A Lesson from Massachusetts: The Importance of the Individual Mandate

Much of the debate around the Affordable Care Act centers on the constitutionality of the individual mandate, which requires that all documented residents of the United States obtain health insurance or pay a tax penalty. The mandate is seen by many as the cornerstone for other popular insurance market reforms. The individual mandate is intended to prevent adverse selection, meaning a situation in which individuals do not purchase health insurance until they are already unhealthy.  A risk pool with a high proportion of unhealthy individuals would have higher premiums, reducing access to coverage for many. Evidence to support this assertion comes from five U.S. states that employ community-rating in their insurance markets and have the highest non-group insurance premiums. Opponents argue that the experience in these states provides insufficient evidence for enacting an individual insurance mandate nationwide.  They suggest that community ratings could work if accompanied by attractive subsidies for healthier enrollees similar to those included in the ACA.

When it enacted health reform, the state of Massachusetts provided subsidized insurance to residents with incomes below 300 percent of the federal poverty level (FPL) for about a year before it mandated insurance coverage for all residents. The New England Journal of Medicine (NEJM) used Massachusetts claims data from its Commonwealth Connector to examine the behavior of Massachusetts residents with incomes between 150 and 300 percent FPL who were eligible for subsidies and had to pay premiums that would be smaller than those in the ACA. The study looked at three periods: before the mandate, the phase-in period, and the fully effective period. The report found an increase in the number of healthy enrollees compared to enrollees with chronic illnesses at the beginning of the mandate’s phase-in period. When the mandate was fully effective, there was a significant increase in the number of healthy enrollees and a substantially smaller rise in enrollment for those with chronic illnesses. The data from Massachusetts shows that the mandate brought significantly more healthy people into the risk pool than non-healthy people and improved risk selection.