Arkansas health policy analyst talks fallout from removal of individual mandate tax penalty 

While the individual mandate of the Affordable Care Act (ACA) is alive and well for one more year, the Republican-led tax reform legislation has effectively dismantled it starting in 2019 with the zeroing out of its supporting tax penalty.

J. Craig Wilson, director of health policy at the Arkansas Center for Health Improvement (ACHI), told Talk Business & Politics on Friday (Feb. 2) he expects the outcome will result in a higher risk pool and rising costs, and could lead to proliferation of association health plans (AHPs).

Wilson did not expect a mass exodus resulting from removal of the uninsured penalty, stating the penalty “was not really ever strong enough to push people into the market because the cost of the coverage, even when subsidized, still outweighed the penalty.”

“I do expect it to have an effect on some people who are able to really make that financial balance calculation,” Wilson said, adding he expected earners at above 400% of the federal poverty level to be the most likely to bail. “That’s because for people above 400% of federal poverty level, they’re not getting any subsidies so they will see an increase in cost in their premiums. And so they’re going to have to make a more meticulous calculation about whether or not they can afford it and whether or not it’s cost effective for them.”

In 2017, the HealthCare.gov website listed the federal poverty level at $12,060 annual income for individuals; $16,240 for a family of two; $20,420 for a family of three; and $24,600 for a family of four. Corresponding family units making four times these amounts must pay the full cost of premiums while participants in the 100%-400% range qualify for subsidies.

Wilson said removal of the mandate penalty would likely result in “adverse selection,” meaning healthier persons “are going to decide not to go ahead and purchase insurance,” but sicker individuals will.

“So you will have healthier people exiting the market, and this adverse selection effect will take hold, pushing up some of the cost,” he explained.

Wilson said many people will not see the effect due to “subsidization attaching to income, but the increase will be passed along to the federal government.”

With regard to AHPs, President Donald Trump signed an executive order on Oct. 12, 2017 that directed the Secretary of Labor to consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form such associations.

The executive order further notes that “large employers often are able to obtain better terms on health insurance for their employees than small employers because of their larger pools of insurable individuals across which they can spread risk and administrative costs. Expanding access to AHPs can help small businesses overcome this competitive disadvantage by allowing them to group together to self-insure or purchase large group health insurance. Expanding access to AHPs will also allow more small businesses to avoid many of the PPACA’s costly requirements. Expanding access to AHPs would provide more affordable health insurance options to many Americans, including hourly wage earners, farmers, and the employees of small businesses and entrepreneurs that fuel economic growth.”

Wilson expected these alternatives to the health insurance market could become more well-known toward the end of the year, noting that AHPs could allow participants to purchase plans that might not meet the requirements of the ACA’s central health benefits. The AHPs “can offer some skimpier plans through associations of small businesses or sole proprietors,” Wilson said, adding that per terms of Trump’s order, interested parties will be able to work together across state lines as well.

On Jan. 5, the Employee Benefits Security Administration, Department of Labor, delivered an 83-page proposed rule in compliance with the President’s order, opening a 60-day comment period on the issue. Link here for a PDF of the proposed rule.