How important are individual mandates in achieving health reform?

Debra Lipson, a senior researcher at Mathematica, writes about individual mandates and health reform through the lens of reform efforts in Massachusetts and Maine.

Nearly every health reform proposal now under consideration in Congress has a provision that would require individuals to purchase health insurance coverage. For years, the notion of government requiring individuals to have health insurance was anathema. To those on the right, it smacked of government intrusion into personal affairs. The far-left opposed mandatory purchase of private insurance because they argued that it would perpetuate an overpriced, unfair system stacked against consumers.
 
Thanks to Massachusetts’ health reforms passed in 2006, we have experience with individual mandates and lessons about what it takes to make them work:  Adequate subsidies to make premiums affordable to those with low or moderate income. Penalties for non-compliance high enough to induce participation. Exemptions for those who demonstrate that premiums for available policies remain unaffordable, even with subsidies. Regulations that require insurers to issue plans to all applicants regardless of health status, and that limit the extent to which rates can vary based on age, gender, and other personal characteristics. 

Even with such provisions, not everyone gets covered. That’s because Massachusetts is unable to raise sufficient revenues to provide adequate subsidies to everyone who needs help paying premiums. This could well be the case with federal health reform. There is little appetite on Capitol Hill (at least in the Senate) for raising enough funds to subsidize families earning more than 300 percent of the federal poverty level. In addition, Massachusetts didn’t get around to serious health care cost control until this year, so premium rates remain high.

But imagine the alternative – no individual mandate (or weak penalties and enforcement for one), but a health reform bill that still (1) provides subsidies to people with low or moderate income to purchase health insurance; (2) has feeble or inadequate insurance regulation that allows health plans to reject applicants or steer those with poor health to a public plan; and (3) cost controls that do little to restrain the rate of premium growth, much less reduce current premiums. It would be an unsustainable and ineffective health coverage expansion.   

You don’t have to imagine it though. There is experience with just this scenario, just up I-95 from Boston. Maine’s 2003 health reform set up a publicly-sponsored plan, called Dirigo Health. It provides subsidies to help certain low and moderate-income people afford premiums and deductibles:  those without access to employer health insurance, workers of participating small businesses, and people earning less than 300 percent of FPL. It also expanded Medicaid to parents of dependent children, earning up to 200% FPL, and to childless adults with income below 100% of poverty. State laws enacted in the 1990s already required private health insurers to take all comers in the small group and individual market, prohibited rating based on health status, and limited the time period under which plans could exclude coverage for pre-existing conditions.

But Maine did not mandate that individuals purchase coverage. Insurers in the state could still adjust premiums for age (as well as occupation, smoking status, family size and location within the state) and annual rate increases of more than 10 percent were regularly approved by the Insurance Commissioner until this year. Insurers were alleged to be steering people in the individual health market with higher health risks to the public plan. While the Dirigo reform law included various cost control strategies, they were too tame to make a significant dent in the state’s high per capita health costs.  

What can we learn from Maine’s experience? The Medicaid eligibility expansions and subsidies offered by the Dirigo health plan did work. They made health insurance more affordable to thousands of low-income individuals and families. Some Dirigo plan enrollees who were formerly uninsured people got covered. Some small businesses that didn’t offer employee health benefits before began doing so. But it was no panacea. The rate of uninsurance dropped just 0.2 percent from 2005-06 to 2007-08, and the average uninsured rate for 2007-08 stood at 9.6%, compared to 5.4% in Massachusetts. The result reflects, in part, what happens when not everyone is required to purchase health insurance.

Maine’s experience also tells us something about the potential for adverse selection in the absence of an individual mandate – the risk that only sick people enroll thus driving up costs. The average age of Dirigo’s enrollees was somewhat higher than average, but health risk and financial data indicated that the plan did not enroll a disproportionate number of people with serious health problems. The public plan did, however, offer more generous benefits than that available in the private market,  making it susceptible to adverse selection. As many as 3,000 people enrolled in the state’s largest private plan for individuals reportedly switched to Dirigo, but whether for better benefits or the subsidies is unknown. And, the program did cost the state more than it projected, but that was because it enrolled more low-income people and fewer employees in small firms than expected, which increased the cost of subsidies.  Strategies to control costs in the broader health system have so far been unable to hold the line on cost increases.

In sum, Maine shows us that an individual mandate is important to achieving the goals of health reform – expanded coverage and lower costs. But it must be integrated into a package of reforms that (1) offer sufficient subsidies to make coverage truly affordable to those subject to the mandate, (2) contain strict regulations that prevent insurers from rejecting people with high risks, excluding coverage of pre-existing conditions, and “steering” sick people towards the public plan, and (3) get serious about cost control so that the price tag of the program doesn’t exceed the ability or willingness of government to finance the subsidies.  

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Comments

[Matthew Bedford]

The health care system does need changing in the US. In the UK health care is free to all you just pay a small contribution of National Insurance every week. The same sytem needs putting in place in the US in my opinion, everyone needs to access top health care.