Study shows limits of alternatives to individual mandate

One is similar to the auto-enrollment system many employers use for their 401(k) pension plans, where workers are automatically enrolled in insurance as a default but could “opt out” if they decide they don’t want coverage. Auto-enrollment has been called a “soft mandate,” but Gruber’s study shows there are major differences between 401(k) plans and health insurance. 

For example: Employers wouldn’t be incentivized to encourage worker participation; young people have already given much thought to health insurance and many don’t want it; and participants can’t get their money back if they spend more on premiums than they get back in care.

“I estimate that auto-enrollment will be much less effective in the health insurance context,” Gruber concludes. “I find that if the Affordable Care Act were stripped of the individual mandate but instead accompanied solely by auto-enrollment of individuals who are offered insurance into single coverage, then only 1.1 million uninsured would gain coverage.”

The study also considers late enrollment penalties for people who wait to get coverage. Medicare has such a system in place to incentivize people to get into the system as soon as they turn 65.

Paul Starr of Princeton University, for example, has suggested people who don’t sign up for insurance at the first opportunity under the new law be barred from purchasing insurance in the new health insurance exchanges for five years.

There are major differences between Medicare and healthcare reform, however: Medicare is heavily subsidized, with the federal government paying about 75 percent of insurance costs; and older people are more risk averse and more likely to want coverage than the general population.

Gruber estimates:

• 12 million people would gain coverage, only one-third of those expected to gain coverage with an individual mandate; 
• premiums in the exchange would rise about 20 percent as healthy people exit the exchanges;
• government costs would fall by only about 25 percent, because subsidies would still be provided to the sicker enrollees who stay behind.

“Several lessons are clear,” Gruber concludes. “First, no alternative to the individual mandate can cover more than two-thirds as many uninsured as the Affordable Care Act does as passed by Congress and enacted into law.

“Second, no alternative to the mandate saves much money — even removing the mandate altogether, which cuts the number of uninsured covered by 50 percent to 75 percent but only reduces government spending by 25 percent to 30 percent.”