It’s now been a full year since the individual mandate penalty was reduced to zero, so we wanted to take a quick look at the impact this change could have on the future of the Affordable Care Act.

ACA lawsuit

One big effect of removing the penalty from the individual mandate is that it can no longer be deemed a tax, and for that reason a federal appeals court ruled the individual mandate unconstitutional. As we explain in a recent blog post, the case has been sent back to a lower court to determine which ACA provisions, if any, can be severed from the mandate. The plaintiffs in the case are relying on the 2015 decision in King v. Burwell, which concluded that Congress intended for the individual mandate to work hand in hand with the guarantee issue provision and the premium tax credits, in making their argument that the entire law should be found unconstitutional. Here’s an excerpt from the 2015 decision:

Congress made the guaranteed issue and community rating requirements applicable in every State in the Nation, but those requirements only work when combined with the coverage requirement and tax credits. It thus stands to reason that Congress meant for those provisions to apply in every State as well.

Ultimately, the case could find its way to the Supreme Court, which could save the law for a third time or could decide that the ACA cannot survive without an individual mandate, but it does not appear that will happen before the November election.

Is the mandate actually necessary?

While the plaintiffs are arguing that the individual mandate is an essential ingredient in the ACA and that the market would go into a death spiral without it, the evidence appears to show that this isn’t actually the case.

In a recent article, Healthcare Dive concludes that “the individual market last year was stable and profitable for payers,” even without an individual mandate. Premiums were “mostly steady” and overall enrollment only “fell by a modest 5%.” In other words, the individual market is doing fine, and it doesn’t appear that the mandate is quite as essential as we once thought.

Much of the article is based on a new analysis by the Kaiser Family Foundation (KFF).

The analysis begins by summarizing some of the dire predictions people had about the elimination of the individual mandate penalty: “healthy enrollees would leave the individual insurance market, insurers would in turn raise premiums significantly, and the market would enter a ‘death spiral’.”

KFF then points out that the impact of the mandate penalty repeal is important to the Texas v. United States court case, “in which plaintiffs seek to strike down the entire Affordable Care Act (ACA) based on the argument that the mandate is unconstitutional without a penalty and is not severable from the rest of the ACA.”

KFF then reports that, despite all of the dire predictions, the individual market is relatively stable in terms of both premiums and enrollment and the medical loss ratios have also risen only slightly since the mandate penalty was removed.

The analysis reports on some other important trends as well.

• “Insurer financial performance declined slightly from the third quarter of 2018 to 2019, but margins were still higher than all other previous years through 2017,” suggesting that “insurers in this market remain on average financially healthy.”
• Claims costs in the first nine months of 2019 increased only slightly, which suggests “that these policy changes and enrollment declines did not cause the individual market to become significantly less healthy on average. In fact, the average number of days individual market enrollees spent in a hospital in the first nine months of 2019 was slightly lower than inpatient days in the previous four years.”

Continued uncertainty

In conclusion, the individual market appears fairly stable and seems to be able to operate just fine without an enforceable individual mandate. That said, the court case continues to create uncertainty for both consumers and payers, and could impact an insurer’s decision to offer coverage in 2021 and beyond. The sooner this case is resolved the happier everyone will be.