The individual mandate works

In my latest Kaiser Health News column I interpret recent news about Massachusetts’ individual health insurance mandate. I declare it a success. Here’s the key passage:

The individual mandate is working in Massachusetts because it is preventing a destabilizing level of adverse selection. Although there are individuals gaming the system in the state—by waiting to purchase insurance until they need it–the overall coverage rate is high (about 96% insured) and the associated degree of adverse selection is very low.

In a recent report released by the Massachusetts Division of Insurance, actuaries estimated that part-year insurance purchasing in Massachusetts’ combined individual and small group market increased premiums by 0.5 percent to 1.5 percent. Based on an average individual premium in Massachusetts of about $5,000 per year, that translates into an annual premium increase of $25 to $75, far too low to have a major impact on the market. Insurance companies can pass that level of premium increase on to consumers without many of them dropping coverage.

Read the rest here.

Just to make it clear, the purpose of the individual mandate is to protect insurers and full-year premium paying consumers from severe adverse selection that would substantially increase premiums and destabilize the market. Even though there is some “gaming” of the system in Massachusetts, it’s not leading to these potential problems.

Based on this, there is reason to think gaming won’t be an issue with the national mandate. First, the ACA’s penalties for lack of compliance with the mandate are actually higher than Massachusetts‘. Second, exchanges will have open enrollment periods, which doesn’t exist for the Massachusetts version of an exchange right now. There are, of course, differences between Massachusetts and other states that may cause results to vary.

Note that I am not saying that everything about the health care system in Massachusetts is wonderful. The Bay State still has a health care cost problem and no agreed upon solution to it, for example. (For a particularly pessimistic view that highlights other issues, see today’s other KHN column by Grace-Marie Turner.) Nevertheless, the individual mandate is functioning as designed. That should give us hope that it can work well elsewhere, though it doesn’t guarantee that it will.

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