The Affordable Care Act (ACA) is back in court. Since the 2017 tax bill cut out the individual mandate at the heart of the law, challengers now say the remaining part of the law is unconstitutional.
The mandate was put into effect to lower the number of uninsured people and keep costs down by getting healthy people to buy insurance. Data from two government agencies – the Internal Revenue Service and the US Census Bureau – show how health insurance rates for Americans have changed after the ACA went into effect and how many households paid the penalty for not adhering to the individual mandate.
Background on the Affordable Care Act and its individual mandate
The law first reached the Supreme Court in 2012. The court debated the individual mandate, which requires most people to buy health insurance or pay a penalty when filing federal taxes.
The mandate ultimately survived this initial legal challenge on the basis that the fine could be justified as a tax. The mandate went into effect in 2014, requiring those who did not have health insurance to pay a fine of $95 or 1% of their income, whichever was greater, unless they qualified for financial or religious exemptions. The fine increased to $395 or 2% of income in 2015 and $695 or 2.5% of income in 2016, where it remained in 2017 and 2018.
However, that is set to change this year. The Tax Cuts and Jobs Act of 2017 included a section that lowers the fine to $0 as of 2019. While the mandate technically still exists, there is no longer a fine associated with not complying.
Although the repeal of the individual mandate did not directly affect any other parts of the ACA, a case in the Fifth Court of Appeals is claiming that the change has made the entire act unconstitutional. The argument rests on the idea that if the individual mandate does not have a fine associated with it, then it can no longer be considered a tax, negating the original Supreme Court argument.
The Fifth Court has heard all oral arguments in the case and its decision is pending. Depending on the decision of the court, the case could mean the ACA is repealed in its entirety. The court could also deliver a narrower ruling or uphold both the ACA and the $0 individual mandate.
Since the removal will not appear until 2019 taxes are filed, there is currently no data showing its effects. However, changes in health insurance coverage after the individual mandate went into effect four years ago can be examined, providing some context to the debate about the issues surrounding both this provision and the ACA overall.
The challenge of critically examining the mandate
According to a Congressional Research Service report, the individual mandate was intended to encourage healthy individuals to participate in the insurance market. Healthy population participation diversifies insurance risk pools, ensuring the insurance market is not primarily composed of individuals who are more likely to use healthcare services. Young people are considered low risk since they are less likely to face serious health complications.
The ultimate impact of the mandate on insurance markets, however, is debated. The percentage of Americans participating in insurance markets did increase after 2014, but the individual mandate may not have been responsible for that increase.
Several other sections of the ACA went into effect around the same time as the individual mandate, making it hard to distinguish the impact of each change.
Medicaid, for example, was expanded in 2014, increasing the percentage of people who qualified for government health insurance. More people also became eligible for Premium Tax Credits (PTC), a health insurance subsidy, in 2014 as well. The ACA also changed the laws surrounding employer-provided healthcare, specifically the employer-mandate, which stipulates that employers must offer health insurance to 95% of their full-time employees. Finally, the Obamacare exchanges opened in late 2013, changing the way health insurance markets functioned for those buying their own insurance.
Number of people paying the fine decreased between 2014 and 2016 as the fine increased
Due to the many insurance market changes that occurred during the implementation of the individual mandate, the most accurate way to assess the impact of the individual mandate is to examine the number of individuals who paid the fine. Although more individuals paying the fine would increase government revenue, it would not help increase the number of healthy people entering insurance markets, which was the original goal of the mandate.
In 2014, 5.4% of the population paid the individual mandate fine, a total of 8.1 million people. This was less than the 13.3 million who filed for an exemption. At that time, the minimum fine was $95. In 2015 the minimum fine increased to $395. In that year, 4.5% of the population, or 6.7 million people, paid the fine, with roughly double filing for an exemption. This represents a decrease of 2 million people filing with the IRS for not having health insurance, with a greater portion of fewer people paying a fine.
When the fine increased again in 2016, with the minimum fine set at $695, the percent paying the fine dropped again to 3.31%. The IRS has not yet released data for 2017 or 2018.
Breaking down the increase in the insured population
Examining increases in coverage from public insurance programs, PTCs, and employer insurance can illuminate the impact of the various policy changes on insurance markets and help further isolate results of the individual mandate.
The expansion of Medicaid primarily impacted the public insurance population. The revisions to employer-coverage policies primarily impacted those receiving employment-based insurance. Finally, the increase in healthcare subsidies can be observed in the percentage of the population receiving PTCs.
After the mandate, the percent of the population that directly purchased their insurance also increased. Direct purchasers are individuals who are not eligible for public health insurance and do not receive coverage through their employer, meaning they must purchase health insurance independently.
The 25-34 demographic
More young people participating in the insurance markets help subsidize the cost of care for older participants as they pay into the system but are less likely to use healthcare services. Did the individual mandate lead to more young people purchasing insurance directly?
The ACA allowed individuals up to the age of 26 to stay on their parents’ family health insurance. Of the age brackets presented in the data, those 25-34 are the youngest age bracket to enter the insurance market independently. Between 2013 and 2017, the percentage of people age 25 to 34 who were insured increased from 76% to 84%, and 5% of that increase was due to young people purchasing insurance directly.
Conclusion
It is difficult to breakdown the various changes that can be observed in data related to health insurance markets between 2013 and 2017 due to the volume of changes the passage of the ACA produced. What is clear is that the number of people paying the individual mandate fine decreased between 2014 and 2016 as the fine increased. Furthermore, more young people did start buying insurance during this time period, lowering the insurance risk pools; although, it is not possible to determine the exact cause of their behavior change.
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