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A task force led by Democratic lawmakers in Delaware has recommended that the state adopt its own individual mandate to bolster the financial stability of its Affordable Care Act (ACA) exchange marketplace. The state-based mandate would require individuals to obtain health insurance or pay a tax penalty, tracking the approach that has historically been a key component of the ACA. The task force has recommended that the state use these penalties to subsidize its ACA exchange marketplace, which recently experienced decreased enrollment and increased premiums. Delaware has only one ACA insurer (BCBS), and premiums for its average Silver plan increased 25 percent last year. At the same time, enrollment in the state dropped by 7 percent.
Delaware is not the only state considering such an approach. The federal mandate’s penalty expired in January 2019 under the terms of the Tax Cuts and Jobs Act of 2017. The federal mandate’s underlying purpose was to encourage healthy individuals to obtain health insurance, which would ultimately spread risk and lower premiums. Without the mandate, there are concerns that enrollment will drop and the risk pool will worsen, leading to premium increases and issuer exits. In fact, the Congressional Budget Office (CBO) has estimated that, in 2019, following the mandate’s repeal, there will be an additional 3 million uninsured and premiums in the nongroup insurance market will rise by 15 percent. So far, results from the federal exchange’s open enrollment period for 2019 (covering 39 states) show a 4 percent decline in enrollment compared to 2018, from 8.8 million enrollees to 8.5 million enrollees. This figure does not account for 11 states and the District of Columbia, which have their own enrollment periods. While these preliminary statistics may not represent the dramatic plunge some analysts have predicted, they do show that the downward trend that began in 2017 is continuing.
Recent Gallup polling data regarding 2018 enrollment, which is still being assessed, suggests that the rate of uninsured adults increased 1.3 percent (i.e., an additional 3 million people) between Q1 and Q4 2018 to a total of 13.7 percent — the highest level since 2014. While this figure is still less than the pre-ACA uninsured rate (18 percent in Q3 2013), it nevertheless represents an increase from ACA levels, which reached a low of 10.9 percent. This 2.8 percent differential amounts to an additional 7 million adults without insurance. Enrollment levels similarly declined in 2017, as a July 2018 report by the Department of Health and Human Services showed that enrollment in individual plans decreased by 10 percent (i.e., 1 million individuals) between 2016 and 2017.
A state-based individual mandate may help states combat any negative effects of the federal mandate’s repeal, including decreased enrollment, increased premiums and decreased federal cost-sharing. States may also use an individual mandate to limit the spread of substandard coverage that fails to comply with the ACA’s consumer protections — for example, association health plans and short-term, limited-duration coverage. The revenue from a mandate may also be used to make coverage more affordable — as is already being done in several states.
The state mandates are an appropriate use of state authority, as the ACA contains a savings clause that expressly allows for state laws that do not prevent the Act’s application. The state mandates also will not be affected by the recent decision in Texas v. United States, No. 4:18-cv-00167 (N.D. Tex.), which held that the ACA is unconstitutional because the Commerce Clause does not provide Congress the authority to mandate insurance without a tax penalty. Since this decision is based on the Commerce Clause, which regulates interstate commerce, it does not apply to states’ regulation inside their borders.
Massachusetts was the first state to enact a mandate, as it adopted its own health reform package in 2006 that still remains in effect today. Recently, New Jersey and the District of Columbia adopted individual mandate legislation resembling the federal rule, taking effect in 2019. According to New Jersey State Senator Joe Vitale, the prime sponsor of the act, “the individual market would descend into a death spiral if not for this legislation.” Vermont has also enacted a mandate, the specifications of which will be developed in 2019 and will become effective in 2020. Now Delaware is considering adopting a similar measure. There can be no doubt that many more states will look to bring stability to their markets by adopting individual mandates.
Barak Bassman and Sara Richman are partners in Pepper Hamilton’s Health Sciences Department, a team of 110 attorneys who collaborate across disciplines to solve complex legal challenges confronting clients throughout the health sciences spectrum. Leah Greenberg Katz and Janine Yaniak are associates in the Health Sciences Department.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.