Exploring the Differential Impact of Repealing the ACA Individual Mandate Tax Penalty

• In Event: Policy Incentives, Resource Allocation, and Organizational Behavior in Health Care

Abstract

One of the key provisions of the Affordable Care Act (ACA) was the individual mandate, which requires Americans with household income above 138% of the federal poverty level to obtain health insurance coverage or face a tax penalty. The goal of the mandate was to minimize adverse selection, by compelling healthier individuals to participate in the insurance market, thus subsidizing healthcare costs for the sickest people. However, critics of the mandate provision consider it an undue infringement on their freedom and a financial burden on relatively healthy low-income Americans. In 2017, the United States Congress passed the “Tax Cuts and Jobs Act,” which effectively repealed the federal individual mandate by reducing the penalty for not having health insurance to zero, effective January 1, 2019. Following the repeal, three states (Massachusetts, New Jersey, and the District of Columbia implemented the state-level mandate in January 2019, leaving 48 other states without mandates. This variation across states provides a natural experiment to study how the repeal of the ACA individual mandate shapes coverage, Marketplace premiums, out-of-pocket premium spending, and consumer surplus. Using a two-way fixed effects (TWFE) design I compare states without mandates to states that retained individual mandate policies. I find that the repeal increased the probability of becoming newly uninsured by 0.56 percentage points (approximately 27 percent relative to the pre-reform mean), with nearly all of the increase driven by relatively healthy consumers, while insurance participation among relatively sick consumers remained largely unchanged. Benchmark Marketplace premiums for a 27-year-old enrollee increased by approximately $739, while average out-of-pocket premium spending decreased by $284.60 with a statistically significant decrease among relatively healthy consumers. This divergence is consistent with relatively healthy consumers switching to less generous plans and ACA subsidies limiting eligible consumers’ exposure to higher gross premiums. The findings show how premium subsidies and consumer responses shape the distributional consequences of mandate repeal.

Author

• Zachariah Emmanuel, Georgia State University
  Presenting Author