It has been a wild ride for health insurance enrollees since the Affordable Care Act (ACA; aka Obamacare) was signed into law 11 years ago. Even though they are no longer compelled to, millions of Americans continue to sign up for plans on the individual market.
Contrary to the scary-sounding predictions of the law’s architects, the zeroing out of the individual mandate has not undermined markets for health insurance purchased outside the workplace. In fact, ACA marketplace premiums have been on the decline for three years in a row, and individual enrollment is steady following a series of reforms that prioritized flexibility and freedom of choice over rigid regulations. President Biden should bear this in mind as he and his legislative allies contemplate expansions of Obamacare. The reality is that healthcare systems can deliver low prices and innovative services for consumers, but only with a market-based approach.
President Biden recently joked about calling Obamacare a “big f’ing deal” as he touted the expansion of a special pandemic enrollment window to purchase ACA marketplace healthcare plans through mid-August. When Biden first uttered that phrase after the law’s passage 11 years ago, a key component of that “big deal” was the individual mandate, which according to backers such as Biden was key to holding the law together. Obamacare proponents warned that if the mandate was nixed, the haughty healthiest would bolt and insurers would raise prices on the remaining sickly populations enrolled in Obamacare exchanges across the country. But that simply did not happen after 2017 tax reform legislation zeroed out the mandate.
The Kaiser Family Foundation, which vigorously supported the ACA and individual mandate, found in 2020 that this nixing of the mandate has had little negative impact on the individual health insurance marketplace. Researchers from the nonprofit organization “analyzed average premiums, claims, gross margins, and medical loss ratios…from the third quarter (Q3) of 2011 through Q3 2019 [and] found [that] claims data suggests the penalty’s elimination did not drive healthy enrollees to drop their insurance. Further, the researchers found that claims costs, like in previous years, grew modestly during the first nine months of 2019, which they said indicates health plan enrollees on average did not become less healthy after the penalty’s elimination.”
A broad look at the present-day market confirms that the elimination of the individual mandate did not wreak havoc on health insurance markets. One might think that the pandemic would amplify adverse selection effects because COVID-19 preys mostly on the sick and elderly. But, gross margins were actually up in 2020 compared to 2018 and 2019, meaning that premium income has been exceeding enrollee costs on average. Meanwhile, large, feared premium increases have not come to pass.
Certainly, it is possible and even likely that adverse selection has a large background effect on individual health insurance markets. Even during the best year for ACA market enrollment, less than 13 million individuals signed up for healthcare plans compared to about 180 million enrollees in employer-provided plans and 110 million enrollees in government-provided plans. It is also likely that Obamacare enrollment is fueled by means-tested subsidies, which help to paper over the adverse selection problem. But the individual market has remained largely the same size (in the 11 million enrollee range) with or without the individual mandate in place.
The Biden administration should recognize that reinstating the individual mandate penalty is unlikely to solve any underlying affordability and access problems posed by the non-employer health insurance marketplace. The federal government can continue to mask the problem and fuel enrollment by increasing exchange subsidies, but this approach simply is not sustainable with a national debt of $28 trillion and counting. A far better approach would be to build on market-based rules designed to increase competition and lower health insurance costs.
Rules finalized in August of 2018 allow consumers to purchase “short duration” plans, renewable for up to three years. These options may not have the smoking cessation or maternity care policies that characterize more-expensive plans on Obamacare markets, but not all patients need those expensive “essential benefits.” President Biden should keep these cost-lowering rules on the books and examine other costly insurance requirements that make young, healthy people think twice before enrolling in non-employer healthcare plans.
Over the past eleven years, the country has learned that market forces succeed where mandates and regulations fail in keeping prices under control and enrollment numbers healthy. The country should build on those successes instead of doubling down on failure.
Ross Marchand is a senior fellow for the Taxpayers Protection Alliance.