How Would State-Based Individual Mandates Work?

Several States Are Considering Their Own Individual Mandates

researching state-based individual mandates
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From 2014 through 2018, the ACA's individual mandate imposed a penalty on people who went without health insurance, unless they qualified for an exemption from the penalty (and yes, the penalty still applies if you're uninsured in 2018). 

But starting in January 2019, the federal penalty for being uninsured will be $0. That change was enacted as part of the Tax Cuts and Jobs Act, which was signed into law in December 2017. This may be welcome news for people who have been hit with the penalty in prior years and plan to continue to be uninsured, but it's a change that is likely to lead to higher premiums in the individual insurance market, and more uninsured Americans.

The Congressional Budget Office estimates that premiums in the individual market will be 10 percent higher than they would have been if the individual mandate had remained in place, and that 3 million fewer people will obtain coverage in the individual (non-group) insurance market in 2019. That reduction in the number of people with individual market coverage is projected to increase by another 3 million by 2021—a substantial portion of the market, which currently only has about 15-17 million people enrolled in coverage.

People who are likely to leave the market are those who are healthier and younger, since sicker, older people tend to see more value in their health insurance coverage. That exodus of young, healthy enrollees is the reason premiums are projected to increase. For those who qualify for premium subsidies, the subsidies will grow to keep pace with premiums, preventing a death spiral and keeping the market relatively stable. But for people who don't get premium subsidies, coverage will continue to get more expensive.

States Consider Individual Mandates to Stabilize Their Markets

In an effort to mitigate the premium increases and a spike in the uninsured rate, several states have been considering state-based individual mandates. Some—described later in this article—may end up implementing mandates during future legislative sessions.

But at least two states—Massachusetts and New Jersey—will have individual mandates in 2019, and Vermont will join them in 2020. The DC city council is also considering an individual mandate that would take effect in 2019.

Massachusetts

Massachusetts already has an individual mandate, which pre-dates the ACA. The state implemented a mandate in 2006, and it has remained in place ever since. But from 2014 through 2018, federal individual mandate penalties have been subtracted from the state penalty, ensuring that Massachusetts residents didn't have to pay double penalties for being uninsured. And in Massachusetts, the penalty only applies to adults, whereas under the ACA, families also have to pay a penalty for having uninsured children. Starting with the 2019 tax year (for returns filed in early 2020), Massachusetts will simply impose the existing state mandate penalty, but there will no longer be a federal penalty to deduct from the state penalty.

New Jersey

New Jersey lawmakers passed legislation (SB1877 and A3380) in the 2018 legislative session to implement an individual mandate and associated penalty in New Jersey, beginning in 2019.

A3380 passed the Assembly by a vote of 50-23, and passed the Senate with a 22-13 vote, in mid-April. For several weeks, it was unclear whether Governor Phil Murphy would sign the legislation, but he did eventually do so in late May. Under the new law, New Jersey will have an individual mandate starting in 2019, including a penalty that uses the same general guidelines that were used for the ACA's penalty. Maximum penalties in New Jersey would be equivalent to the average cost of a bronze plan in New Jersey, however, rather than the national average cost of a bronze plan.

Public support for the ACA is strong in New Jersey, but more than half of polled residents were opposed to the idea of a state-based individual mandate as of 2017. Support for the mandate increases, however, as people are informed about how a mandate helps to prevent adverse selection and stabilize the insurance market.

Vermont

Lawmakers in Vermont passed H696, and sent it to Governor Phil Scott on May 22, 2018. It was signed into law the following week. H.696 calls for an individual mandate in the state as of January 1, 2020. 

Initially, the legislation called for a January 2019 effective date, and detailed the specifics of the penalty that would apply (largely the same as the ACA's penalty for being uninsured). But the bill was later updated to remove the penalty specifics, and a conference committee agreed on a 2020 effective date

The version of the bill that the governor signed will impose an individual mandate as of 2020 but it leaves the specifics of the penalty to a working group that will be tasked with recommending exactly how the mandate should be administered and implemented. The working group will start meeting by July 2018 and will deliver a final report to lawmakers no later than November 1, 2018.

The Senate had expressed concerns about the idea of imposing an individual mandate starting in January 2019, without a clear picture of how the mandate would be implemented and enforced. So the Senate passed a version of the bill with the effective date removed. The 2020 start date was a compromise reached by the conference committee that sorted out the differences between the two chambers' versions of the bill.

District of Columbia

In February 2018, the board of directors for the DC health insurance exchange unanimously approved a resolution recommending an individual mandate in DC, although the city council has the final say. If the city council agrees with the exchange's recommendation, DC will have an individual mandate and associated penalty that would be similar in many ways to the ACA's individual mandate, but with some key differences to tailor it to the needs of DC

DC Mayor, Muriel Bowser, unveiled her proposed Fiscal Year 2019 Budget in March 2018, which includes $1.1 million in funding to implement an individual mandate in DC. The funding would cover technology changes, adjustments to the DC tax code, and a public information campaign about the local individual mandate, as well as other necessary expenses.

The city council considered Mayor Bowser's budget in April and May 2018, and released their proposed budget in mid-May. The Council's proposed Budget Support Act of 2018 includes a provision calling for an individual mandate, with an associated penalty, effective as of January 2019 in DC.

In the past, Congress had to approve DC budgets after the city council approved them, but that rule was changed in 2013, and DC's city council explains that "neither Congress nor the courts have taken action to appeal or overturn" the amendments that allow DC to create its own budget without Congressional approval.

States That Considered Mandates But Did Not Implement Them

Several other states have considered the possibility of a state-based individual mandate, but their implementation is likely to be later than 2019, based on legislative time frames and the proposed changes.

Hawaii

The Hawaii Senate passed SB2924 in March 2018 by a vote of 24-1, but the measure did not advance out of the House Finance Committee during the 2018 session, which ended on May 3. SH2924 would have implemented an individual mandate and associated penalty in Hawaii, beginning in 2019.

The logistics of the mandate, including exemptions, would have closely mirrored the ACA's individual mandate, but the amount of the penalty was not clarified in the legislation—a point that the Hawaii Department of Taxation has repeatedly noted in testimony about the bill.

The Department of Taxation also expressed "concerns with its ability to properly administer this penalty," given that "the Department is not an expert on health insurance coverage," and recommended that if the state does implement a mandate and penalty, a third party (ie, not the Hawaii Department of Taxation) should be responsible for determining whether tax filers have creditable coverage.

Connecticut

Connecticut lawmakers considered two bills that would each implement an individual mandate, but with very different mechanisms. However, by April 2018, the individual mandate provision had been removed from one bill, and the other bill had not advanced at all.

HB5039, as introduced, would have implemented an individual mandate with a penalty a little smaller than the ACA's penalty. It would have amounted to the greater of 2 percent of household income or $500 per uninsured adult, with no penalty for children (in contrast, the ACA's penalty is the greater of 2.5 percent of household income or $695 per uninsured adult and $347.50 per uninsured child).

The legislation also contained various other health care reform proposals. But the House committee that advanced the bill in April 2018 removed the individual mandate provision altogether. It could be added back in on the House floor, but for the time being, there's no individual mandate in HB5039.

HB5379 would implement an individual mandate with a much larger penalty—up to $10,000—but would allow people who don't qualify for premium subsidies (and for whom health insurance would cost more than 9.66 percent of household income) to deposit the mandate penalty into a healthcare savings account instead of just paying it to the government (the economics and logistics of the proposal are outlined here). As of April 2018, the bill had not advanced in the House and was essentially dead for the 2018 session. But the specifics of the legislation are interesting in that it's by far the strongest individual mandate that any states have considered.

To clarify, the ACA's individual mandate penalty can be as high as $16,320 for a family of five or more people who were uninsured in 2017, and that penalty cap will be even higher for 2018 because it's tied to the average cost of a bronze plan, which has grown each year. But it's very rare for a household to pay a penalty of that size under the ACA. A household would have to have income well in excess of $600,000 in order to reach that penalty level, and it's unusual for a household with that sort of income to be without health insurance.

But under Connecticut's HB5379, the $10,000 penalty would apply to a household earning a little over $100,000. Smaller penalties would apply to households with lower income, but the penalties would be equivalent to the cost of the lowest-cost silver plan. People would have the option of spending the money on a penalty (and getting nothing in return) or spending the same amount of money on a silver plan in the exchange—or spending even less and getting a bronze plan.

One of the criticisms of the ACA's individual mandate penalty is that it is too weak, with the penalty amount much lower than the cost of health coverage for enrollees who don't receive significant premium subsidies. HB5379 would eliminate the appeal of paying the penalty in lieu of buying health coverage since the penalty would no longer be less expensive than purchasing coverage.

Another bill, HB5114, introduced in Connecticut in February 2018, calls for an individual mandate and penalty, but does not include any details about enforcement or implementation of the mandate. That legislation did not advance at all.

Maryland

The Protect Maryland Health Care Act of 2018 (SB1011) was introduced in February 2018 by State Senator Brian Feldman (D, Montgomery). The legislation calls for a variety of market stabilization measures, including an individual mandate starting in 2019. 

SB1011 did not pass in the 2018 legislative session, but it could be reconsidered in a future year, and it represents a unique approach to the concept of an individual mandate.

The size of the mandate penalty under SB1011 would be the same as the ACA's penalty (the greater of 2.5 percent of income, or $695 per uninsured adult—half that amount for a child—with the flat rate penalty adjusted for inflation each year). But the assessment of the penalty would be different. Under the ACA, when a penalty is assessed by the IRS, the money is directed to the general Treasury fund, and the person who paid the penalty does not gain anything.

But under the proposed terms of Maryland's mandate, the state would use the penalty amount as a "down payment" for a health insurance plan for the person. If the person is eligible for a premium subsidy and the subsidy plus the penalty/down payment would be enough to fully cover the cost of any available plans (ie, the plan would have zero additional premiums), the state would automatically enroll the person in whichever zero-premium plan has the highest actuarial value, unless the person was to specifically opt out (in which case, the penalty would be sent to a general insurance stabilization fund instead).

If there aren't any zero-premium plans available, the money from the penalty/down payment would be kept in an interest-bearing account and the consumer could use it during the following open enrollment, to apply towards the cost of any available health insurance plan. If the person still opts to go without insurance at that point, the penalty would be sent to the general insurance stabilization fund after the end of open enrollment.

But under Maryland's proposal, the state would make every effort to let uninsured residents use their penalty payments towards the cost of health insurance, rather than remaining uninsured and getting no direct benefit from the payment of the penalty. 

This approach is more administratively complex than just adding a penalty to income tax returns and directing it to a general fund, but it's also more likely to improve the generally negative impression people have of the individual mandate and associated penalty, so it's an approach that other states might consider in future legislative sessions.

California

California lawmakers have expressed interest in the possibility of an individual mandate, but has not introduced legislation in the 2018 session to implement one. The California Association of Health Plans has officially endorsed the idea of an individual mandate, urging the state to take action to ensure that people are still required to have coverage in 2019 and beyond.

California lawmakers are considering numerous pieces of legislation in 2018 that would stabilize the health insurance market, but an individual mandate is not among the bills currently under consideration, despite the fact that the state was mentioned frequently earlier in 2018 as a state to watch in terms of individual mandate implementation.

Although the deadline to introduce new legislation in California's 2018 session was in February, existing bills could be amended to include an individual mandate, or it could be included in the budget process. So California could still end up with an individual mandate in 2019.

Washington

SB6084 would have created a task force in Washington dedicated to "exploring options on implementing and enforcing a state-level requirement to maintain minimum essential health care coverage." The bill passed the Washington Senate in February, but failed to advance in the House by the time the legislative session ended in March.

The legislation noted that Washington's individual health insurance market collapsed in the 1990s, due in large part to the fact that the state required health insurance to be guaranteed-issue (ie, offered regardless of health status) starting in 1993, but never implemented the individual mandate that was slated to take effect several years later.

Lawmakers said that they wished to avoid a repeat of the late 1990s in Washington, when individual market plans were not available at all. But it should be noted that a full market collapse, like Washington experienced in the 1990s, wouldn't happen under current rules, as the ACA's premium subsidies will continue to keep coverage affordable for most enrollees, regardless of whether healthy enrollees remain in the market or not. Coverage will not necessarily be affordable for people who don't qualify for premium subsidies, but there are enough subsidized buyers in virtually every state to keep the individual market afloat.

What to Expect Going Forward

Early in 2018, news outlets were reporting that nine or ten states were considering individual mandates for 2019. But some were only discussing the idea or considering the creation of a task force to further consider the idea, rather than introducing legislation that would definitively create an individual mandate. And in some cases, legislation that was under consideration earlier in the year has fallen short.

As of May 2018, Massachusetts has an individual mandate, New Jersey will have one starting in 2019, Vermont will have one starting in 2020, and legislation is still under consideration in DC.

Rhode Island has convened a task force that is considering ways to address the federal elimination of the individual mandate penalty, and Minnesota's Health Industry Advisory Committee is considering the possibility of a Minnesota-based individual mandate. Other states, like California, might still address the issue from a regulatory or legislative perspective in 2018.

But logistical problems exist, including the unpopularity of individual mandates. There are seven states that don't have an income tax, and although Washington is the only one of them that has considered any sort of individual mandate, doing so without an income tax system would require a different sort of administration process than the one used by the federal government through 2018.

For the time being, Massachusetts and New Jersey residents will have to maintain coverage in 2019 or face a penalty, and their norther neighbors in Vermont will be required to have coverage starting in 2020, although the details of the penalty for non-compliance in Vermont have not yet been clarified.

There's a possibility that residents in a few other states might also face penalties for being uninsured in the coming years. In the vast majority of the country, however, an individual mandate penalty is unlikely in 2019, although that might change in future years.

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