The Affordable Care Act (ACA) requires that most Americans have health insurance that meets minimum federal requirements.  Under the controversial mandate, starting in 2014, most individuals under 65 must purchase minimum essential health insurance coverage or pay a penalty to the IRS.  One practical concern is that healthy individuals may be less likely to purchase health insurance if the penalty cost is less than the cost of buying insurance.  That is, is the penalty strong enough to achieve it’s purpose?

In Measuring the Strength of the Individual Mandate, Milliman explores individual mandate parameters, the affordability exemption, and its influence on healthy individuals to acquire or maintain coverage. The report models impact by comparing penalty amounts in 2016, the first year of implementation at full long-term levels, with cost estimations for purchasing the lowest-cost bronze plan in Health Insurance Exchanges.  Bronze plans are the most cost-efficient minimum essential insurance coverage provided to individuals ineligible for public health or employer-sponsored coverage.

Milliman’s excellent report report offers the following conclusions:

  • The individual mandate provides households below 200 percent of the federal poverty level with high financial incentive for insurance participation.
  • The penalty amount for households with income between 200 and 300 percent of the federal poverty level becomes much smaller relative to premium amounts due to the premium tax credit subsidy.
  • The individual mandate should encourage participation by a significant portion of households with income between 138 and 250 percent of the federal poverty level, a population that represents half of all of those uninsured and individually insured in 2010.
  • A significant portion of households earning 400 percent or more than the federal poverty level, especially those older than 50, may be effected by the affordability exemption. Insurance participation may still be reasonably high for those exempt from the mandate.
  • Many of the individuals with income exceeding 400 percent of the federal poverty level may seek an exemption, and Health Insurance Exchange planners should still receive potential exchange interaction from this population.
  • The individual mandate’s ability to encourage insurance participation may be effected by the lowest-cost bronze plan pricing and the indexing of the premium tax credit subsidy percentages and the affordability test percentage.

To read or download the full report, click here (PDF).