Tag Archives: individual mandate

How will the elimination of the individual mandate affect enrollment rates?

The requirement that every American have healthcare coverage or pay a financial penalty was one of the key provisions of the Patient Protection and Affordable Care Act (ACA). Known as the individual mandate, it was one of the most controversial provisions of the ACA. Some questioned its legality and others questioned its effectiveness at driving insureds into the insurance pool.

The U.S. Supreme Court settled the issue of the mandate’s legality in 2012, ruling that attaching a financial penalty to a failure to purchase health insurance did not run afoul of the U.S. Constitution. This decision, though, did not settle the issue of its effectiveness. And in late 2017, Congress enacted the Tax Cuts and Jobs Act, which reduced the financial penalty to $0 beginning with the 2019 mandate year, effectively eliminating the individual mandate.

Understanding the impact of this change on the health insurance risk pool is important to both insurers offering ACA-compliant products and state policy makers evaluating alternatives to the individual mandate. Health insurers—now in the process of setting rates for 2019—need to understand how elimination of the individual mandate penalty will affect future enrollment rates, which have a significant impact on rate projections. Some states are considering implementing state-based individual mandates, in some cases in conjunction with a Section 1332 State Innovation waiver.

In this paper, Milliman’s Andrew Bourg, Fritz Busch, and Stacey Muller discuss the significance of the individual mandate and model the impact of eliminating it.

Effect of recently enacted laws on employer-sponsored group health plans

Employer-sponsored group health plans have been directly impacted by changes under three statutes enacted since December 22, 2017. This Benefits Alert summarizes the new laws’ healthcare provisions affecting employer-sponsored plans.

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted on December 22, 2017, with a healthcare-specific provision that reduces the individual mandate penalty of the Patient Protection and Affordable Care Act (ACA) to $0 beginning in 2019.

• For group health plan sponsors, perhaps a more significant provision is the TCJA’s change to the methodology in which thresholds for the high-cost health plan excise tax (“Cadillac tax”) are indexed. Originally, the ACA increased the cost thresholds, triggering the tax based on the Consumer Price Index for Urban Consumers (CPI-U). However, the TCJA changed the basis for Cadillac tax (and other) purposes, from CPI-U to Chained CPI-U, which has measured, on average, approximately 0.25 percentage points lower than CPI-U (or about 90% of CPI-U). This change will cause employer health plans to cross the cost threshold earlier than under the original law and expose them to higher excise taxes unless employers make plan design changes or other action to avoid the excise tax. The estimated impact of this change is an increase of approximately 2% to 4% in a plan’s long-term cost, based on Milliman’s healthcare cost trend model.

The Continuing Appropriations Act, 2018 (CAA ’18), signed on January 22, 2018, delayed the application of the Cadillac tax to 2022 from 2020. For any employer health plan projected to begin paying the excise tax in 2020 or 2021, the delay will provide relief for one or two years. For plans not projected to have to pay the Cadillac tax prior to 2022, this delay will have no effect.

• Also in the CAA ’18, for 2019 only, fully insured plans are exempt from the ACA’s health insurer fee (HIF), an annual assessment that health insurance companies typically pass on to plan participants through premiums. This moratorium could produce a one-year savings of 2% to 3% for fully insured plans covering active employees and/or non-Medicare retirees. For Medicare Advantage plans, the percentage reduction in premiums will be much larger, because the HIF is applied to estimated premiums prior to reimbursements by the Centers for Medicare and Medicaid Services (CMS).

Finally, in the Bipartisan Budget Act of 2018, signed on February 9, 2018, two changes impact employers with an employer group waiver plan (EGWP).

• The Medicare Part D coverage gap (which under prior law would occur when a beneficiary accumulates $3,820 in total drug spending in 2019) will be eliminated in 2019 instead of 2020. The law also provides a reduction in beneficiary coinsurance to 25% (from 30%) in 2019, which is the same coinsurance the beneficiary pays prior to the coverage gap (hence the coverage gap is “closed”).
• Simultaneously in 2019, the pharmaceutical manufacturer discounts for Medicare beneficiaries reaching the coverage gap will increase to 70% from 50%.

The net effect of these two changes on EGWPs is that an employer’s health plan liability will be reduced to 5% (from 20%) of total prescription drug costs in the coverage gap, which will result in savings to the employer (see “How will the Bipartisan Budget Act of 2018 impact Part D in 2019 and beyond?”).

For further information about how these changes may impact your plans, please contact your Milliman consultant.

The individual mandate repeal: Will it matter?

The individual mandate is one leg of the “three-legged stool” of the Patient Protection and Affordable Care Act (ACA). During the crafting of healthcare reform, insurers and other market experts contended that the mandate was absolutely necessary for a functional individual guaranteed issue market. With the passage of the Tax Cuts and Jobs Act of 2017, there are renewed concerns related to the stability of the individual market.

Milliman consultants Fritz Busch and Paul Houchens believe that the individual mandate’s financial penalties at face value are high enough to induce high insurance participation rates, but that the enforcement of these penalties has not been strict enough to fully achieve the mandate’s policy aims. They say that available premium assistance in the insurance marketplaces may provide sufficient financial incentives to prevent a collapse of marketplace enrollment rates resulting from the mandate’s repeal. In their paper, Busch and Houchens examine available empirical data to arrive at this conclusion.

IRS specifies the health reform law’s individual penalty requirements

The Internal Revenue Service (IRS) has released a final rule that specifies the income tax penalties to which individual taxpayers will be subject if they do not obtain healthcare coverage in 2014. The rule implements the individual or “shared responsibility” mandate of the Patient Protection and Affordable Care Act (ACA), which requires most Americans to either have a minimum level of health insurance or pay an income tax penalty. Employer-sponsored coverage qualifies as minimum essential coverage.

Exemptions from the penalty are available, such as for individuals who qualify for Medicaid coverage but who live in states that have not adopted the ACA’s expanded Medicaid provisions. Also exempt are individuals for whom coverage is unaffordable (i.e., costing more than 8% of household income); those who are uninsured temporarily (e.g., no more than three consecutive months between jobs); and those who oppose having insurance coverage for religious reasons.

The penalty for not having insurance next year will be the greater of $95 or 1% of 2014 household income, in general. The penalties will increase in future years.

Federal premium subsidies will be available for certain low- and moderate-income households, including pre-Medicare-eligible retirees who are eligible for, but do not enroll in, any healthcare coverage that may be offered by their former employers. Similarly, subsidies will be available for former employees and their dependents who are eligible for, but not enrolled in, COBRA continuation coverage.

Although this final rule will not directly affect employer-sponsored group healthcare programs, Milliman consultants are available to discuss the ACA’s individual penalty requirements. The IRS is expected to issue separate guidance on issues of greater interest to employers, such as if an employer subsidizes or funds pretax arrangements for employees to obtain coverage in the individual market.

Many older people will be exempt from the individual mandate

The federal government recently published final regulations for the individual mandate of the Patient Protection and Affordable Care Act (ACA). This Forbes article highlights seven items people need to know about not maintaining minimum essential health coverage. The article quotes Milliman’s Paul Houchens discussing the cost of coverage many older individuals pay, which exempts them from the mandate.

Here is an excerpt:

…Paul Houchens, an analyst at Milliman, puts it this way: if you’re 55 years old, and you’re paying $7,800 a year for health insurance, you’ll be exempt from the individual mandate if your income is between 400 percent of the federal poverty level—about $46,000—and $97,500. (If your income is below $46,000, you qualify for at least a partial subsidy of your insurance costs, which, based on the way the law is written, makes the individual mandate apply to you.)

On the other hand, if you’re a 35-year-old, and you’re paying $3,600 a year for your health coverage, the mandate applies to you in nearly all cases, because $3,600 divided by 8 percent is $45,000, which is lower than 400 percent of the federal poverty level.

For more perspective on how the mandate will impact out-of-pocket premiums for bronze-level coverage in the individual market read Houchens’ paper “Measuring the strength of the individual mandate”.