Economic snapshot | Health

What happens if the health insurance mandate is overturned?

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The Affordable Care Act requires that insurers offer coverage to everybody, and at a common price (subject to some variation based on age and whether or not you’re a smoker). Without its provision to stop free-riding, too many healthy people would wait until they got sick before they enrolled in insurance and started paying premiums. This means that the insurance pool at any point in time would be less healthy, and thus more expensive. In other words, health reform without the mandate is considerably less efficient than health reform with the mandate.

Recent research has found that removing the individual mandate from health reform will reduce the number of newly insured individuals by about 62.5 percent (from 32 million with the mandate to about 12 million without). Because each newly insured individual is sicker on average without the mandate, this 62.5 percent reduction in enrollment does not lower net government spending by nearly as much. Again, spending reductions are smaller than the sheer change in newly insured because those who opt out are more likely to be younger, healthier, and cheaper to insure. Taken together, the cost per newly insured person under health reform without the mandate is 93.3 percent higher than under health reform with the mandate.

The inefficiency introduced by removing the mandate can be partially remedied by implementing other devices to stop free-riding, such as late enrollment penalties or default auto-enrollment. But, to put it simply, removing the mandate increases costs for the newly insured and makes health reform much less efficient.


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