A new study by the RAND Corporation found that while simply removing the individual mandate from the Affordable Care Act would result in fewer individuals choosing to buy insurance, it would not produce the so-called premium death spiral predicted by some of the mandate’s strongest supporters. From RAND:
According to estimates created using a microsimulation model created by the RAND Comprehensive Assessment of Reform Efforts (COMPARE) program, the number of Americans predicted to get coverage in 2016 under the Affordable Care Act would drop from 27 million to 15 million if the individual mandate were eliminated.
Despite that drop, the study estimates that eliminating the individual mandate would increase an individual’s cost of buying insurance through the individual exchanges by just 2.4 percent. […]
“Our analysis suggests eliminating the individual mandate would sharply decrease coverage, but it would not send premiums into a ‘death spiral’ that would make health insurance unaffordable to those who do not qualify for government subsidies,” said Christine Eibner, the study’s lead author and an economist at RAND, a nonprofit research organization.
A premium death spiral is where only the sick buy insurance, causing premiums to rise, which in turn causes only the super sick to buy insurance, and so on. This is only even theoretically possible if people aren’t protected from getting caught in the upward price spiral.
The design of the Affordable Care Act, even without the mandate, would prevent this from happening because it insulates enough people from this price problem.
Because of the design of the premium support subsidies, many people using the exchange will effectively have the amount they pay capped at a set percentage of their income, and not based on the actual sticker price of the insurance. For these people, an increase in premiums would not significantly change the amount they personally pay for insurance. So even if premiums technically do increase, it shouldn’t affect their financial decision on whether to buy insurance or not. The premium support subsidies work as a ceiling for a large share of the market, so there is no feedback loop or endless spiral.
The report found that while dropping the mandate would modestly reduce overall federal spending on the ACA, it would significantly increase the federal spending per new enrollee.
The law would be less efficient without a mandate, from some perspectives, but it would still function without it.