The Cost of Stabilizing Individual Market Enrollment without the Individual Mandate and Cost Sharing Reductions

What are the budget implications of a repeal of certain provisions of the Affordable Care Act? How much federal money would it take to stabilize enrollment in the marketplaces? In this issue brief, H&E seeks to answer those questions by considering two provisions, likely to be repealed: the individual mandate and cost-sharing reductions (CSRs) in the individual health insurance marketplace.

Budgetary Implications

For enrollment to be stabilized without the individual mandate and cost-sharing reductions, the individual market would require increased generosity of the advanced premium tax credits and some sort of stop-loss program for insurers. Our analysis of this scenario is shown below. It is projected that such a marketplace would require an additional $21 billion in federal funds and reduced tax revenue in 2018 relative to current law. Over the course of the 3-year window considered, this new marketplace is expected to need an additional $87 billion in federal spending and reduce tax revenue relative to the current baseline. Included in the Net Budgetary Impact below is the decrease in tax revenue from the repeal of the individual mandate, and the increase in spending on advance premium tax credits and a stop-loss program.

It should be noted that the budget impact of such a marketplace also corresponds to differences in enrollment. For this exercise, individual market enrollment is 11 million for the years 2018, 2019, and 2020. Under current law, H&E expects enrollment in the individual market to fall into the range of 8.5 in 2018 to roughly 8 million in 2020, while if the individual mandate and cost-sharing reductions were eliminated with no offsetting policy, federal marketplace enrollment would be between 3.5 and 4 million.

Budgetary Effects Relative to Current Law (Billions)1

2017 2018 2019 2020 2017-2020
Net Budgetary Impact2 0 -21 -28 -37 -87
1 Cost estimates refer only for the under-65 population.
2 Positive values denote surplus; negative values denote deficit.

Assumptions Made in Projecting the Adjusted Marketplace

The estimates above were produced by comparing the marketplace without the individual mandate and cost-sharing reductions with a modified version of H&E’s March 2016 baseline that included 2017 premium increases with assumed 6 percent annual premium increases after 2017. As this estimate was calculated on a modified version of an older baseline, it is ultimately a rough estimate and would be subject to change under a new baseline.

The budgetary impact above represents an upper bound in spending increases. Apart from a repeal of the individual mandate and CSRs, no other policy adjustments were considered. However, any policy change that would put downward pressure on premiums and cost-sharing would have a tempering-effect on the budget extreme seen above. Such policy changes could be pursued legislatively or administratively.