Contribution after APTC* Massachusetts: Enrollee Monthly Premium for ConnectorCare 100-133% $11,490- $15,282 $19-25 $0 133%-150% $15,282- $17,235 $38-57 $0 150-200% $17,235- $22,980 $57-121 $40 200-250% $22,980- $28,725 $121-193 $78 250-300% $28,725- $34,470 $193-272 $118 Note: Actuarial value of APTC silver plan ~70% ; actuarial value of ConnectorCare plans ~97%. With cost-sharing, AVs in ACA are 94% at 100- 150% FPL; 87% at 151-200%, and 73% at 201-250%. Preserving Better Subsidies and Coverage Key Policy Goal in MA Response to ACA No IM penalty IM penalty
- 27. Two-Thirds of Increase in Coverage In Massachusetts Has Been Among People who are Not Subject to An Individual Mandate Penalty (But Who Are Eligible for Free Health Coverage) Change in Total Coverage by Source: 2006 vs 2012 (~430,000 people) Unsubsidized Through Exchange Medicaid Employers (2%) Other (7%) CommCare: No Premium What impact on premiums in individual market??
- 28. 28 From IM Atheist to IM Agnostic: My Spiritual Conversion Increase in People with Coverage by Type of Coverage: June 2006 vs December 2008 December 2008 Private Coverage 41% of gain +421,000 people
- 29. 29 From IM Atheist to IM Agnostic: What a Difference a Recession Makes Increase in People with Coverage by Type of Coverage vs June 2006 March 2011December 2008 +421,000 people +439,000 people
- 30. 30 Proportion of Employers Offering Health Insurance Source: KFF/HNET and Mass DHCFP No Erosion of Employers Offering Coverage
- 31. 31 Most of the Remaining Uninsured are Not Subject to Any Individual Mandate Penalty… But They Are Likely Eligible for Free Coverage Uninsured Full Year (n=170,000) Paid penalty 13% Nothing affordable 16% Income <150% FPL: no penalty 64% Appealed penalty 3% Religious/other exemption 4% Details of Uninsured from Mass State Tax Filings: 2011
- 32. The biggest gains in coverage have been among young adults Urban Institute 2005 estimates; CHIA January 2013 report (2005=adults 19-25) Percent of population uninsured
- 33. Significant reductions in the racial coverage gap Urban Institute, 2005 and MHIS 2010 Percent of Population Uninsured
- 34. Importance of Health Insurance Market Reforms in Making Coverage More Affordable • Non-group/individual and small-group insurance markets combined in Massachusetts in 2007 • Reduced individual rates significantly with only minor increase for small employers • Age for eligibility for dependent coverage for health insurance raised to 25 years • Exchange/marketplace as means to promote new products, make shopping easier and prices more transparent for consumers
- 36. More People Covered But Little Progress on Financial Security Overall Percent of Non-Elderly Adults Percent of Insured Adults
- 37. IM Meets Rising Health Insurance Premiums: How to Respond? Let reach of the mandate erode? Increase the affordability schedule to maintain reach of mandate? Reduce public subsidies? Reduce minimum mandated coverage (e.g., reduce actuarial value levels)? Take more aggressive public policy action to moderate health insurance premiums?
- 38. 38 Question & Answer Submit questions using the chat feature on the left- hand side of the screen. Amanda Kowalski Nancy Turnbull
- 39. 39 The Individual Mandate: Theory & Practice • Direct inquiries to Carrie Au-Yeung at butle180@umn.edu • Webinar slides and recording available at www.shadac.org/IndividualMandateWebinar • Learn more about SHARE and join our mailing list at www.shadac.org/share www.facebook.com/shadac4states @shadac Supported by a grant from the SHADAC