How Did the ACA's Individual Mandate Affect Insurance Coverage?

38 Pages·2017·0.8 MB·English

by  Matthew Fiedler

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May 2018

How Did the ACA’s
Individual Mandate Affect
Insurance Coverage?
Evidence from Coverage Decisions
by Higher-Income People

______________________________________________________

Matthew Fiedler

USC-Brookings Schaeffer Initiative for Health Policy
This report is available online at: www.brookings.edu/research/how-did-the-acas-individual-mandate-affect-insurance-coverage-evidence-from-coverage-decisions-by-
higher-income-people
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EDITOR’S NOTE
This white paper is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a
partnership between the Center for Health Policy at Brookings and the USC Schaeffer Center for
Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous,
evidence-based analysis leading to practical recommendations using the collaborative strengths of
USC and Brookings.
ACKNOWLEDGEMENTS
I thank Loren Adler, Aviva Aron-Dine, Craig Garthwaite, Paul Ginsburg, Dana Goldman, John Graves,
Greg Leiserson, Larry Levitt, Matthew Martin, and Erin Trish for comments, suggestions, and
conversations that helped shape this analysis. I thank Sobin Lee, Caitlin Brandt, Abbey Durak for
excellent research and editorial assistance. All errors are my own.

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Introduction
The tax legislation enacted in December 2017 repealed the tax penalty associated with the individual
mandate—the Affordable Care Act (ACA) requirement that people who do not qualify for an exemption
obtain health insurance coverage—thereby effectively repealing the mandate itself.1 Repeal of the
individual mandate will take effect in 2019, so understanding how the mandate has affected insurance
coverage is important for predicting how insurance coverage and insurance markets, particularly the
individual health insurance market, are likely to evolve in the coming years.
How the individual mandate has affected insurance coverage is controversial. Most formal analyses,
including those produced by the Congressional Budget Office (CBO), conclude that the individual
mandate substantially increased insurance coverage and, correspondingly, that the mandate’s repeal
will substantially reduce coverage (Blumberg et al. 2018; CBO 2017; CBO 2018). But some, including
the Trump Administration and Congressional Republicans, have argued that the mandate has had
little or no effect on insurance coverage (JEC 2017; OMB 2017). Those arguing that the mandate is
ineffective have generally not provided rigorous evidence for that view, but it is certainly conceivable
that CBO’s and similar estimates, which have (at least until recently) been based largely on a
combination of pre-ACA empirical research and economic theory, could have missed the mark.
Direct evidence on how the ACA’s individual mandate has affected insurance coverage would be useful
in resolving this debate. Unfortunately, isolating the mandate’s effect is challenging because the
mandate was implemented at the same time as the ACA’s other major coverage provisions, including
Medicaid expansion, subsidies for low- and middle-income people purchasing individual market
coverage, and a range of regulatory changes affecting insurance markets, particularly the individual
health insurance market. Largely for this reason, even though it is clear that the ACA as a whole
substantially increased insurance coverage (Blumberg, Garrett, and Holahan 2016; Sommers, et al.
2015), the size of the mandate’s contribution to that increase remains uncertain.
This paper aims to help fill this gap by analyzing how insurance coverage among people with family
incomes above 400 percent of the federal poverty level (FPL) has changed since 2013. (Glied and
Chakraborty (2018) take a related approach in recent research focusing on the coverage decisions of
young men.) The advantage of focusing on this income group is that these individuals are not eligible
for the ACA’s subsidies, which makes it easier to isolate any effects of the individual mandate. I find
that the share of non-elderly people in this income group who lacked health insurance at a point in
time fell sharply from 2013 to 2016, with one survey showing a reduction of 24 percent (1.2 percentage
points) and another showing a reduction of 39 percent (2.0 percentage points). The magnitude, timing,

1 For simplicity, I generally refer to “repeal of the individual mandate” in this paper rather than “repeal of the individual
mandate penalty” since removal of the penalty renders the mandate effectively moot.
1
and abruptness of this decline are strong evidence that the decline was caused entirely or almost
entirely by the ACA, like the parallel decline in the population as a whole.
An important question, however, is whether this decline was caused by the mandate or by other ACA
provisions. One potential non-mandate explanation is that the broader suite of ACA reforms, notably
the introduction of guaranteed issue and modified community rating in the individual market (which
barred insurers from denying coverage or varying premiums based on health status), changed the price
and availability of individual market plans in ways that increased insurance coverage in this income
group. But while these policies reduced the price and increased the availability of individual market
coverage for people with greater health care needs, they generally raised premiums for healthier
people, so it is unclear that they should have been expected to increase the number of people with
health insurance on net. Indeed, pre-ACA research found little evidence that community rating and
guaranteed issue on their own increase the number of people with insurance coverage, whatever their
other benefits (Buchmueller and Dinardo 2002; Lo Sasso and Lurie 2009; Clemens 2015).
I present two pieces of direct evidence that changes in the price and availability of insurance coverage
caused by ACA provisions (including both the introduction of guaranteed issue and modified
community rating and other ACA provisions) cannot account for the observed trends in insurance
coverage among people with family incomes above 400 percent of the FPL. First, I find no evidence
that the uninsured rate rose among healthy people in this income range, and I find that the uninsured
rate declined among young adults in this income range, even though changes in the price and
availability of insurance coverage would, on their own, have been expected to increase the uninsured
rate in these population groups. Second, I show that the uninsured rate in this income group fell by
about the same amount in New York and Vermont as in the nation as a whole, despite the fact that
New York and Vermont saw little change in the price and availability of insurance coverage at these
income levels as a result of already having guaranteed issue and community rating requirements.
I also consider several other potential non-mandate explanations for coverage gains among people
with family incomes above 400 percent of the FPL. There is some evidence that advertising and
outreach associated with the ACA’s rollout had some effect on insurance coverage (Karaca-Mandic et
al. 2017). However, the available evidence suggests that these and similar factors can account for only
a small fraction of the observed decline in the uninsured rate in this income group since 2013, which
suggests that the mandate accounts for the lion’s share of this decline.
The estimates presented in this paper thus suggest that the individual mandate made a meaningful
contribution to the overall reduction in the uninsured rate under the ACA. While my estimates only
apply directly to a small slice of the uninsured population, if the mandate had an important effect on
coverage decisions among people with family incomes above 400 percent of the FPL, it likely also
affected coverage decisions at lower income levels. That being said, the magnitude of the mandate’s
overall effect is uncertain because the mandate’s effect likely varied across income groups.
2
To provide insight on the range of possibilities, I present estimates under varying assumptions about
the mandate’s relative effectiveness below 400 percent of the FPL. For these calculations, I assume
that the individual mandate accounted for four-fifths of the overall decline in the uninsured rate
among people with family incomes above 400 percent of the FPL, with the remaining one-fifth
accounted for by outreach and advertising associated with the ACA’s rollout and similar factors. If the
probability that the mandate caused an uninsured person to obtain coverage was the same at all
income levels (with narrow exceptions described later), then the estimates presented in this paper
imply that the mandate reduced the number of uninsured people by 8.0 million in 2016. Even if the
individual mandate’s effect on people with family incomes below 400 percent of the FPL was half as
large, then the mandate reduced the number of uninsured people by 4.6 million in 2016.
Looking to the future, these estimates suggest that the mandate’s removal will cause a meaningful
increase in the number of uninsured, although the full increase may take time to materialize. For a
variety of reasons, the future increase in the number of uninsured caused by repealing the mandate
may not be exactly the same as the reduction in the number of uninsured caused by the mandate in
2016. For comparison, however, my base estimate that the mandate reduced the number of uninsured
people by 8.0 million in 2016 is similar to CBO’s updated estimate of the long-run increase in the
number of uninsured that will result from mandate repeal, but somewhat smaller than the 13 million
estimate CBO issued during the legislative debate (CBO 2017; CBO 2018).
As a final note, the implied effect of the individual mandate on people with family incomes above 400
percent of the FPL is similar to or modestly smaller than what would have been expected in light of
pre-ACA evidence, including prior research on the price sensitivity of insurance enrollment decisions
and Hackman, Kolstad, and Kowalski’s (2015) estimate of the effect of Massachusetts’ individual
mandate. The general agreement between my results and prior research strengthens the case for
believing that the observed change in insurance coverage among people with family incomes above
400 percent of the FPL is, in fact, a result of the mandate. It also suggests that pre-ACA evidence
remains relevant to a post-ACA world, which is important since the post-ACA literature remains
limited and pre-ACA experience provides natural experiments that post-ACA experience does not.
The remainder of this paper proceeds as follows. The first section provides an overview of the ACA
provisions that took effect in 2014 and briefly reviews empirical research on how the ACA as a whole
and the individual mandate in particular affected insurance coverage. The second section documents
the sharp decline in the uninsured rate among people with family incomes above 400 percent of the
FPL. The third section argues that the individual mandate likely accounts for most of the observed
decline in the uninsured rate in this income group. The fourth section considers what the estimated
effects on people with family incomes above 400 percent of the FPL imply for the population as a
whole. The fifth section examines how the effect of the individual mandate implied by these estimates
compares to what would have been expected based on pre-ACA research. The final section concludes.
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Background on the ACA’s Major Coverage Provisions
The ACA implemented a broad set of policy changes designed to expand health insurance coverage in
2014. These provisions can be organized into four main groups:
 Medicaid expansion: The ACA allowed states to expand their Medicaid programs to cover
all non-elderly adults with incomes up to 138 percent of the FPL ($16,243 for a single person
and $33,465 for a family of four as of the start of 2016).2 For 2014, 2015, and 2016, the federal
government financed the full cost of the expanded coverage; over the long run, the federal
share phases down to 90 percent.
 Individual market regulatory changes: The ACA changed how the individual health
insurance market was regulated.3 Individual market insurers were newly barred from denying
coverage or varying premiums based on health status—policies referred to, respectively, as
guaranteed issue and modified community rating. The ACA also newly required individual
market plans to meet certain standards, including covering a minimum list of health care
services known as “essential health benefits,” having an actuarial value of at least 60 percent,
and capping enrollees’ annual out-of-pocket spending. The law also created a Health Insurance
Marketplace in each state, an online portal operated by either the federal government or the
state through which individuals could purchase insurance coverage.
 Individual market subsidies: The ACA introduced subsidies for people purchasing
individual market coverage. People with family incomes up to 400 percent of the FPL ($47,080
for a single person and $97,000 for a family of four for the 2016 coverage year) became eligible
for tax credits that reduced premiums of coverage purchased through the Health Insurance
Marketplace, and people with family incomes up to 250 percent of the FPL ($29,425 for a
single person and $60,625 for a family of four for the 2016 coverage year) also became eligible
for reduced cost sharing. The ACA also created a reinsurance program that paid individual
market insurers for a portion of the costs associated with high-cost enrollees in 2014, 2015,
and 2016. This insurer-side subsidy likely reduced premiums, indirectly benefiting individual
market enrollees with incomes too high to qualify for direct subsidies.
 Individual mandate: The main focus of this paper is the ACA’s requirement that people
have health insurance or pay a penalty, commonly referred to as an “individual mandate.” That

2 The ACA initially required states to expand their Medicaid programs, but the Supreme Court’s decision in National
Federation of Independent Business v. Sebelius made expansion a state option.
3 The requirements discussed here applied only to individual market plans that were not considered “grandfathered” under
the ACA or “transitional” under guidance issued by the Centers for Medicare and Medicaid Services. By 2016, only around
one-sixth of individual market enrollment was in grandfathered or transitional plans. These requirements generally also
applied to small group market plans. A subset of these changes, including a ban on annual limits and a requirement that plans
cap enrollees’ annual out-of-pocket spending, generally applied to all private insurance plans, including large employer plans.
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penalty phased in starting in 2014, reaching the greater of $695 per person (half that for
children) or 2.5 percent of income above the tax filing threshold in 2016, up to a maximum
based on the national average cost of plans in the “bronze” actuarial value tier. Exemptions
from the mandate were available in a range of circumstances, including if the least expensive
coverage option available to an individual would cost more than a specified percentage of
income, 8.13 percent for the 2016 coverage year. However, Rae et al. (2015) estimated that
only 16 percent of enrollees not eligible for subsidies—the main population of interest in this
analysis—qualified for an exemption in 2016.
The overall uninsured rate fell sharply as the ACA’s coverage provisions took effect, as depicted in
Figure 1. The timing and exceptional size of this decline are strong evidence that it was caused by the
ACA. Consistent with the interpretation that this decline was caused by the ACA, research that has
explicitly controlled for various economic and demographic changes during this period has concluded
that these non-policy factors can do little to explain the large reductions in the uninsured rate observed
after 2013 (Sommers et al. 2015; Blumberg, Garrett, and Holahan 2016).
While it is clear that the ACA sharply reduced the uninsured rate, isolating the individual mandate’s
role in that decline is challenging because the mandate was implemented at the same time as the
various other ACA policy changes described above. To date, a few attempts have been made to
overcome this problem, but the existing evidence has important limitations.
Figure 1: Share of People Without Health Insurance
30
Last year before
main ACA reforms
took effect
25
20
d
e
r
u
s
n
in 15
u
t
n
e
c 10
r
e
P
5
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Councilof Economic Advisers (2014); NHIS.
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Table 1: Examining Enrollees’ Planned Responses to Mandate Repeal
Share of Enrollees
Dropping Coverage
Without Mandate
Survey Population
CBO December
Survey
2017 Estimates
Estimate
2019 2027

Collins et al. (2018) All insured, ages 19-64 5% 2% 5%

Kirzinger et al. (2018) Individual market enrollees, ages 18-64 7% 18% 28%

Hsu et al. (2018) Individual market enrollees in California, adults 18% 18% 28%
Notes: Collins et al. (2018) and Kirzinger et al. (2018) ask about how mandate repeal will change respondents’ insurance coverage
decisions for 2019. Hsu et al. (2018) ask whether enrollees would have purchased coverage in 2017 without the individual
mandate. For the Collins et al. study, the CBO columns report the projected reduction in the overall number of insured individuals
as percentage of enrollment in CBO’s September 2017 baseline. For the other two studies, the CBO columns report the
corresponding estimates for individual market enrollment only, consistent with the populations examined in those studies.
Some recent survey research has aimed to quantify the effect of the individual mandate on insurance
coverage by asking people who currently have health insurance whether they would drop that coverage
if the mandate were removed. Table 1 reviews three such survey estimates and compares each estimate
to the most nearly comparable estimate from CBO’s December 2017 analysis of repeal of the individual
mandate (CBO 2017). In the near term, which is arguably the time horizon to which the survey
estimates are most relevant, the survey estimates range from substantially larger to substantially
smaller than CBO’s December 2017 estimates. Over the longer term, two of the three estimates are
smaller than CBO’s December 2017 estimates, while one is comparably sized.4
While these survey estimates are interesting, they have the limitation that consumers’ stated intentions
may be a poor predictor of how they will actually respond to a policy change.5 For example, some
consumers may believe that maintaining insurance coverage is the more socially acceptable course of
action and thus be reluctant to admit to researchers (or even themselves) that they would drop their
coverage in the absence of the mandate. On the other hand, at least in the near term, inertia could lead
some enrollees to continue their coverage despite stated intentions to drop that coverage.

4 CBO (2018) reports that its revised estimates of the effect of repealing the individual mandate are about two-thirds as large
as its December 2017 estimates, so the survey estimates would look somewhat larger when compared to those. Unfortunately,
CBO has not released sufficient detail on its revised estimates to facilitate incorporating those estimates into Table 1.
5 These survey estimates also have limitations other than the potential for actual behavior to differ from stated intentions.
They capture only the direct effect of repealing the mandate on coverage decisions, not indirect effects that would arise through
changes in individual market premiums or changes in the types of plans employers offer. They also may understate the
mandate’s effects to the extent that enrollees’ coverage decisions are “sticky,” in which case a portion of the effect of the
mandate would only be realized once current enrollees have churned out of their current coverage arrangements.
6
In light of these limitations, it would be preferable to estimate the effect of the individual mandate
using data on actual enrollment decisions, rather than stated intentions. Frean, Gruber, and Sommers
(2017) present such estimates as part of a broader study aimed at allocating the overall increase in
insurance coverage under the ACA across its various provisions. The authors’ strategy for isolating the
effect of the individual mandate uses the fact that the penalty amount and eligibility for various
exemptions vary across individuals based on their income and where they live. Using survey data that
extends through 2015, the authors find no evidence that insurance coverage rose differentially in
population groups that were more exposed to the individual mandate in these ways.
However, as the authors discuss, their results do not necessarily imply that the mandate was
ineffective. This is because the authors’ methodology can only identify effects of the individual
mandate to the extent people understand the details of the rules governing the penalty amount and
eligibility for exemptions and respond to the mandate based solely on how those rules apply to their
particular situation. If individuals know that there is a penalty for not having insurance coverage but
are not familiar with the details of its computation or respond to the mandate solely because of a
generalized desire to comply with the law, then the authors’ approach would miss the mandate’s effects
entirely. It seems quite possible that the mandate’s effects have operated largely or entirely through
these more diffuse mechanisms. That seems particularly likely for 2014 and 2015, the time period the
authors examine, since individuals did not file a tax return on which the penalty was assessed until
early 2015, making it even less likely that they would be familiar with the details of its design.6
The study most similar to this paper is Glied and Chakraborty (2018), which also examines trends in
insurance coverage among people with family incomes above 400 percent of the FPL, with a particular
focus on young men. They find substantial reductions in the uninsured rate in this income group
similar to those documented in this paper, which they attribute to some combination of the individual
mandate and changes in enrollee demand for health insurance driven by the ACA’s rollout.
Trends in the Uninsured Rate Above 400 Percent of the FPL
The main objective of this paper is to shed additional light on the effect of the individual mandate on
insurance coverage by examining trends in insurance coverage among people with family incomes
above 400 percent of the FPL. As described earlier, the advantage of focusing on people in this income
group is that they are not eligible for the ACA’s Medicaid expansion or its subsidies for purchasing

6 An additional limitation of the authors’ approach is that it depends on having income information that is precise enough to
allow them to determine how the mandate applies to each person in their sample. However, surveys capture respondents’
income with some error, and the time period over which income is measured in the particular survey used by the authors does
not always align with the time period used when applying the mandate’s rules. This type of measurement error would likely
cause the authors’ approach to understate the effects of the mandate even if people were fully aware of the mandate’s rules and
responding to the mandate on that basis. The authors implement an instrumental variables strategy designed to mitigate this
concern, but it likely does not eliminate it entirely.
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individual market coverage, which substantially narrows the set of non-mandate explanations for any
changes in insurance coverage observed in this group.
This section of the paper documents the trends in insurance coverage in this income group since 2013
and presents evidence that this decline was indeed caused by the ACA. I measure coverage trends using
data from three major federal surveys: the American Community Survey (ACS), the Current
Population Survey (CPS) Annual Social and Economic Supplement, and the National Health Interview
Survey (NHIS). Consistent with the objectives of this analysis, I define income and family units in ways
aimed at approximating the definitions used to determine eligibility for the premium tax credit.
Appendix A provides additional detail on how I measure family income.
In my initial analyses, I focus on adults ages 26 to 64 so that trends in the pre-2013 period are not
affected by the ACA’s provision allowing young adults to remain on a parent’s insurance plan until age
26, which took effect in 2010. This facilitates a cleaner comparison between trends in the uninsured
rate before and after implementation of the ACA’s main coverage provisions. Later in the paper, where
the main focus is on the size of the decline in the uninsured rate since 2013, I focus on all people under
age 65. In any case, as the results will show, post-2013 trends in the uninsured rate are qualitatively
similar whether one examines all non-elderly adults or limits the sample to adults ages 26 to 64.
Figure 2 displays overall trends in the uninsured rate for people ages 26 to 64 in families with incomes
above 400 percent of the FPL, and the underlying point estimates and standard errors are reported in
Figure 2: Uninsured Rate for People Ages 26 to 64
with Family Income Greater Than 400% of the FPL, 2008-2016
7 Last year before
National Health main ACA reforms Current
Interview Survey took effect Population
6
Survey
d 5
er American
u
s Community Survey
n 4
in
U
t 3
n
e
c
r
e
P 2
1
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: ACS;CPS; NHIS; author's calculations.
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