Delaying the Mandate Is a Start, not a Solution

Four weeks ago, Washington Democrats put on a united front – every single Senate Democrat voted against reasonable legislation passed by the House of Representatives delaying Obamacare’s individual mandate for one year.

In the wake of HealthCare.gov’s failure, however, some of those same Senate Democrats are singing a different tune. Rapidly growing numbers now argue that because the White House cannot quickly fix the federal exchange website, the open enrollment deadline must be extended and Americans should not be taxed during those months. Senator Manchin has said he wants to delay the individual mandate’s tax on the uninsured for one full year.

Delaying the Individual Mandate Doesn’t Fix the Problem

Obamacare proponents believe the law will ultimately work because the individual mandate forces young and healthy people to join the exchanges. Due to HealthCare.gov’s epic failure, it is virtually impossible to sign up for an exchange plan. Only highly motivated consumers – those who are very sick and have extremely high health costs – are likely to endure the hassle. Younger and healthier people may not. If the government exchanges contain too many people in poor health and not enough people in good health, then the insurance plan options will be less affordable for everyone. This problem is called “adverse selection.”

Delaying the individual mandate eliminates the incentive for young and healthy people to buy insurance. Because of the law’s provisions mandating insurance companies sell people insurance at any time (called guaranteed issue), young people can wait until they get sick to buy coverage. The Obamacare scheme does not work unless everyone participates in the exchanges.

The Congressional Budget Office estimates that repealing the individual mandate alone would cause premiums to increase 15 to 20 percent. Delaying the individual mandate while retaining separate provisions in the law that drive up premiums, is a start, but not a solution. If Obamacare is not working, then the entire law should be suspended. Postponing the individual mandate alone will only make the problem worse.

Obamacare Market Manipulation Drives Up Premiums

Approximately 85 percent of Americans already have health insurance coverage today. When they hear the words “health care reform,” they expect lower premiums. Unfortunately, President Obama’s health care law does the exact opposite. Taken together, the following provisions increase overall costs and reduce choices.

• Guaranteed Issue. Starting in 2014, people can buy health insurance at any time, allowing them to wait until they are sick to buy coverage. Additionally, people who were enrolled in state high-risk pool programs or the Federal Preexisting Condition Insurance Plan program will enter the individual insurance market. The actuarial firm Milliman estimates changes to the risk pool composition and adverse selection will increase premiums by 20 to 45 percent.

• Community Rating. These provisions limit the amount premiums can vary between young, healthy people and unhealthy, older people. Today, 42 states have an age band rating of 5:1 or higher. So a young adult might pay one-fifth of what the oldest person buying in an exchange would pay. The health care law restricts the age ratio to 3:1. This means the premium of a healthy 21-year old is closer to the premiums charged to an older, sicker person – taxing the young to pay for older enrollees. Milliman projects the new age rating will increase premiums for people under age 35 by 19 to 35 percent, while premiums for people age 55 and older will fall slightly.

• Essential Health Benefit (EHB) Mandates. The law requires insurance to cover a broad range of services in 10 categories. For most people, this benefit package includes more comprehensive coverage than they typically purchase today. Higher benefit levels cause higher costs. CBO estimates average premiums will increase by 27 to 30 percent because of the law’s benefit mandates on health insurance plans.

• Actuarial Value (AV) Mandates. AV is a technical term describing the total amount of health spending paid for by an insurance plan. The AV of a health plan depends on the plan’s benefits and cost-sharing and is represented by a percentage. Insurance plans can range anywhere from 55 to 90 percent. Typically, as AVs increase, premiums increase. The health care law requires insurers selling in the exchanges to offer products meeting four new AV levels: 60 percent (bronze), 70 percent (silver), 80 percent (gold), and 90 percent (platinum). The minimum standard of 60 percent is higher than many policies sold today. Milliman estimates the AV requirement increases premiums, on average, by 8.5 percent.

Similar State Price Control Experiments Have Failed

A handful of states already have stringent Obamacare-like health insurance requirements. During the 1990s, eight states – Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, New York, Vermont, and Washington – passed insurance market changes nearly identical to Obamacare. But because none of these states mandated all their residents buy into the system, premiums increased and consumers had fewer health insurance choices. Without an individual mandate, young and healthy people could delay purchasing insurance until they became sick or were injured.

• In 1993, a 30-year old man and woman in New York paid an average annual premium totaling $1,200 and $1,800, respectively. One month after the state implemented Obamacare-style reforms, premiums skyrocketed to $3,240. Some people faced premium increases of 170 percent.

• The state of Washington also enacted Obamacare reforms in 1993. Consumer choice plummeted, from 19 insurance carriers offering health insurance policies in the state to just two in 1999.

• In 1994, New Jersey passed guaranteed issue and community rating requirements. Over the next 10 years, premiums increased 50 percent or more annually.

• After Massachusetts enacted similar price controls in 1996, 20 health plan carriers exited the insurance market. News reports indicated that, prior to enactment of the 1996 law, a young person could buy insurance with premiums as low as $25 per month. After the law passed, the same person’s premium was more than $600 per month. Associated Industries of Massachusetts, a business group that supported the Massachusetts and federal health reform laws, warned that Obamacare’s rating rules will increase premiums for 60 percent of small employers.

• When Kentucky instituted guaranteed issue and community rating laws, average premiums soared between 36 and 165 percent. Approximately 45 insurers pulled out of Kentucky’s individual market between 1994 and 1997. The state’s insurance commissioner said Kentucky was “moving toward a crisis” as insurance providers faded to only one.

Even the liberal Center for American Progress admitted that similar policies destroyed state insurance markets and the “result in each state was very high nongroup insurance prices.”

Congress must learn from these states’ mistakes, not repeat them. Obamacare’s insurance market changes were not designed to stand alone; they are inextricably linked. If Congress delays the individual mandate, but fails to delay Obamacare’s market changes, then the American people can expect similar results with catastrophic consequences to the private insurance market in America.