Why the Individual Mandate Matters (PDF) - Robert Wood Johnson ...

IntroductionFew provisions of the Patient Protectionand Affordable Care Act (ACA) havebeen as controversial as the individualmandate, the legal requirement for mostAmericans to be covered by a healthinsurance plan that meets certain minimalstandards. Many object to the mandateon individual liberty grounds. Supportersof the mandate, including policyexperts as well as insurers, insist that itis a critical component to the effectiveimplementation of comprehensive healthcare reform. Three important goals ofreform are to increase health insurancecoverage, to eliminate discrimination byhealth status in the sale and maintenanceof health insurance, and to increasethe affordability of coverage. Withoutan individual mandate, these would allbe affected by the natural tendency forpeople to want to pay for health insuranceonly when they believe they will needhealth care services. Since those currentlywithout insurance have significantlylower costs on average than those payingfor insurance, the mandate will bringlower-cost people into the insurancerisk pools. This would lower the averagecost per person covered and thus lowerpremiums. 1In this brief, we compare the ACA toa scenario in which the individualmandate is eliminated, but otherprovisions of the ACA remainunchanged. This is what could happen,for example, if a legal challenge to themandate were to succeed. 2 In particular,we compare the effects of each scenarioon the distribution of different typesof health insurance coverage, on thosewithout health insurance, and onoverall health care spending by thegovernment, employers, and individuals.The Individual Mandatein the ACABeginning in 2014, most Americans willbe required to have health insurancecoverage meeting certain minimumrequirements and will be subject tofinancial penalties if they do not comply.Undocumented immigrants, NativeAmericans, prisoners, and those belowthe tax filing threshold will be exemptfrom the mandate. Exemptions will alsobe granted for hardships in obtainingcoverage, religious conscience, situationsin which no affordable insurancecoverage is available. 3 The penalty willbe assessed and collected under the taxcode, except that there is no criminalprosecution or additional penalty formissing payment deadlines, and neitherliens nor levies can be used. Providersof applicable insurance plans arerequired to report relevant informationto the Internal Revenue Service and tobeneficiaries.The penalty is computed as themaximum of a flat dollar amount perperson without qualifying insurancecoverage and a percentage of the family’sincome above the tax filing thresholdfor those without qualifying insurancecoverage. Both the flat dollar amountand the income percentage are phasedin gradually from 2014 to 2016. In 2016,the flat dollar amount is $695 for anindividual, and up to three times that fora family. The income percentage in 2016is 2.5. The penalty cannot exceed theapplicable national average premium forbronze-level health insurance coverageoffered through exchanges. 4MethodsTo estimate the effects of health reformand the individual mandate, we use theUrban Institute’s Health Insurance PolicySimulation Model (HIPSM). 5 HIPSMsimulates the decisions of businessesand individuals in response to policychanges, such as Medicaid expansions,new health insurance options, subsidiesfor the purchase of health insurance,and insurance market reforms. Themodel provides estimates of changesin government and private spending,premiums, rates of employer offers ofcoverage, and health insurance coverageresulting from specific reforms. 6We simulate the main coverageprovisions of the ACA is if they werefully implemented in 2010 and compareresults to the HIPSM baseline results for2010 prior to implementation of thesereforms. This approach differs from thatof the Congressional Budget Office or theCMS actuaries who by necessity provide10-year estimates. Our approach permitsmore direct comparisons of reform withthe pre-reform baseline and of variousreform scenarios with each other. Thekey coverage provisions of the ACA andtheir implications for coverage and costswere summarized in an earlier policybrief. 7 To demonstrate the effect of theindividual mandate, we also simulatea health reform with the individualmandate omitted but including the othercoverage provisions of the ACA. Thisallows us to estimate what could resultif, for example, legal challenges to themandate were to succeed.To model the individual mandate, webegin with the baseline HIPSM model,in which behavior is calibrated to agreewith results from the empirical healtheconomics literature. The resultingmodel behavior is applicable for avoluntary health insurance regime,whereas we must also simulate howbehavior would change in the presenceof a mandate. Since a similar law onlyexists in Massachusetts after its healthreforms, the only available empiricaldata are from that state. 8 Our simulationof how behavior would change underthe mandate has three components:1. The applicable financial penalty.A computation of whether thepenalty is applicable and the amountof the penalty as defined by thelaw, i.e., the fully phased in amountdiscounted to present dollars.2. An additional “disutility” of notcomplying with the mandate.The mandate is more than a dollaramount, it is a legal requirement.Desire to comply with the law, or atleast to avoid enforcement and thestigma of noncompliance, can lead tobehavioral responses much strongerthan the amount of the nominalpenalty would suggest as appears tobe the case in Massachusetts. Themandate has the effect of makingbeing uninsured less desirable. Weoperationalize this in the modelby applying an additional “psychicpenalty” to being uninsured. 93. A relatively small “spillover”disutility of being uninsuredon populations not bound byTimely Analysis of Immediate Health Policy Issues 2

the mandate. The mandate inMassachusetts was associated withan increase in coverage among thosenot actually bound by the mandate.We assume that this association wasdriven, in part, by a spillover effect ofthe mandate on those who were notbound by it who either mistakenlyassumed they were or who reacted toa new social norm to have coverage.In addition to uncertainty aboutthe current applicability of themandate, people may also be makinga judgment about whether they willlose their mandate exemption inthe future due to rising income. Forthose exempt from the mandate, theamount of additional disutility ofbeing uninsured is far smaller thanfor those bound by the mandate.ResultsChanges in HealthInsurance CoverageWe begin by examining how thedistribution of health insurance coveragediffers in the three scenarios simulated.Table 1 gives detailed results, whileFigure 1 shows the percentages ofnonelderly persons with various typesof coverage. Without health reform,18.6 percent of nonelderly persons(49.9 million) would be without healthinsurance. 10 Under the ACA, there wouldbe a dramatic increase in coverage: only8.3 percent (22.1 million) would bewithout insurance. As we have shown inan earlier policy brief, nearly two-fifthsof these are eligible for Medicaid or CHIPbut have not enrolled, and just over aquarter are undocumented immigrantsbarred from the benefits of healthreform. 11 If the individual mandate weredropped, insurance coverage would besignificantly lower; 14.9 percent (39.8million) would be without insurance.Without a mandate, the net increase ininsurance coverage is due entirely tothe expansion of Medicaid. In fact, theshare of nonelderly persons covered byprivate health insurance would actuallydecline from 62.1 percent without reformto 61 percent under reform with nomandate, largely because some wouldleave private coverage to enroll in theexpanded Medicaid program or to takeadvantage of subsidies in the exchanges. 12With a mandate, enrollment in the newhealth insurance exchanges as well as inemployer-sponsored insurance would benoticeably higher, with 66.3 percent of thenonelderly covered by private insurance.Without health reform, 42.9 millionnonelderly Americans would be enrolledin Medicaid or CHIP. Under health reform,eligibility for Medicaid will be expandedto 133 percent of the federal poverty levelwith a 5 percent income disregard. 13 Thisis the same with or without a mandate,so we would see a significant increase inenrollment under either reform scenario(55.6 million without a mandate and 59.7million with a mandate). The mandatewould increase Medicaid enrollmentby several million people, due to thebehavioral effects we describe above.Table 1. Health Insurance Coverage Distribution of the Nonelderlyin Baseline and ReformCoverage (in millions)Percent of the non-elderly100%75%50%25%0%18.6%19.3%5.5%56.6%Without reformWithout reform8.3%25.5%9.8%56.4%Reform with mandateReform withmandate14.9%24.0%6.8%54.4%Reform withoutmandateReform withoutmandatePrivate 166.4 62.1% 177.5 66.3% 164.0 61.2%Employer (non-exchange) 151.6 56.6% 130.4 48.7% 127.4 47.6%Nongroup (non-exchange) 14.8 5.5% 3.3 1.2% 2.6 1.0%Exchange employer n.a. n.a. 20.7 7.7% 18.2 6.8%Exchange nongroup n.a. n.a. 23.1 8.7% 15.7 5.8%Medicaid/CHIP 42.9 16.0% 59.7 22.3% 55.5 20.7%Other (including Medicare) 8.7 3.2% 8.7 3.2% 8.7 3.2%Uninsured 49.9 18.6% 22.1 8.3% 39.8 14.9%Source: Urban Institute analysis, HIPSM 2010.Note: We simulate the provisions of the Affordable Care Act as if fully implemented in 2010.Figure 1. Health Insurance Coverage Distribution of the Non-ElderlyUninsuredPublicNongroupESITimely Analysis of Immediate Health Policy Issues 3

The UninsuredMost of the impact of eliminating themandate would fall on those below200 percent of the FPL. Without healthreform, the uninsured are heavilyconcentrated among those with incomesbelow 200 percent of the federal povertylevel (FPL). Under the ACA, therewould be only 13.7 million uninsuredin this income group, as opposed to33.1 million uninsured without reform(Figure 2). Under health reform withno mandate, the number of uninsured$1,000$800$600$400$200$0nonelderly persons below 200 percentof the FPL would be 21 million, 7.3million more than with the mandate.Changes in Health Care SpendingFigure 2. Non-elderly Uninsured Below 200% of the FPLbillions $Persons (in millions)3530252015105033.1Without reformFigure 3 shows how spending on acutecare for the nonelderly would differwithout reform, with reform excludingthe mandate, and with reform includingthe individual mandate. As noted earlier,we do not simulate offsetting multiyearcost control provisions or provisionssuch as eliminating enhanced paymentsto Medicare HMOs. Single-year estimates$1,400 UncompensatedCare$70$27$55$1,200Individual$340$513$244Without reform$370$51013.7$332$476$313 $294Reform with mandate Reform without mandate$1,168 $1,221Reform with mandate Reform without mandateFigure 3. Net Health Care Spending of the Government, Employers,Individuals, and Uncompensated Care—Acute Care, Nonelderly$1,15721.0EmployerGovernmentbased on 2010 costs are presented,which do not reflect the effects ofmultiyear cost savings and Medicare andMedicaid cost savings. Under the ACA,the amount spent on uncompensatedcare would fall from $70 billion inthe baseline to $27 billion due to theexpansion of health insurance coverage.Spending by individuals would increasefrom $340 billion to $370 billion.Many more people would purchaseinsurance; this cost would be partiallyoffset by cost savings in the exchanges.Employer spending would declineslightly. Government spending on acutecare for the nonelderly would risefrom $244 billion to $313 billion dueto the Medicaid expansion and varioussubsidies. In total, system spending onhealth care would rise 4.5 percent from$1,168 billion without reform to $1,221billion under the ACA.If the mandate were dropped fromhealth reform, uncompensated carewould rise to $55 billion because therewould be many more without healthinsurance. Individual and employerspending would fall somewhat dueto cost savings in the exchangesand a decline in private healthinsurance coverage. Governmentspending would decline modestlyto $294 billion, $19 billion less thanwith the mandate; governmentspending remains high becausewithout a mandate, reform covers alarge number of less healthy people.Overall, acute health care spending bythe nonelderly would be $1,157 billion,modestly lower than with no reform,primarily because Medicaid and thecosts of exchange plans substitute forhigher cost private insurance.Table 2 shows more detail on howgovernment spending on acute healthcare for the nonelderly changes under thethree scenarios simulated. Governmentcosts are significantly higher under theACA because of the Medicaid expansion,as well as subsidies for exchangecoverage and small employers. Underthe ACA, spending on acute care for thenonelderly through Medicaid and CHIPwould increase by $53.6 billion; $37.5Timely Analysis of Immediate Health Policy Issues 4

illion would be spent on total subsidies(premium, cost-sharing, and employer).Offsetting some of this spending, $17.6billion would be collected in employerassessments and $4.3 billion in individualmandate penalties.If the mandate were dropped fromhealth reform, Medicaid and CHIPspending would fall by $12.6 billion.Eliminating the mandate does not affecteligibility for these programs, but doesreduce the enrollment of those eligible.Total spending on subsidies (premium,cost-sharing, and employer) wouldbe $26.8 billion, and the governmentwould collect $17.8 billion in employerTable 2. Health Care Spending of the GovernmentGovernment Spending aWithoutreform(in millions)Reform withmandate(in millions)assessments. The lower exchangeenrollment without a mandate leads tolower, but still substantial, premiumand cost-sharing subsidies. Without amandate, there is less worker demandfor ESI coverage and thus lower rates ofemployers offering coverage and lowerrates of workers taking up offers. As aresult, employer subsidies are lower andassessments are higher.Under the ACA, total employer healthcare spending would decrease slightly(Table 3). Employers would have lowerpremium contributions because ofcost savings in the exchange and smallemployers would benefit from subsidies,Change(in millions)Reformwithoutmandate(in millions)Change(in millions)Medicaid/SCHIP $244,180 $297,740 $53,560 $285,070 $40,890Premium subsidies n.a. $26,860 $26,860 $18,578 $18,578Cost-sharing subsidies n.a. $6,090 $6,090 $4,543 $4,543Employer subsidies n.a. $4,479 $4,479 $3,738 $3,738Individual mandates n.a. -$4,290 -$4,290 n.a. n.a.Employer assessments n.a. -$17,601 -$17,601 -$17,761 -$17,761Net government spending $244,180 $313,277 $69,097 $294,168 $49,988Source: Urban Institute analysis, HIPSM 2010.Note: We simulate the provisions of the Affordable Care Act as if fully implemented in 2010.a Spending on acute care for the non-elderly.Table 3. Health Care Spending of EmployersEmployer SpendingWithoutreform(in millions)Reform withmandate(in millions)Change(in millions)Reformwithoutmandate(in millions)Change(in millions)ESI premiums $513,293 $494,068 -$19,225 $459,579 -$53,714Employer assessments n.a. $17,601 $17,601 $17,761 $17,761Voucher amount n.a. $2,995 $2,995 $2,688 $2,688Employer subsidies n.a. -$4,479 -$4,479 -$3,738 -$3,738Net employer spending $513,293 $510,185 -$3,108 $476,290 -$37,003Source: Urban Institute analysis, HIPSM 2010.Note: We simulate the provisions of the Affordable Care Act as if fully implemented in 2010.but at the same time face significantemployer assessments.Without a mandate, total employerhealth care spending would declinecompared with the ACA by $34 billionor 6.7 percent (from $510.2 billion to$476.3 billion). Employer spendingwith no mandate is significantlylower than spending under the ACAdue primarily to the total spent inESI premium contributions. Nearly 7million more people are covered byemployer-sponsored insurance whenthe individual mandate is in effect thanunder reform without a mandate.Individual spending on acute care forthe nonelderly would be $29.5 billionhigher under the ACA than withoutreform, $370.0 billion versus $340.5billion. This is due to the substantialexpansion of private insurancecoverage. This is partially offset bysavings in the exchanges. Note thatout-of-pocket cost sharing declinessignificantly even with increasedcoverage. This means that insurancecoverage under the ACA is in generalmore comprehensive than withoutreform due to the Medicaid expansionand insurance market reforms,particularly in the nongroup market.Those below 200 percent of the FPLwould see a substantial reduction intheir spending, $10.7 billion, due theexchange subsidies and the Medicaidexpansion. Those with higher incomeswould pay more in total due tospending by those newly purchasingprivate insurance.Without a mandate, individualspending would be $332.2 billion,much lower than under the ACA.Individual spending falls without amandate because of the decline inprivate coverage. Health reform withthe individual mandate would cover 18million more people than without themandate. Of these, 14.5 million wouldbe covered by private health insuranceand would have to pay some share ofthe premiums for this coverage.Uncompensated care provided to theuninsured is currently a substantial costTimely Analysis of Immediate Health Policy Issues 5

for federal, state, and local governments,health care providers, and others.Hadley et al. (2008) find that aboutthree-quarters of uncompensated careis financed by federal, state, and localgovernments, through DSH payments,and other programs. 14 Under the ACA,uncompensated care declines by $42.3billion to $27 billion (Figure 3). Withouta mandate, uncompensated care wouldremain high ($55 billion) due to theadditional 18 million people withouthealth insurance. Programs that supportuncompensated care would have to belargely maintained.Government Costs perNewly InsuredBecause the uninsured are heavilyconcentrated in the income groupseligible for Medicaid and exchangesubsidies, it makes sense to considerthe government costs per newlyinsuredperson (here the governmentcosts of acute care for the nonelderly)as a measure of the efficiency of ahealth reform scenario. The differencebetween reform with and without anindividual mandate is dramatic. Withouta mandate, the average cost per newlyinsuredwould be $4,795; under the ACAit would be far lower, $2,451 (Figure4). The increase in coverage withouta mandate was due entirely to theMedicaid expansion, so that nearly allTable 4. Health Care Spending of IndividualsIndividual SpendingWithoutreform(in millions)Reform withmandate(in millions)newly insured have their costs borneby the government. With the ACA’sindividual mandate, half of the newlyinsured would have private coverageand half public coverage.Premiums in the ExchangesAn important argument used byadvocates of an individual mandateis that there would be substantialadverse selection in the exchangewithout it, leading to higher premiums.Our simulation confirms that adverseselection would result, but the amountis not large (Table 5). The reason for thisis the presence of premium and costsharingsubsidies. Under the ACA, weestimate that about two thirds of thosecovered in the nongroup exchangeswould be in the subsidy eligibilityrange. 15 As we have seen, exchangeenrollment would be significantlylower without a mandate, but most ofthe difference would come from thoseabove the subsidy eligibility threshold.Those eligible for subsidies are onaverage younger than the populationat large and have lower average costs.Thus, there would be a large pool oflower-than-average-cost enrollees in theexchanges with or without a mandate,moderating the effects of adverseselection. 16 If subsidies are reduced oreroded over time, our model wouldshow greater adverse selection.Change(in millions)Reformwithoutmandate(in millions)Change(in millions)Net out-of-pocket premiums $180,786 $211,538 $30,752 $178,728 -$2,057Net out-of-pocket cost-sharing $159,694 $158,428 -$1,266 $153,503 -$6,191Total individual spending $340,479 $369,966 $29,487 $332,231 -$8,248Distribution by income400% FPL $169,650 $197,271 $27,621 $180,961 $11,311CBO estimates that the averagepremium per person covered in newnongroup policies would be 10-13percent higher under reform with amandate in 2016 than under currentlaw. 17 They also estimate, that withouta mandate, such premiums wouldrise 15-20 percent. The difference inthese ranges is their estimate of themagnitude of adverse selection. 18 Ourpremium changes are at the low end oftheir range. We simulate the nongroupand ESI exchanges pooled together;if they were separate, the adverseselection effects of eliminating themandate would be somewhat higher.ConclusionWithout a mandate, many morewould be uninsured. We find thathealth reform as passed with anindividual mandate would reduce theuninsured by 27.8 million people.Reform without the mandate wouldreduce the number of nonelderlyAmericans without health insuranceby 10.1 million relative to the numberwho are uninsured today. Without themandate, the coverage gains would beentirely due to the Medicaid expansion,as the number of people covered byprivate insurance would be slightlylower than without health reform.Without a mandate, insurance coverage(public and private) increases onlyamong those with the lowest incomes.In contrast, with the mandate, the ACAreduces the number of uninsured at allincome levels and increases the numberof people with private health insurance.Without a mandate, fewer peoplewould have employer-sponsoredinsurance. Under the ACA, 151.1 millionpeople would have employer coverage,which is similar to the number who havesuch coverage now. Without a mandate,only 145.6 million would be coveredby ESI. The presence of the individualmandate would not have a large effecton the number offered ESI through thehealth insurance exchanges, but thenongroup exchanges would cover farfewer people without the mandate (15.7million versus 23.1 million).Source: Urban Institute analysis, HIPSM 2010.Note: We simulate the provisions of the Affordable Care Act as if fully implemented in 2010.Timely Analysis of Immediate Health Policy Issues 6

Figure 4. Government Costs per Newly-Insured PersonGovernment cost per newly-insured$6000$4800$3600$2400$1200Table 5. Average Premiums Paidby Policyholders in theNongroup Exchanges 1Reform withMandate 2Reform withoutMandateSingle $4,105 $4,246Family $11,202 $11,605Source: Urban Institute analysis, HIPSM 2010.1Averaged over all benefit levels in the exchanges.2 We simulate the provisions of the Affordable Care Act as if fullyimplemented in 2010.$0$2,451Reform with mandateGovernment spending would stillincrease significantly without amandate. Government spending onacute care for the nonelderly wouldincrease significantly under eitherhealth reform scenario: by $50 billionwithout a mandate and by $69.1 billionwith the mandate. This includesspending on Medicaid, subsidies forcoverage in the exchanges and subsidiesto small employers. This spending isreduced by the amount collected inemployer assessments and individualmandate penalties. There is a dramaticdifference in the efficiency of thisadditional government spending. Thespending per newly insured person$4,795Reform without mandatewould be $4,795 under reform withouta mandate, but only $2,451 underthe ACA with the mandate. Note thatspending here is based on projectedhealth care costs for 2010 and do notreflect the effects of multiyear costcontainmentprovisions and Medicareand Medicaid cost savings.Employer spending would be lowerwithout a mandate. Employers wouldspend less on health care overall undervoluntary health reform than theywould with no health reform becauseof less coverage and the cost savings inthe new ESI (SHOP) exchanges availableto firms of up to 100 workers and to aslight decline in overall ESI enrollment.Under the ACA with the mandate, theywould spend more than without reformdue to increased enrollment. However,the differences in both cases arerelatively small (about 4 percent).Individual spending would be lowerwithout the mandate. Individualswould spend very slightly less onhealth care under voluntary reformthan they would with no reform, andwould spend 8.7 percent more underthe ACA than with no reform. Thisincrease in spending is due almostentirely to premiums and individualmandate penalties paid by thoseuninsured without reform with incomestoo high to qualify for Medicaid. Theincrease in health insurance coverageunder reform with no mandate is dueentirely to the Medicaid expansion,and the government bears the costs forthese persons. Health reform with themandate would cover 18 million morepeople than without it, 14.5 million ofwhom would be covered by privateinsurance and would pay premiums thatthey did not pay before.Uncompensated care would remainhigh without a mandate. The amountspent on uncompensated care for theuninsured decreases by $42.3 billionunder the ACA, but by only $14.7billion without a mandate, relative tono reform. The larger reduction underthe ACA with the mandate would allowthe federal and state governments toreduce spending on programs that nowsupport the uninsured and could alsoresult in lower private premiums andhigher provider revenue. 19 This suggeststhat the lower level of individualspending and higher uninsured rateswithout a mandate reflects, in part, theshifting the costs of health care that theuninsured will inevitably need and useonto the rest of society.Our simulation results show that themarket-based provisions of the ACAwould not expand private insurancecoverage without an individual mandate.The additional demand for privateinsurance due to exchange subsidieswould be counter-balanced by otherfactors such as the Medicaid expansion.Without a mandate, the net expansionof coverage is limited to those eligiblefor Medicaid or CHIP. Thus, healthreform without a mandate would incura substantial government cost not verydifferent from the cost of the ACA whilecovering far fewer people.The Medicaid expansion and exchangesubsidies, coupled with the mandate,would make a substantial dent in thenumber of uninsured, a result thatdoes not occur if the mandate wereeliminated. The individual mandate,with income related subsidies, isessential to market based reformTimely Analysis of Immediate Health Policy Issues 7

ecause it reduces adverse selection andbroadens the sharing of risk. Requiringindividuals to have coverage oncefinancial assistance is made availabledramatically reduces the costs thatare shifted on to others in the form ofuncompensated care. The mandate alsolowers premiums by reducing adverseselection. We show that the extent ofadverse selection in the ACA is mitigatedby the subsidies. But if subsidieswere less generous (as they will beeventually 20 ) the impact of adverseselection will be more apparent. 21 Thosewho remain uninsured without themandate are essentially free riders whoultimately benefit from taxes or higherpremiums paid by others.Notes1 For example, Linda J. Blumberg and JohnHolahan, “The Individual Mandate—AnAffordable and Fair Approach to AchievingUniversal Coverage,” New England Journal ofMedicine 361, no. 1 (2009), http://www.nejm.org/doi/full/10.1056/NEJMp0904729#t=article;and America’s Health Insurance Plans, “HealthPlans Propose Guaranteed Coverage for Pre-Existing Conditions and Individual CoverageMandate,” Press Release, November 19, 2008,http://www.ahip.org/content/pressrelease.aspx?docid=25068.2 For more on the legal issues surrounding themandate, see, for example, Randall R. Bovbjerg,“Are State Challenges to the Legality of thePatient Protection and Affordable Care ActLikely to Succeed?” (Washington, DC: TheUrban Institute, 2010), http://www.urban.org/url.cfm?ID=412116.3 There is a peculiarity in the affordabilityexemption worth pointing out. An individualis exempt if the individual premium he orshe faces is more than 8 percent of familyincome. According to the Joint Committeeon Taxation’s Technical Explanation of theRevenue Provisions of the “Reconciliation Actof 2010, as Amended, in Combination withthe Patient Protection and Affordable CareAct (JCX-18-10, March 21, 2010), if self-onlycoverage is affordable for the worker but familycoverage is not, the employee will be subjectto the penalty for nonenrollment, while thefamily members eligible for employer coveragethrough that employee would not be penalized.It is unclear at the present time whether thosefamily members would then be eligible forsubsidies for coverage purchased through theexchange. JCT’s explanation of this provisionhighlighted the lack of clarity in the language ofthe statute. Their interpretation is not binding;the actual implementation will be specifiedin regulations to be issued by the executivebranch. It is, however, the most authoritativeinterpretation currently available, so we useit in our modeling. The ACA also allows otherfinancial hardship exemptions to be granted.The requirements for these are left to thediscretion of the Secretary of the Departmentof Health and Human Services.Also, there are a few other reasons forexemption from the mandate. For example,some Americans who reside outside theUnited States are exempt. For more details onthe mandate, see the two-volume publicationLaw, Explanation, and Analysis of the PatientProtection and Affordable Care Act IncludingReconciliation Act Impact, CCH Editorial StaffPublication (New York: Wolters Kluwer, 2010).4 There are many details and complexities incomputing the penalty that we omit here. Bronzelevelcoverage will have an actuarial value of 60percent. In other words, it will be designed tocover, on average, 60 percent of covered healthexpenses for the enrolled population.5 For more about HIPSM and a list of recentresearch using it, see http://www.urban.org/uploadedpdf/412154-Health-Microsimulation-Capabilities.pdf. A more technical descriptionof the construction of the model can be foundin Bowen Garrett, John Holahan, Irene Headen,and Aaron Lucas, “The Coverage and CostImpacts of Expanding Medicaid” (Washington,DC: The Kaiser Commission on Medicaid andthe Uninsured, 2009), http://www.urban.org/url.cfm?ID=411905.6 HIPSM uses data from several national datasets: the March Current Population Survey(CPS) Annual Social and Economic Supplement,the February CPS Contingent Work andAlternative Employment Supplement, theMedical Expenditure Panel Survey (MEPS), theStatistics of Income (SOI) Public Use Tax File,and the Statistics of U.S. Business. Distributionsof coverage are based on March CPS data withadjustments for the Medicaid undercount.7 Matthew Buettgens, Bowen Garrett, andJohn Holahan, “America under the AffordableCare Act,” (Washington, DC: The UrbanInstitute, 2010). http://www.urban.org/url.cfm?ID=412267.8 Sharon K. Long, Allison Cook, and KarenStockley, “Access to Health Care inMassachusetts: Estimates from the 2008Massachusetts Health Insurance Survey”(Washington, DC: The Urban Institute, 2010),http://www.urban.org/url.cfm?ID=1001403.See also earlier work using the MassachusettsHealth Insurance Survey by Sharon Long andother coauthors.9 Behavior in HIPSM is modeled using an expectedutility framework. This “penalty” is thus thedisutility of not complying with the law.10 The number of uninsured without healthinsurance is based on results from the 2009Current Population Survey aged to 2010.This was the latest CPS available at the timeof writing. The aging takes into accountdemographic changes projected by the CensusBureau as well as economic changes, such aschanges in the unemployment rate. The latest2010 CPS released mid-September showed anestimated 50.7 million uninsured. Our 2010estimate is somewhat lower primarily becausethe Medicaid undercount adjustment results infewer uninsured than the unadjusted CPS.11 Buettgens, Garrett, and Holahan, “Americaunder the Affordable Care Act,” 2010.12 This small decline in private coverage withoutthe mandate is actually the net result of manyfactors. The introduction of subsidies makesnongroup coverage more attractive for thoseeligible. The Medicaid expansion extendseligibility to some currently covered by privateinsurance. Nongroup market reforms would leadsome currently with nongroup coverage to facehigher premiums (due to age-rating and coveragebeing more comprehensive in some cases).Finally, provisions of the ACA could lead someemployers to stop offering ESI coverage that theywould otherwise offer without reform or whenreform includes the individual mandate.13 In the 48 contiguous states and the Districtof Columbia, the 2009 federal poverty levelis $14,570 for a family of two and $22,050 fora family of four. The 2009 levels were stillin effect for 2010 at the time of writing. Formore information, see http://aspe.hhs.gov/poverty/09poverty.shtml.14 Jack Hadley, John Holahan, Teresa Coughlin,and Dawn Miller, “Covering the Uninsuredin 2008: Current Costs, Sources of Payment,and Incremental Costs,” Health Affairs webexclusive, August 25, 2008.15 See Table 4 of Buettgens and Garrett, 2010.16 In reform scenarios we have modeled usingHIPSM without the subsidies we do findsubstantial adverse selection. For example,making nongroup insurance guaranteed-issuewithout making any other changes does leadto dramatically higher premiums and reducedenrollment.17 Congressional Budget Office, “An Analysis ofHealth Insurance Premiums under the PatientProtection and Affordable Care Act,” November30, 2009.18 Congressional Budget Office, “Effects ofEliminating the Individual Mandate to ObtainHealth Insurance,” June 16, 2010.19 The amount spent by government at variouslevels on programs that support the uninsuredis not included in our government costs tableabove. Less uncompensated care could alsoresult in lower private premiums and higherprovider revenue.20 Beginning in 2019, the requirements forindexing subsidy amounts change and may notreflect the full increase of premium growthover the rate of income growth.21 State regulatory decisions could also have animpact on adverse selection. For example,if risk adjustment inside and outside theexchanges is less effective than we havemodeled or if plans outside the exchange areable to differentiate themselves in a way thatattracts healthier people—such as offeringonly Bronze level coverage—the resultingadverse selection would be somewhat greaterthan shown here. The number of subsidizedenrollees would still be large enough, though,to moderate adverse selection significantly.Timely Analysis of Immediate Health Policy Issues 8

The views expressed are those of the authors and should not be attributed to any campaign or to the Robert Wood JohnsonFoundation, McKinsey and Company, or the Urban Institute, its trustees, or its funders.About the Authors and AcknowledgementsMatthew Buettgens, Ph.D., is a research associate and John Holahan, Ph.D., is director of the Urban Institute’s Health PolicyCenter. Until recently a senior research associate in the Health Policy Center, Bowen Garrett, Ph.D., is an affiliated scholar atthe Urban Institute and chief economist at McKinsey and Company’s Center for U.S. Health System Reform. The authors aregrateful to Linda Blumberg and Len Nichols for helpful comments and Caitlin Carroll for excellent research assistance. Thisresearch was funded by the Robert Wood Johnson Foundation.About the Urban InstituteThe Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social,economic, and governance problems facing the nation. For more information, visit www.urban.org.About the Robert Wood Johnson FoundationThe Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the nation’slargest philanthropy devoted exclusively to improving the health and health care of all Americans, the Foundation works with adiverse group of organizations and individuals to identify solutions and achieve comprehensive, meaningful, and timely change.For more than 35 years, the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problemsthat affect the health and health care of those it serves. When it comes to helping Americans lead healthier lives and get the carethey need, the Foundation expects to make a difference in your lifetime. For more information, visit www.rwjf.org.Timely Analysis of Immediate Health Policy Issues 9