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Tax bill's individual mandate repeal could weaken health market: news analysis

A provision in the tax cut bill to defang the requirement that every American purchase health insurance stayed intact as Congress neared a vote on the revised bill Dec. 19.

A repeal of the Affordable Care Act's individual mandate penalty, though not the requirement itself, remains in the conference committee bill, which was finalized and released late Dec. 15. Industry experts told S&P Global Market Intelligence that a repeal of the mandate or its enforcement mechanism would undermine the law's purpose of insuring more Americans, and that the impact on the health insurance industry could be severe.

Morningstar analyst Vishnu Lekraj said that if the individual mandate is neutralized, insurers already unsure of staying in state markets would be more likely to withdraw.

A smaller number of insured consumers in health plans would concentrate the risk of those who are insured. "If you can't spread the risk, it's not worth participating" in the ACA's markets for insurers, Lekraj said.

Lekraj said the individual market requires an incentive for healthier, younger individuals to participate, in order to create an overall less-risky pool. Without that built-in risk spread between healthy and higher-risk consumers, the market breaks down.

"That would mean an individual market with less options," Lekraj said. "It would mean a lot of volatility for that market, not only for insurers, but also individuals who seek insurance on that market."

Elizabeth Carpenter, senior vice president and leader of policy practice at health research firm Avalere Health, said that when the ACA was implemented, the individual mandate "fundamentally changed" the business of selling insurance. In exchanges, she said, insurers benefited from the incentive that consumers were legally required to buy coverage.

Carpenter noted that the Internal Revenue Service has not been enforcing the penalty as strongly as insurers would have preferred. But she said the mandate is still a powerful incentive for consumers to purchase insurance.

Other observers view the penalty repeal as less significant. Cantor Fitzgerald analyst Steven Halper argued in a research note to clients that eliminating the mandate would be "not too meaningful" to the health insurers that Cantor Fitzgerald covers. The penalty for noncompliance was not significant enough to increase enrollment of healthier individuals, meaning that the penalty's absence would not significantly change the status quo, Halper wrote.

Centene Corp. would not be negatively impacted by the provision because it was the only insurer to be "successful" in individual exchange markets, as it focused on transitioning Medicaid members in existing markets, he said. Centene was one of the few insurers that actually expanded its ACA footprint in 2017.

Jefferies equity analyst David Windley said in an interview that concerns about the mandate being repealed are "off base." The people who buy insurance on the individual market are those who will use it, and need it, Windley said. Even double-digit year-over-year rate increases in the exchanges filed to cover high-risk consumers have not put off consumers who need the plans, he said.

"The people buying these insurance products are buying them because they want to buy them, not because they're being forced to buy them," he said.

Windley also believes that the mandate has not led healthier individuals to purchase insurance. If it had, he said, rates would not have risen as high since the spread of risk would have been wider.

Even despite the low level of enforcement, repealing the mandate's penalty would do "substantial damage" to the market, according to Matthew Fiedler, a health policy-focused fellow at the Brookings Institution. The market would continue to be viable because the government still subsidizes coverage for qualifying individuals, he said.

"And because those subsidies go up dollar-for-dollar when premiums rise, you would still have that core of subsidized enrollees who are going to stick around in the market and keep the market from unraveling," he said.

But outside that group of subsidized patients, damage to the market would take the form of fewer enrollees; a smaller risk pool to spread risk; and knock-on effects for healthcare providers, who would be left providing care to more uninsured patients who cannot pay for it, Fiedler explained.

"The individual mandate repeal looks like a very unattractive policy," he said.