I wrote recently about how flimsy bronze plans were discouraging some people from purchasing insurance on ObamaCare’s health exchanges at all. These people are likely, on the whole, healthy and relatively young, upsetting the careful risk pool balance that insurers need to keep the exchanges sustainable. United Health Group has signaled that it may exit the exchange business next year altogether because of the destabilizing bad customer mix.
There’s essentially two ways fix this problem: (1) make the exchanges’ low-cost insurance options more attractive, and (2) increase the consequences of going uninsured (i.e., raise the individual mandate penalty).
A new study from the Kaiser Family Foundation focuses on the latter, finding that the average penalty faced by the current uninsured eligible to buy on exchanges will increase from $661 to $969 next year. For about 3.5 million people, a bronze plan will cost less than their prospective tax penalty. So if they are smart cost-benefit consumers, they should purchase insurance. For 7.1 million, however, the cost of insurance will still exceed their hit from the mandate’s penalty.
This is, on the whole, good news for getting more people insured and shoring up the health exchanges. Certainly, tightening the mandate will push more people into the exchanges and make the business more sustainable for insurers.
But some — perhaps many — of those 3.5 million who are expected to opt for insurance this time around will sign on to the health exchanges and be disappointed by what they can afford. Kaiser tells us that these individuals can get a net-$0 bronze plan (the cost of the bronze plan is less than the penalty). While buying this makes economic sense, a bronze plan isn’t a very appealing option for many people. It comes with high deductibles and, aside from routine preventive services, leaves individuals self-funding their insurance until they hit that deductible.
Moreover, bronze plans aren’t eligible for ObamaCare’s cost-sharing subsidies, meaning that individuals won’t receive help with their copays and deductibles. But for many of the 3.5 million, a silver plan — which is both more comprehensive insurance and has cost-sharing subsidies — will have premiums out of reach for their budgets.
Among the remaining uninsured, those most likely to get fed up by the disappointing options they can afford are the least risk averse. On the whole, this will be the young, healthy people (the so-called “young invincibles”) that insurers are relying on to financially support their risk pools.
So a tighter individual mandate will help incentivize more of the remaining uninsured to sign up. It will certainly increase ObamaCare’s take-up rate, which stood at 35 percent of exchange-eligible individuals in June.
But at the end of the day, we’ll need to improve the appeal and quality of the most affordable plans on the exchanges to capture more of the people that we need to keep the exchanges sustainable. Tightening the individual mandate will only do so much. And ultimately, we want people to have insurance that truly protects them from the risk of sickness and injury, not just from a tax penalty.