Benefits Buzz

Individual Mandate Repealed ... Well Kind of, Sort Of

Posted on December 26th, 2017

The Tax Cuts and Jobs Act, also known as the Tax Act, was signed into law on December 22, 2017. The Tax Act makes several changes to the existing tax code, including the repeal of the Individual Mandate ... well, kind of, sort of.
The Individual Mandate was not literally repealed by the Tax Act, but the penalty for failing to have minimum essential coverage (e.g., health insurance) has been reduced to $0 starting on January 1, 2019. This is effectively the equivalent of repeal; however, the Individual Mandate will still be applicable for the 2017 and 2018 tax years.
This change to the Individual Mandate has spurred numerous questions and/or speculations, including:
What happens to the uninsured rate? Most industry experts believe the uninsured rate will increase with the elimination of the Individual Mandate, but by how much? The Congressional Budget Office (CBO) has estimated over the next decade around 13 million people will lose coverage by repealing the Individual Mandate, but this will mostly be caused by people who voluntarily drop coverage.
What happens to the individual market? The Affordable Care Act (ACA) eliminated medical underwriting so that health insurance could be purchased without regard to a person’s pre-existing conditions. The financial penalty imposed by the Individual Mandate has been considered a “necessary evil” to encourage younger, healthier people to sign up for coverage. This was intended to create a more balanced risk pool of covered insureds. Without the Individual Mandate, the individual market could further destabilize leaving mostly individuals with high claims that purchase coverage. This would likely create a spiral effect where premiums rapidly increase and more insurance carriersstop selling individual-based coverage.
Will ACA repeal efforts be revisited? The ACA has been described as a “three-legged stool.” The first leg prohibits insurance carriers from issuing coverage based on a person’s health status. The second leg is the Individual Mandate which is supposed to encourage that healthier population to enroll in coverage, and if you’re going to mandate that people buy coverage or pay a penalty, there has to be affordable coverage available. The third leg is the subsidized coverage that is supposed to make insurance more affordable. It’s been said that if you take out one leg, then the entire stool will collapse. The removal of the leg that is the Individual Mandate may be enough to get ACA repeal and replace talks going again, but who knows where, when, how or what that may look like?
Will there be any side effects by eliminating the Individual Mandate? The one that immediately comes to mind has to do with ACA reporting. Insurance carriers and employers with self-insured plans have to report information to help enforce the Individual Mandate. While the Tax Act does not repeal this reporting requirement, we may see future regulatory guidance which changes, suspends or eliminates certain ACA reporting requirements that are currently in place.
Stay tuned as only time will tell the ultimate effect of repealing the Individual Mandate. 
Update: At least ten states are considering the implementation of a state-based mandate. This includes California, Connecticut, Hawaii, Maryland, Minnesota, New Jersey, Rhode Island, Vermont, Washington and Washington D.C. Officials in these states worry that market destabilization may occur without an adequate incentive or penalty to enroll in coverage.

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