ACA Individual Mandate Set to Expire at the End of 2018

Benefits Insurance

When the Affordable Care Act was signed into law in 2010, it marked the culmination of months of negotiation that accounted for the inevitable financial impact that the proposed law would have on insurance marketplaces. One of the most prominent features of the legislation was the protection of people with pre-existing conditions. The law stated that insurance carriers had to allow high-risk individuals the ability to participate in insurance marketplaces which previously declined them due to adverse health status and risk. To balance the risk pool of the insured marketplace, lawmakers added a component to ACA known as the “individual mandate”, which created tax penalties for citizens who did not carry health insurance. The intent was to encourage as many people to participate in the insurance marketplace as possible, balance out the risk factor of the covered population, and create a model for financial stability with respect to claims paid by insurance carriers.

Following the change in presidential administration that occurred in 2016, many legislators set out to roll back certain elements of ACA which they believed to infringe on personal financial liberties. The Tax Cuts and Jobs Act of 2017 included the repeal of ACA’s individual mandate, which is now set to expire at the end of 2018. Starting January 1st, 2019, people will no longer be penalized by the IRS on their annual taxes for not holding health insurance.

While deemed a political success by opponents of ACA, the repeal of the mandate is expected by many to have a significant impact on insurance rates in non-group markets across the country. The Congressional Budget Office (CBO) estimates that, because of the mandate’s repeal:

  • Enrollment in the non-group health insurance market, including the marketplace, will decrease by 3 million in 2019 (17 million baseline) and by 5 million in 2025 (18 million baseline) ¹
  • Non-group premium rates in the next 10 years will be as much as 10% higher than if the mandate continued. ²

However, the above estimates rely heavily on assumptions about human behavior and the market’s reaction to the repeal of the mandate. Many other variables will factor into the continued stability of the individual marketplace, including income per-capita and state/national rates of unemployment.

Those who have coverage through their employer will likely see a less significant impact to their rates than those in individual exchanges and marketplaces following the repeal. Small employers still have access to community-rated coverage options, whose risk factor likely won’t be affected as much by the repeal as the individual marketplace due to demographic rating models. Large employers (50+ eligible) must still adhere to the Employer Mandate rules set by the ACA to provide health insurance to their employees but will continue to benefit from large group plan options and funding arrangements that are not available to individuals and small groups. Self-Funded Medical Plans and Direct Provider Contracting are just two ways that employers can effectively manage their risk separate from the rest of the insurance marketplace, control costs, and tailor their benefits to be as rich-in-benefit and affordable as possible.

Stephen Hernandez

Account Manager, Group Benefits

¹: CBO (November 2017). Repealing the Individual Health Insurance Mandate: An Updated Estimate, Table 2. Retrieved February 7, 2018, from https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53300-individualmandate.pdf.
²: CBO, November 2017, Repealing, ibid., p. 1.