2Individual Mandate Another often controversial provision of the ACA is the
individual mandate. This is the requirement that everyone needs to have health care coverage that meets certain
minimum benefit requirements. If there is a guaranteed issue
requirement, plans will certainly attract high-claim-cost lives.
Some people have expensive health care conditions, and they will
certainly see the value in signing up for coverage, especially if
their conditions cannot prevent them from obtaining coverage.
However, in order for insurance to work properly, there needs to
be some subsidization from lower-claim-cost lives. All else equal,
healthier lives will gravitate away from signing up for health care
if it’s something they won’t use. They need to be given a good
reason to sign up.
The individual mandate (aka, a good reason to sign up) is a key
piece of the ACA, and it’s been upheld by the Supreme Court. Removing this requirement would likely have the effect that many
healthy individuals who now have coverage would leave their
plans. Premiums would increase for those who remain on the
plans because only people who have high health care costs would
stick around. (It would be similar to the concept of risk pools
mentioned above, where there just isn’t subsidization between
higher- and lower-cost lives.)
Indeed, when considering the rollout of the ACA, it’s an open
question of whether the individual mandate was strong enough—
whether the penalty for not securing coverage was sufficient to
assure a healthy risk pool.
The guaranteed issue requirement and the individual mandate really go hand in hand, like peanut butter and jelly, Mike
and Ike, or insurance articles and drowsiness. So, any changes
to the individual mandate need to consider the guaranteed issue
requirement of the ACA, and vice versa.
3Plan Design The ACA also has mandated plan design levels. These are
essentially broad requirements about what plans need to
cover. There are some specific required benefits, and each plan
must fit into a “metal tier.” Essentially, these tiers define how rich
a plan is, based on the expected value of the services provided by
each plan. The metal tiers are bronze, silver, gold, and platinum.
The metal tiers perform a few roles. They give individuals
shopping for coverage some basis for comparing coverage options
(among carriers and among plans offered by one carrier). They
also ensure that there is a minimum standard coverage level. And
they play a role in the risk adjustment program that will be discussed in just a bit (you have to be patient!). Any change to plan
design requirements, including completely removing the requirements, needs to consider all of these roles.
Comparability of plans is an important step for people obtain-
ing coverage; it also goes a long way in reducing overall costs of
health care. It’s important that people understand the coverage
they’re buying for the basic reason that someone will feel better
about a purchase they understand. Further, understanding cov-
erage can help reduce overall costs. For example, if someone
needlessly buys a platinum plan, and later learns they have pris-
tine coverage, they might be incented to just go ahead and use the
benefits, figuring they’re paying for them, so why not! Unneces-
sary utilization would just drive up health care costs.
Also, requiring minimum coverage levels works toward the
subsidization between lower- and higher-cost lives that we’ve
discussed. The lowest-cost lives are most likely to purchase the
lowest metal tier coverage available, and that makes sense. If you
don’t need any regular medical care and just want catastrophic
coverage, of course you’ll buy whatever the lowest-value plan is.
But, if carriers just offered, say, a $10,000 deductible plan, the
premiums for that would be incredibly low, a good deal of healthy
lives would flock to that plan, and—you guessed it—there just
wouldn’t be that subsidization we’ve gotten to know so well. Of
course, that’s an extreme example, but it gets the general point
across: Any replacement to the metal tier approach needs to be
sure to consider the expected premium dollars that would be
flowing in. This, of course, rests heavily on the individual mandate. If there’s no requirement for coverage, a good chunk of those
low-cost lives will just roll the dice and go without coverage. And,
as we’ve covered, the individual mandate is best friends with the
guaranteed issue requirement, so if you’re impacting one, you’re
also impacting the others.
4Premium Stabilization Programs (The 3 R’s) When the ACA was first passed, it contained three premium stabilization programs, called the 3 Rs. Two were
temporary, and now there’s just one left (“one R to rule them all,”
I suppose). Even though two of the Rs were temporary and have
ended, all three need to be understood and considered in any
The first “R” stands for reinsurance. This temporary program
was meant to protect against individuals with abnormally high
claim costs. This program ended in 2016, with final payments to
occur in 2017. Plans were reimbursed for portions of claims above
a defined threshold for any one individual. This program was intended to lessen the costs of individuals who hadn’t had coverage
for some time and would subsequently have high claim costs while
their chronic health conditions were brought under control.
The program was designed to be temporary because it was
aimed at a one-time phenomenon that occurs when uninsured
individuals in the population—whose chronic conditions had not
been consistently managed—suddenly enter the risk pool. After
a few years of coverage, those conditions should be brought to a
managed sort of stasis, and the costs for those individuals should
decline. Then, there won’t be any more uncovered individuals
with untreated chronic conditions because of the individual
mandate, so there is no longer a need for a reinsurance program.
However, if anything changes with the individual mandate or
guaranteed issue requirements, it’s possible that a reinstitution
of reinsurance could be necessary. Just because the program, as