An Alternative to the Individual Mandate

The so-called Individual Mandate has been a widely unpopular provision of the Affordable Care Act (ACA).  Most Republicans want to repeal it and several Democrats want to change it.  And as members of Congress talk about ways the ACA could be modified or improved—options to change the Individual Mandate are being explored.

This is music to the ears of nearly 17 million individuals who have coverage through the individual insurance market.   

The Individual Mandate applies a penalty which is (the greater of) $695 or 2.5% of household income for people who are uninsured.  There are some exceptions to the rule for people who have a religious objection to insurance or experience a financial hardship.

But the Individual Mandate is viewed by many as a necessary evil.

There still needs to be a rule or system in place that encourages more people to obtain health insurance, and account for another ACA provision that prohibits preexisting conditions from being a factor when establishing premiums or determining eligibility for coverage.

In other words, the Individual Mandate is supposed to encourage healthier people to obtain coverage to offset the risk of unhealthier people. However, many people argue the Individual Mandate isn’t working the way it was intended since insurance companies are exiting markets due to bad risk and around 27 million people continue to be uninsured.

Some members of Congress are now exploring the idea of auto-enrollment as an alternative to the Individual Mandate. Under this concept, anyone who is uninsured would be automatically enrolled in a low premium health insurance plan, and would have to proactively waive coverage if they didn’t want it.

This idea is being compared to a process that some employers use for their 401(k) plans. Some employers automatically enroll employees into their 401(k) plans to avoid filling out lots of paperwork or review complicated financial statements.  Employees need to notify their employer if they want to opt out. And employers who use an auto-enrollment process see far greater participation rates in the 401(k) plan.

Some members of Congress think an auto-enrollment process would be the ideal replacement to the Individual Mandate, but it might be a more complicated process when it comes to health insurance. There would have to be a system in place to identify who was uninsured, enroll them in a plan with a private insurance company, determine eligibility for subsidies, and give them the ability to opt of coverage.  The logistics alone may make auto-enrollment infeasible, but it’s at least something on the table as Congress continues to explore new ways to change the ACA.