Mandating Insurance Coverage for High-Income Individuals

The Affordable Care Act introduced several measures intended to increase health insurance coverage in the United States. These included: 1) the Medicaid expansion for low income families; 2) subsidies to purchase coverage on regulated Marketplaces; 3) the imposition of guaranteed issue and community rating in the non-group market; and 4) the individual mandate to purchase coverage.

The Medicaid expansion and Marketplace subsidies target families under 400 percent of poverty. In contrast, guaranteed issue and community rating also apply to families over 400 percent of poverty, and individual mandate penalties not only apply to those families, but also rise with income (capped at the least expensive bronze premium) and increased over time. This paper seeks to untangle the effects of these two policies on higher-income nonelderly adults.

The simultaneous implementation of these policies in 2014 has complicated assessments of their individual impact on insurance coverage (Frean, Gruber & Sommers, 2017). To identify the effects among higher-income individuals of the individual mandate and community rating and guaranteed issue provisions, I exploit state differences in the rules governing premium setting and coverage issuance in the non-group market prior to 2014.

Prior to ACA implementation, states including New York, New Jersey, Vermont, and Washington had provisions that guaranteed coverage and limited how premiums could be set in the individual market. Using the American Community Survey from 2012 through 2016, I assess changes in the percentage of high-income, nonelderly adults without insurance coverage who were not enrolled in employer-sponsored insurance (ESI) and were therefore likely candidates for choosing non-group coverage. I estimate a difference-in-differences model exploiting variation across states and time in their non-group rating practices to separately identify the impact of rating reforms and the individual mandate. To capture unobserved heterogeneity in the effects of non-group reforms, I control for a variety of non-group premium measures and also separately test effects for individuals with higher versus lower expected health spending.

This paper has several preliminary findings: 1) the individual mandate to purchase coverage was the predominant reason the coverage rate for high-income adults without ESI increased from 58.1% prior to 2014 to 71.7% in 2016, leading to 1.9 million more individuals with coverage; 2) coverage rates increased proportionately over 2014-2016 as the individual mandate penalty phased-in; 3) individuals in the non-group market appeared to be relatively insensitive to premium changes; and 4) community rating and guaranteed issue provisions were weakly associated with a negative effect on coverage (a result that is consistent with previous findings, e.g., Lo Sasso & Lurie, 2009). Because the individual mandate may have had effects on employees’ decisions to take up ESI coverage, the final version of this paper will also test for any effects of the individual mandate on ESI coverage rates; very preliminary results suggest this effect was minimal.

These preliminary results suggest the individual mandate had a substantial influence on coverage decisions among adults in families with incomes over 400 percent of the poverty line.