Rand: Subsidies and individual mandate serve as 'carrot and stick' for ACA success

Removing tax credits that help low- and moderate-income people buy health insurance on exchanges would increase premiums by nearly 45 percent, according to results of a Rand Corp. study. More than 11 million Americans would lose coverage.

That would result in significant disruption in the individual market.

"Without the subsidies, prices would jump sharply and many people simply could not afford to enroll," Christine Eibner, the study's lead author and a Rand senior economist, said in an announcement.  

As a result, the individual market would be left with a relatively small number of high-risk customers. That would drive up premiums and prevent many people from buying insurance products through the exchanges. 

The study also found that ending the individual mandate would cause enrollment in the individual market to drop more than 20 percent, with 8.2 million Americans becoming uninsured.

This finding speaks to the importance of the individual mandate in reaching the Affordable Care Act's goal of nudging the country closer to universal health insurance, the announcement noted. And trade groups have argued that healthcare reform won't work without requiring uninsured individuals to obtain coverage, since payers set rates based on the assumption that the individual mandate will be implemented.

Overall, "the law's tax credits and cost-sharing subsidies offer a 'carrot' that may encourage enrollment among some young and healthy individuals who would otherwise remain uninsured, while the individual mandate acts as a 'stick' by imposing penalties on individuals who choose not to enroll," the study abstract noted.

The Rand study was based on a microsimulation model that predicts the effects of health policy changes at state and national levels. Among the study's other findings:

  • Lower young adult enrollment in the market is linked to slight premium increases  
  • Other subsidy forms, such as vouchers, could cause premiums to be more sensitive to age composition of enrollees

For more:
- read the Rand study announcement and abstract