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Individual Mandate and a Look Ahead to 2019

/ June 18, 2018 June 18, 2018

With the elimination of the individual mandate penalty for lack of health coverage starting in 2019, one might think that simply resolves one of the onerous aspects of the health care reform law.  Unfortunately, it’s not that easy.  The constitutionality of the mandate itself has continued to be in question, particularly now with the impending removal of the financial penalty associated with it starting next year.

With the penalty scheduled to be removed, there is apprehension for the non-group health insurance market to become unstable, potentially with healthy insureds dropping coverage thereby decreasing the risk pool, maintaining those that are using the coverage the most. According to the Congressional Budget Office (CBO), the non-group health insurance market is projected to be stable in most areas of the country for the next decade, although not all areas. If insurance carriers elect to withdraw from the market, stability is jeopardized.

With states working on submitting their 2019 individual premium rates to state or federal regulators for their determination of approval, the prospective impact of having removed a financial incentive to keep coverage cannot be ignored. Per the CBO’s May 2018 report, the average increase in 2019 for individual coverage is anticipated to be 15%.  However, many individuals eligible for subsidized premiums will be sheltered from the increases.

Reportedly, for the under-65 population, the number of uninsured is expected to grow from 32 to 35 million from 2019 through 2028, partly due to the end of the mandate penalty.

In addition, several states are considering opting to replace the federal mandate penalty by imposing their own, collecting a fee from individuals who do not purchase health coverage. So far, New Jersey and Vermont have enacted this provision to combat the impact of the federal individual mandate penalty removal.  Massachusetts already had an individual mandate in effect through its own state healthcare laws.  For businesses with locations in multiple states, this additional hindrance should be kept in mind.

An alternative to purchasing an ACA-compliant plan is a short-term, limited duration (STLD) health insurance plan, designed for those with a temporary gap in health insurance coverage. In late 2017, President Trump issued an Executive Order which proposed expanding the availability of these plans and increasing the maximum coverage duration from three months to twelve.  While short-term policies are typically less expensive than ACA-compliant coverage, they are often medically underwritten and do not provide comprehensive coverage, as they are exempt from the ACA market rules.

So could the elimination of the financial penalty for not having coverage push individuals to short-term plans or drop coverage altogether?

According to a Kaiser Family Foundation study, an overwhelming 84% of those non-group enrollees said they would prefer to keep their current coverage rather than purchasing a short-term policy.  Almost 60% of non-group enrollees said that comprehensive coverage is more important than cost.  Of those with employer-sponsored coverage, 74% responded that having comprehensive coverage is more important than choosing a plan that costs less, but does not cover every benefit needed.  According to the study, 9 in 10 with non-group health coverage said they would continue to buy insurance after elimination of the penalty.  Time will tell, but perhaps the penalty elimination will be less impactful on an individual’s benefits decision making process than initially anticipated.

And while it may have flooded the thoughts of many with the possibility of being followed by the elimination of the employer mandate, that has yet to come to fruition.

Under the employer mandate, applicable large employers can be financially penalized for either not offering coverage or not offering affordable coverage (9.56% in 2018 and 9.86% in 2019) meeting certain criteria and then having a full time employee enroll in subsidized individual coverage through the exchange/marketplace.

In fact, the IRS has been focusing on enforcement of the employer mandate and sending penalty letters to employers they believe owe a financial penalty for lack of compliance with ACA’s guidelines.   As a result, it remains critical that employers continue to comply with all aspects of ACA compliance until further guidance is issued.