S&P report challenges CBO estimates about effects of individual mandate repeal

Affordable Care Act highlighted
A new report from S&P challenges the CBO’s prediction that the individual market would continue to be stable in almost all parts of the country even if the individual mandate is repealed. (Getty/Ellenmck)

Repealing the Affordable Care Act’s individual mandate will neither save as much nor decrease coverage levels as much as the Congressional Budget Office estimated, according to a major U.S. credit ratings agency.

In a recent report, Standard & Poor’s estimates that a repeal of the individual mandate would save the government about $60 billion to $80 billion over the next 10 years—far less than the $338 billion that the CBO projected. S&P also predicted that a repeal would increase the number of uninsured individuals by just 3 million to 5 million, while the CBO estimated 13 million.

The main reason for the difference between the two estimates, according to S&P analyst Deep Banerjee, is that he believes the individual mandate isn’t really what’s driving people to enroll in individual market or Medicaid coverage. Rather, it’s the fact that most enrollees receive highly subsidized coverage.

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And for those who don’t receive subsidies to purchase individual market policies, the majority currently sign up for coverage because they need it—not because of the penalty for not doing so. Banerjee therefore predicts that repealing the mandate won’t cause many people to drop coverage, which in turn limits the savings that the federal government can expect.

The S&P report also challenges the CBO’s prediction that the individual market would continue to be stable in almost all parts of the country even if the individual mandate is repealed.

“The individual mandate is currently weak, and repealing it may have a limited impact on the insured rate and the federal deficit, but repealing it will definitely reduce support for the Affordable Care Act individual insurance marketplace," Banerjee's report said.

He noted that while the ACA individual market is improving, it still struggles with declining insurer participation, lack of adequate scale and a higher-than-initially-expected morbidity pool.

In fact, Banerjee argued that a stronger penalty for remaining uninsured would help with some of those issues. Since the penalty for not having insurance is lower than the cost of coverage for some consumers, this led some healthy individuals to opt for the penalty—causing the market to be smaller than was initially expected, and with higher nonsubsidized premiums.

The discrepancies between the S&P and CBO estimates get to the heart of arguments about the individual mandate’s effectiveness that have simmered since the ACA’s inception. Critics argue it is both ineffective and a form of intrusive government, while its supporters say there isn’t any better mechanism to encourage healthy consumers to enroll in coverage and balance out the risk pool.

Republicans—who have long railed against the individual mandate—are trying to repeal it as part of the Senate’s tax overhaul package. But prominent healthcare groups and Democrats have slammed the idea, arguing that it would further destabilize the individual insurance market.