Monday, October 14, 2013

Delaying the Individual Mandate is Difficult

There is still talk about delaying the individual mandate, and there are some reasonable arguments in favor of that position -- not the least of which are the ongoing difficulties with the Federal health exchanges.

But, the fact is that health insurers have already posted health insurance policies with prices, available to buy.  The prices (premia) of those policies reflect expectations about who will sign up (premia have to cover expected health costs of the enrollees).  Importantly, who signs up depends on whether or not the individual mandate is in force or not.

The tax for not signing up is $95 or 1% of income, whichever is greatest (with a cap equal to the average cost of  a bronze plan).  This is not insignificant.  Dropping the mandate/tax will definitely induce some individuals to go without insurance, and there will certainly be adverse selection in that choice -- the healthiest individuals will tend to not buy insurance, the least healthy will tend the other way.  This will distort the pool of insured people from what the insurers would have expected when they posted their premia for the 2014 year.

I do recognize per my earlier post that there is risk-sharing on the exchanges.

That said, delaying the individual mandate seems quite unfair and dare I say in violation of principles that libertarian-oriented folks would generally respect.  How can the government induce businesses to offer contracts at binding prices and then significantly change the rules so as to increase the cost of fulfilling the contracts?

I have not seen anyone offer the insurers the chance to re-price their policies if the individual mandate were delayed. 

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