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Summary of the Impacts of the Elimination of the ACA's Individual Health Insurance Mandate Penalty on the Nongroup Market in New York State

Core Content

This report analyzes the effects of eliminating the Affordable Care Act (ACA) individual mandate penalty in New York State using the RAND COMPARE microsimulation model. The study focuses on the nongroup insurance market, which includes all ACA-compliant plans sold on and off the New York State of Health marketplace.

Key Findings

• Premium Increases: The elimination of the individual mandate penalty is expected to increase premiums in New York's nongroup market by approximately 23–25% for bronze and silver plans, respectively, in 2019 compared to the baseline ACA scenario.
• Enrollment Reduction: Enrollment in the nongroup market is projected to decrease by 37%, from 310,000 to 194,000 individuals, due to adverse selection.
• Uninsured Population: The number of uninsured individuals is expected to rise by 292,000 when the individual mandate penalty is removed, compared to the baseline ACA scenario.
• Role of the Essential Plan (EP): The EP, which provides subsidized coverage to low-income individuals, plays a significant role in reducing adverse selection. Its removal, along with the elimination of the individual mandate penalty, leads to a smaller premium increase of 7–10%.
• Uninsured Increase with EP Removal: In a scenario where both the individual mandate penalty and the EP are removed, the number of uninsured individuals is estimated to increase by 327,000, slightly more than in the scenario with only the penalty removed.

Main Scenarios Analyzed

1. Baseline ACA Scenario: Reflects ACA regulations in effect in 2018.
2. ACA, No Individual Mandate: Eliminates the penalty but retains the EP.
3. ACA, No Individual Mandate, No EP (139–200% FPL): Eliminates both the penalty and the EP for individuals with incomes between 139 and 200% of the federal poverty level (FPL).

Key Factors Influencing Outcomes

• Community Rating: New York's full community rating system means that premiums are not adjusted for age or tobacco use, making the nongroup market more vulnerable to adverse selection.
• Subsidy Eligibility: Subsidized individuals are more likely to remain enrolled in the nongroup market than unsubsidized individuals.
• Health Status: Individuals in fair or poor health are more likely to remain in the market, while young, healthy individuals are more likely to disenroll.
• Children vs. Young Adults: Children are more likely to stay in the market than young adults, due to the assumption in the COMPARE model that family decisions influence insurance enrollment.

Model and Methodology

• The COMPARE model is used to simulate individual and firm health insurance decisions based on economic theory and nationally representative data.
• The synthetic population is derived from the Survey of Income and Program Participation (SIPP) and the Medical Expenditure Panel Survey (MEPS).
• The model accounts for risk aversion and out-of-pocket costs in determining individual utility and insurance choices.

Policy Implications

• The presence of the EP significantly mitigates the adverse selection effect caused by the removal of the individual mandate penalty.
• The EP reduces the number of APTC-eligible individuals in the nongroup market, which in turn affects the stability of the risk pool.
• The Trump administration's decision to stop federal cost-sharing reductions had a larger impact on APTCs in most states, but the EP in New York limited this effect.
• The EP is crucial for maintaining stability in New York's nongroup market, as it covers many individuals who would otherwise be in the nongroup market without subsidies.

Conclusion

The removal of the ACA's individual mandate penalty leads to significant premium increases and enrollment declines in New York's nongroup market. The EP plays a critical role in stabilizing the market by reducing the impact of adverse selection. Without the EP, the market becomes more unstable, with a greater increase in the number of uninsured individuals. The study highlights the unique characteristics of New York's health insurance landscape and the importance of public programs in mitigating the negative effects of policy changes.