Cost and Coverage: The Impact of Implementing Various State Health Care Reform Proposals Nationally. A National Individual Mandate

06/01/2008

ASPE worked with The Lewin Group to design and model a national individual mandate for the purchase of health insurance.  The key design elements of the model include:

  • Premium subsidies – full premium subsidies are available to those below 150% FPL, while availability of premium subsidies for those with incomes between 150% and 300% FPL is on a sliding scale basis with the subsidy decreasing as income increases (same as outlined for the Health Insurance Premium Subsidy Programs section);
  • Mandate exemption – Individuals and families with incomes above 300% FPL would be exempt from the mandate if their premiums would exceed a certain percent of their income, as outlined in the following table:
     
    Income as Percent of FPL Premium as Percent of Income
    300% - 350% 5.5%
    350% - 400% 6.5%
    400% - 500% 7.5%
    500% - 600% 8.6%
    Above 600% No exemption
  • Insurance market reforms – guaranteed issue is required for all insurers, and premiums cannot vary by health status; and
  • Crowd out – to prevent the substitution of private coverage for public coverage, individuals must be without insurance for 6 months or longer to be eligible for the subsidy program.

Several design specifications were varied to produce a series of coverage and cost estimates.  Consistently using the above four design elements, The Lewin Group modeled the individual mandate with the following five variations on enforcement mechanisms:

  • Penalty – mimicking the Massachusetts program, individuals who do not obtain coverage are subject to a penalty equal to one half the cost of insurance under the minimum standard plan (same as the minimum benefit requirements outlined in the Health Insurance Premium Subsidy Programs section), except as exemptions apply (see above);
  • Automatic enrollment through the tax system – based on tax filings, individuals would be enrolled in an insurance program;
  • Automatic enrollment through other income tested programs – individuals would be identified and enrolled in an insurance program based on participation in various publicly funded programs such as food stamps and other social services programs;
  • Automatic enrollment through the school system – all school-aged children and their parents would be enrolled if the parents or responsible adults could not show proof of insurance coverage; and
  • Combined approach – automatic enrollment would occur through all three mechanisms described above.
  • Cost and Coverage Impacts

    • As indicated, the cost and coverage estimates vary based on the type of enforcement mechanism modeled.  The results are presented below for each variation. 

      Individual mandate with a penalty.  Establishing an individual mandate enforced by a penalty equal to one-half the cost of insurance would result in a net reduction in the uninsured of 22.3 million people (Figure 9).  Under the mandate 16 million previously uninsured individuals would gain coverage in the premium subsidy program.  Of the remaining 3.4 million people who would enroll in the subsidy program, 1.9 million would have previously had ESI coverage and 1.5 million would have previously had non-group coverage.  In addition, 2.1 million people would be newly covered by Medicaid and SCHIP and 4.6 million people would gain coverage despite not being eligible for the subsidy program.   

      Approximately 300,000 individuals who previously would have been covered by ESI would become uninsured, and 100,000 who previously would have been covered by non-group coverage would become uninsured, resulting in 400,000 newly uninsured individuals.  These are primarily individuals who would not be eligible for the subsidy and for whom the cost of coverage exceeds the cost of the penalty.

        Penalty for Being Uninsured Automatic enrollment through the tax system Automatic enrollment through other income tested programs Automatic enrollment at school Combined Approach
      Figure 9. Changes in Enrollment under an Individual Mandate with Various Mandate Enforcement Mechanisms (Includes Premium Subsidy Program) (in millions)
      Number of People who take the Subsidy (< 300% of FPL) 19.4 25.0 19.0 19.3 25.2
      Previously uninsured 16.0 21.6 15.7 16.0 21.8
      Previously non-group 1.5 1.5 1.5 1.5 1.5
      Previously ESI coverage 1.9 1.9 1.8 1.8 1.9
      Workers and dependents whose employer drops coverage a/ 3.5 3.5 3.5 3.5 3.5
      Take non-group coverage 3.0 3.2 2.8 2.7 3.2
      Enroll in Medicaid or SCHIP 0.2 0.2 0.3 0.3 0.2
         Go uninsured 0.3 0.1 0.4 0.5 0.1
      Take up ESI coverage 2.6 4.3 1.7 2.4 4.4
      Currently decline ESI who take it 2.0 3.7 1.1 1.8 3.8
      Firms who start offering coverage a/ 0.6 0.6 0.6 0.6 0.6
      Net Reduction in uninsured 22.3 36.9 22.1 24.6 38.0
      Newly covered under Medicaid or SCHIP 2.1 6.6 5.2 5.7 7.4
      Newly covered people eligible for the subsidy 16.0 21.6 15.7 16.0 21.8
      Newly covered people ineligible for subsidy 4.6 8.8 2.7 4.2 8.9
      Uninsured from employer dropping coverage (0.3) (0.1) (0.5) (0.5) (0.1)
      Uninsured from dropping non-group coverage (0.1) (0.0) (1.0) (0.8) (0.0)

      a/ Impact of insurance market reforms on employer coverage. 

      Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

      An individual mandate enforced by a penalty equal to one-half the cost of insurance would have a net Federal cost of $70.8 billion and a net state savings of $8.9 billion, for a total program cost of $61.9 billion (Figure 10).  As with the previously discussed premium subsidy program, states achieve savings as a result of reduced costs for state programs for the uninsured due to the decrease in the number of uninsured, and both the federal and state governments achieve savings in the form of increased tax revenue as a result of higher wages.  The Federal government also achieves savings of $22.1 billion resulting from penalty payments.  Uncompensated care costs are reduced by $18 billion. 

        Penalty for Being Uninsured Automatic enrollment through the tax system Automatic enrollment through other income tested programs Automatic enrollment at school Combined Approach
      Figure 10. Summary of Public Program Costs under an Individual Mandate with Various Mandate Enforcement Mechanisms (Includes Premium Subsidy Program) (in billions)
      Total Program Costs $61.9 $108.3 $89.5 $90.1 $111.8
      Spending by Program
      Federal Government Costs $70.8 $116.1 $96.2 $97.9 $118.5
      Medicaid and SCHIP Programs    $3.5   $10.0   $8.5   $7.5   $11.9
      Premium Subsidies a/   $91.3 $107.4 $90.4 $93.1 $108.1
      Penalty for Remaining Uninsured b/ ($22.1)      --    --    --    $0.0
      Tax Revenue Loss/(Gain) Due to Wage Effects  ($1.9)  ($1.3) ($2.7) ($2.7) ($1.5)
      State and Local Government Costs ($8.9) ($7.8) ($6.7) ($7.8) ($6.7)
      Medicaid and SCHIP Programs    $2.6    $7.7   $6.4    $5.6    $9.0
      Other State Programs ($11.3) ($15.3) ($12.8) ($13.1) ($15.5)
      Tax Revenue Loss/(Gain) Due to Wage Effects  ($0.2)   ($0.2)  ($0.3)  ($0.3)  ($0.2)
      Uncompensated Care
      Reduction in Previously Uncompensated Care ($18.0) ($25.1) ($18.9) ($19.0) ($25.6)

      a/ Includes $171 annual cost per family for determining eligibility and administering premium subsidies.
      b/ Assumes that 90 percent of the penalties owed are collected.

      Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

      Individual mandate with automatic enrollment through the tax system.  An individual mandate enforced with automatic enrollment through the tax system would result in a net reduction of the uninsured of 36.9 million people (Figure 9).  Over twenty-one and a half million previously uninsured people would participate in the subsidy program, 6.6 million would gain coverage through Medicaid and SCHIP, and 8.8 million would gain private coverage despite not being eligible for the subsidy program.  Approximately 100,000 people who previously would have had ESI coverage would become uninsured.

      While this enforcement mechanism achieves the greatest reduction in the uninsured of the four individual mandate enforcement mechanism variations modeled, it does not cover everyone because non-tax filers and non-residents would not be captured in the system.

      An individual mandate enforced with automatic enrollment through the tax system would have a net Federal cost of $116.1 billion and a net state savings of $7.8 billion, for a total program cost of $108.3 billion (Figure 10).  States would experience an increase in Medicaid and SCHIP expenditures totaling $7.7 billion, while achieving over $15 billion in savings in other state programs.  Previously uncompensated care costs would be reduced by over $25 billion.

      Individual mandate with automatic enrollment through other income tested programs. An individual mandate enforced with automatic enrollment through other income tested programs would result in a net reduction in the uninsured of 22.1 million people (Figure 9).  Over fifteen and a half million previously uninsured people would participate in the subsidy program, 5.2 million would gain coverage through Medicaid and SCHIP, and 2.7 million would gain private coverage despite not being eligible for the subsidy program.  Approximately 1.5 million people who previously would have had ESI or non-group coverage would become uninsured.

      The program would have a net Federal cost of $96.2 billion and a net state savings of $6.7 billion, for a total program cost of $89.5 billion (Figure 10).  States would experience an increase in Medicaid and SCHIP expenditures totaling $6.4 billion, while achieving almost $13 billion in savings in other state programs.  Previously uncompensated care costs would be reduced by almost $19 billion.

      Individual mandate with automatic enrollment through schools.  An individual mandate enforced with automatic enrollment through schools would result in a net reduction in the uninsured of 24.6 million people (Figure 9).  Sixteen million previously uninsured people would participate in the subsidy program, 5.7 million would gain coverage through Medicaid and SCHIP, and 4.2 million would gain private coverage despite not being eligible for the subsidy program.  Approximately 1.3 million people who previously would have had ESI or non-group coverage would become uninsured.

      The program would have a net Federal cost of $97.9 billion and a net state savings of $7.8 billion, for a total program cost of $90.1 billion (Figure 10).  States would experience an increase in Medicaid and SCHIP expenditures totaling $5.6 billion, while achieving over $13 billion in savings in other state programs.  Previously uncompensated care costs would be reduced by $19 billion.

      Combined approach.  An individual mandate enforced using a combined approach of all three automatic enrollment mechanisms would achieve the greatest coverage, with a net reduction in the uninsured of 38 million people (Figure 9).  Almost 22 million previously uninsured people would participate in the subsidy program, 7.4 million would gain coverage through Medicaid and SCHIP, and 8.9 million would gain private coverage despite not being eligible for the subsidy program.  Approximately 100,000 people who previously would have had ESI coverage would become uninsured.

      The program would have the largest price tag, as well, with a net Federal cost of $118.5 billion and a net state savings of $6.7 billion, for a total program cost of $111.8 billion (Figure 10).  States would experience an increase in Medicaid and SCHIP expenditures totaling $9 billion, while achieving $15.5 billion in savings in other state programs.  Previously uncompensated care costs would be reduced by $25.6 billion.

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