The Facts About the Individual Mandate Repeal and the Increase in Premiums

by Doug Badger —

It turns out sabotage might be overrated.

A new study by the Center for American Progress argues Congress’s repeal of the individual mandate and a proposed Trump administration rule that would expand the sale and renewal of short-term policies will have a devastating effect on 2019 premiums.

These acts of “sabotage” mean 40-year-old non-smokers will pay an average of $970 more in premiums in 2019, beyond the increases that would have occurred in their absence, according to the study.  The study then attempts to estimate rate increases by congressional district.  An earlier CAP study estimated statewide premium effects.

Since rate increases have not yet been announced in most states, CAP estimates premiums will rise by an average of 16.4 percent in those states because of these two policies, on top of an underlying trend of 7 percent, for a total average 2019 premium increase of 23.4 percent.

But a comparison of the CAP “sabotage” estimates with preliminary 2019 rate filings in cities in 17 states compiled by the Kaiser Family Foundation suggests CAP vastly overestimated the effects of these policy changes on premiums. In 13 of the 17 cities, total requested premium increases are less than the statewide increases CAP attributes to these policies. The table below compares the Kaiser data on the 17 cities with the statewide premium effects CAP ascribes to these two policies.

For example, CAP predicts that repeal of the mandate and rules changes on short-term plans will increase average 2019 premiums in Colorado by 18.3 percent. But according to a Kaiser analysis of preliminary rate filings, premiums in Denver will rise by just 6 percent. That pattern held for all but four of the cities included in the Kaiser analysis.

There are, of course, caveats to the data. First, the figures shown in column 3 are rate requests. They have not been approved by state insurance commissioners and are likely to change between now and the time of their approval (likely in September).

Second, Kaiser has examined rate filings for selected cities. CAP is estimating statewide premium effects, as well as potential effects by congressional district.  In some instances, the differences between a requested statewide premium request and the request for a city in that state are small. Rate increase requests statewide in Colorado average 5.94 percent, and the rate request for Denver is 6 percent. Premiums in Detroit are expected to remain unchanged next year, and statewide rates are expected to rise by an average of 1.4 percent.

In other cases, the differences are more significant. Philadelphians, for example, may see substantial premium relief in 2019, but premium increases for Pennsylvania as a whole are projected to average 4.9 percent. Insurers in New York are seeking rate hikes that average 24 percent, compared with the 16 percent for New York City.

Generally speaking, preliminary filings in most states for which data are available do not suggest the sorts of increases CAP attributes to GOP policy changes. These rate requests, however, seem to have little influence on CAP’s estimated sabotage effect.  CAP acknowledges that in some states, “issuers requested a small rate increase or a decrease.”  In those cases, CAP “solved for the amount of the amount [sic] attributable to the mandate and the short-term plan rule by assuming that the 2019 premium included a load equivalent to the Urban Institute projections.”  Thus, even when rate increases were small or non-existent, “we still estimate a positive cost of sabotage.”

So far, Kaiser has identified only two states (Maryland and New York) reporting premium increase requests that average 24 percent or more. The final rate increases in Maryland are likely to be far less. The state has received a waiver to operate a reinsurance program that is budget neutral to the federal government. State regulators expect the waiver to dampen premium increases.

That leaves New York, which attributes nearly half the increases insurers are seeking to repeal of the mandate. New York is unique in this respect. Regulators in other states have not suggested that federal policy changes will cause double-digit premium increases. California, for example, is reviewing requests to raise premiums by an average of 8.7 percent, a figure that Covered California said would have been 5 percent had Congress not repealed the individual mandate.

Despite the evidence provided by preliminary rate filings, CAP continues to insist that repeal of the mandate and a change in federal policy on short-term coverage will induce massive premium increases.

Moreover, as noted in a previous piece, the focus on projected increases in premiums for benchmark Silver plans overlooks some fairly significant benefits of these policy changes. First, the proposed rules on short-term policies will offer many consumers an affordable alternative to Obamacare plans. For them, the new policy will produce substantial premium decreases.

Second, the Urban Institute study on which the CAP analysis is based estimates that 1.7 million people who otherwise would have been uninsured will gain coverage in 2019 if the administration finalizes the proposed rule on short-term policies.

Finally, millions of uninsured people no longer will face the threat of IRS tax penalties. For theoreticians who support the mandate, this may be bad news. Those at risk of tax penalties for making rational economic decisions not to buy costly policies they don’t want will take a different view.

Democrats will nonetheless blame Republicans for the coming round of Obamacare premium increases and at least some polls suggest this argument will resonate among independent voters. After an exhausting eight years defending a deeply flawed and unpopular law, they now are happy to saddle Republicans with that burden and blame them for Obamacare’s myriad problems. The preliminary data suggests rate hikes won’t be as high as feared, but premiums will rise, creating a political opportunity for Democrats.

Republicans may want to rethink their decision to abandon Obamacare repeal. Since voters will hold them accountable for the law’s unpleasant consequences, it might be better to take the offensive against the law, instead of accepting blame for its failures.