No mandate? (photo: IslesPunkFan / flickr)

In the very near future the Supreme Court will rule on the constitutionality of the Affordable Care Act. One likely outcome is the court strikes down the individual mandate but leaves the rest of the law intact.

Here is what eliminating just the mandate would actually mean for policy.

Reduce the cost of the Affordable Care Act – Most sources agree that eliminating just the mandate would reduce the overall cost of the new health care law. For example, CBO concluded that eliminating the mandate would reduce government spending by $282 billion over ten years. Most of that comes from reduced payments for subsidies. The ACA provides subsidies for low income persons to purchase private insurance, but if many of those eligible choose not to purchase insurance in the absence of a mandate, the subsidy expenses would obviously be lower. In addition, those who would otherwise be eligible for the ACA’s expanded access to Medicaid might not sign up, resulting in some additional savings.

Reduce the number of new people with “insurance” – Most analyses, not surprisingly, assume that if the government doesn’t coerce people into doing something they don’t want to do, fewer people will do it. Estimates on how many fewer people would choose to buy health insurance without the mandate vary substantially. CBO predicts 16 million fewer people will choose to get insurance without the mandate. A Rand study assumes 12 million fewer. A Study for the Urban Institute assumes around 13 million fewer, while a Lewin Group study concluded it would be about 8 million fewer. MIT’s Jonathan Gruber, though, claims an incredible 24 million fewer people will choose to get coverage if there is no mandate.

It will have very little impact on what people will pay for insurance – You may often see reports of studies showing that dropping the mandate will increase average premiums by 10% to 27%, but this is highly misleading for multiple reasons. First, these projected increases apply only to the exchanges or the nongroup markets. The vast majority of Americans will get their insurance from the group market (e.g., via work), Medicaid, or Medicare. The prices they pay will not really be impacted much by the mandate.

Second, these are average increases per enrollee, but most analysis assumes younger people would be less likely to buy insurance without the mandate. The law currently allows insurance companies to charge older people three times as much as younger people. This means even if individual premiums on the exchange didn’t change, simply removing some younger people who would otherwise pay less would increases the average. As a result talking about an overall average is a rather useless metric. For example, RAND estimated the average premium on the exchange would increase by 10 percent; but when RAND used age-standardized data, they found the likely increase for any particular individual only about 2.4 percent.

Finally, the bulk of the newly insured will be covered directly by Medicaid or new state-run Basic Health Programs, or if they make less than 400 percent of FPL, they will receive subsidies based on a set percentage of their income. The way these subsidies are designed means the actual sticker price of the premiums will often have a relatively small impact on what they will personally pay.

It is mainly a narrow window of middle class people under 65, who don’t have employer-provided insurance and who want to buy individual coverage, whose personal insurance cost will be higher than it otherwise would be as a result of the Court eliminating just the mandate.

Summary – While it is hard to know exactly what will happen, the net impact of the Supreme Court eliminating only the mandate would likely be this: Slightly more people, mostly younger healthier individuals, would choose to not get insurance. As a result of these people choosing not to use government subsidies to get insurance (or be covered by Medicaid) the government would spend less money in the aggregate on these subsidies. However, it would spend more on a per person basis for newly covered individuals. Importantly, though, the absence of the mandate will have very little impact on the cost the vast majority of Americans pay who still choose to get insurance, even among the newly covered population.

This all assumes nothing else is done to compensate for the lack of the mandate. It is very likely that if only the mandate is found unconstitutional, the Obama administration will adopt federal regulations and at least some states will create new laws meant to play a similar role in encouraging people to buy insurance. For example Peter Gosselin for Bloomberg Government believes the administration may have the regulatory power to create an auto-enrollment set-up which could serve as a replacement. These likely further actions should make the policy impact of eliminating the mandate even smaller.

Of course, if the Court concludes the whole law or even several significant pieces must be thrown out along with mandate, the policy implications would be significantly greater.