Options to Expand Health Insurance Enrollment in the Individual Market

When more people enroll in the individual insurance market, it is easier for insurers to set premiums, and administrative costs are spread over a larger base. Further, incentivizing healthy individuals to enroll may reduce average cost per enrollee, lowering premiums.

In this study, we analyzed six options to expand enrollment, including enhancing tax credits for young adults, increasing tax credit amounts, extending tax credits to more people, both increasing and extending tax credits, and adding standard or generous reinsurance (insurance for insurers, in this case funded through a fee on health plans). We conducted the analysis with the COMPARE microsimulation model, which uses economic theory, nationally representative data, and evidence from past experience to estimate how consumers and business will respond to policy changes. Individuals in the model make insurance enrollment decisions by weighing the cost and benefits of available options, including the option to be uninsured. The model accounts for health insurance rating rules, the individual mandate, marketplace tax credits for individuals with incomes between 100 and 400 percent of the federal poverty line and no other affordable source of coverage, risk adjustment, and ACA rules.

The options that we analyzed could increase total insurance coverage by 800,000 to 3 million, and individual market enrollment by 1 to 5 million. Estimated changes in total insurance enrollment are smaller than changes in individual market enrollment due to shifts from other sources of coverage. Among the options considered, enhanced tax credits for young adults lead to the smallest overall increase in enrollment, and the generous reinsurance option leads to the largest increase. The policies would also reduce insurance premiums. While most options reduce premiums by 4 percent or less, the generous reinsurance program could reduce premiums by as much as 19 percent.

All options to expand enrollment require investments, which will ultimately be funded by taxpayers, either through increases in the federal deficit or new health plan fees. These costs range from $2.5 billion to $18.8 billion, depending on the approach. As measured based on the cost per newly insured individual, enhancing tax credits for young adults is the most cost-effective policy, at a cost of $3,100 per newly insured person. Increasing tax credits for those who are already eligible is the least cost-effective policy, with a cost per new enrollee of $5,700.

This analysis demonstrates that, with modest taxpayer investments, it would be possible to implement policies that would stabilize premiums and expand enrollment in the ACA’s individual market.

In general, approaches with the biggest effect on coverage also require the biggest taxpayer investment. Yet, despite these required tax payer investments, the policies do not necessarily increase the deficit. If funded through a fee on health insurance plans, reinsurance could reduce federal spending on tax credits, lowering the deficit while extending insurance coverage to more Americans.