States Might Require Health Insurance

Uninsured residents may face penalties now that the ACA’s individual mandate has been repealed

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​The Affordable Care Act's (ACA's) individual mandate to buy health insurance was effectively repealed by federal tax legislation in December 2017. Now some state lawmakers want to require residents to purchase insurance to help mitigate the potential impact of the repeal.

The individual mandate required most Americans to obtain ACA-compliant health coverage or face tax penalties so that more healthy people would have insurance and balance the costs associated with individuals who are ill. The 2017 tax act, however, will reduce the penalty to zero starting in 2019.

That means fewer people—13 million fewer by 2027—will buy insurance, making insurance more expensive for those who do purchase coverage. The main concern of state legislatures is that the Congressional Budget Office has estimated that this will increase marketplace premiums by 10 percent for most years, said Adam Solander, an attorney with Epstein Becker & Green in Washington, D.C.

So states may step in to fill the coverage gap. Massachusetts has already had an individual mandate in effect since 2007. "Massachusetts largely served as the model for the ACA," explained Jeffrey Herman, an attorney with Greensfelder, Hemker & Gale in St. Louis.

More states may follow suit. Maryland lawmakers recently introduced a bill that would impose penalties on the uninsured in the state. And an individual mandate is also being informally advocated for or considered by state legislators or representatives of insurance exchanges in a number of other states, including California, Connecticut, Minnesota, Rhode Island and Vermont, Herman said.

How State Mandates Would Work

State individual mandate proposals can take a number of forms, Solander said. The Massachusetts individual mandate is a state income tax penalty that is equal to 50 percent of the least costly qualifying insurance product available to the individual.

"One complicating factor is that several states do not have state income tax, and thus income tax penalties are not possible," Solander noted.

That is the case in Washington, where a bill with an individual mandate has been introduced. The bill calls for a task force to determine how the mandate could be enforced.

Maryland's proposal would impose a fine of either 2.5 percent of income or $696, whichever is greater, on people who fail to maintain health insurance. 

The Maryland proposal would be a new type of individual mandate, which is being referred to as a "down payment" plan, Herman said. The bill would allow state residents to use the penalty dollars to purchase health insurance. If a person doesn't select a plan by the end of open enrollment and there is a zero-cost plan available (after paying the fine), he or she would be enrolled in that plan by default. If someone opted out of the default enrollment, the unused down payment would go to the state and would be put into a health insurance stabilization fund.

"The down payment plan is a much more palatable version of the individual mandate," Herman said. "States will come up with other more appealing—or at least less unappealing—options than a tax, as well." For example, there could be some form of a continuous coverage requirement so that if a person has a lengthy gap in coverage and then tries to get coverage again, he or she must pay a higher premium.

Indirect Effect on Employers

"These laws do not directly impact employers, although there are significant indirect impacts," Solander said. The ACA's employer mandate is still in effect, and businesses with 50 or more full-time equivalent employees must make an offer of coverage to all full-time employees or pay a penalty. However, without an individual mandate, employees wouldn't have a corresponding penalty if they chose to forgo coverage, he said.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

"If there is no mandate, and sicker individuals sign up for coverage while healthier individuals forgo health coverage, insurance premiums will rise at a faster pace in the individual market," Herman noted. "Insurers may seek to make up the difference in part by charging everyone—including employees in employer plans—higher premiums."

The costs of medical care may also increase if providers must make up for greater rates of unreimbursed care—whether because uninsured individuals seek care and can't pay for it or because covered individuals can't pay their high cost-sharing, he added. This would affect both insured and self-funded health plans provided by employers.

If states successfully implement an individual mandate, it could help stabilize the marketplace and slow the growth of health care costs for employers, too, Herman noted.

State Trends

"Given the potential adverse impacts on the health care market, I expect to see a number of new state mandate laws in the near term," Solander said. "I expect these mandate laws to largely follow partisan lines with 'blue states' enacting laws."

Additionally, there has been a trend with states that are attempting to impose benefit mandates on self-funded employers, he added. Many of these laws are designed to bypass pre-emption by the Employee Retirement Income Security Act (ERISA) and impose state-level coverage mandates on ERISA plans that are traditionally not subject to state law.

"These benefit mandates jeopardize a multistate employer's ability to offer a uniform benefit package and increase the cost of employer-provided coverage," he noted.

There will likely be legal challenges to any state individual mandates, just as there were at the federal level, Herman said. Opponents may argue that an individual mandate violates the relevant state's constitution or that reporting requirements imposed on employers violate ERISA.

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