Repeal of the ACA Individual Mandate: Initial Implications

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The passage of the Tax Cuts and Jobs Act represents the culmination of a tumultuous year in Congress. After several attempts to repeal various portions of the Affordable Care Act (ACA) failed earlier in the year, the Tax Cuts and Jobs Act does repeal the ACA's individual mandate, which requires most Americans to maintain health insurance or pay a penalty. While organizations should stay the course for now in light of the policy shift, the change is something employers should be aware of and informed about heading into the new year.

The individual mandate repeal is set to take effect starting in 2019, so individuals who are uninsured in 2018 will still face a penalty, assessed when they file their taxes in early 2019. This approach differs from the ACA repeal bills that were introduced earlier in 2017, all of which would have retroactively eliminated the mandate penalty.

Initial Implications

The Congressional Budget Office (CBO) estimates that repealing the mandate will result in 13 million fewer Americans with health insurance by 2027. Although the majority of this reduction in the number of people with insurance will occur in the individual market and Medicaid, the CBO estimates that two million fewer people will have coverage under employer-sponsored plans in 2027 as a result of the elimination of the mandate penalty. This should mean some short-term savings for employers since fewer employees are likely to obtain coverage, although it may be the healthiest employees who forgo coverage.

But because the employer mandate will remain in place, employers are unlikely to stop offering coverage, as doing so would open them up to potentially significant penalties. The employer-mandate penalty is triggered when a full-time employee is not offered affordable minimum-value coverage and instead obtains subsidized coverage in the exchange. If an applicable larger employer (ALE) doesn't offer coverage at all, the penalty is steep: When even one full-time employee obtains a subsidy in the exchange, the employer is penalized $2,320 (in 2018), multiplied by the total number of full-time employees (with the first 30 employees excluded from the calculation).

So while the CBO expects the elimination of the individual mandate penalty to result in 5 million fewer people obtaining non-group coverage by 2027, an employer that doesn't offer coverage is running a significant risk that one or more full-time employees might seek subsidized coverage in the exchange. (Over time, subsidies will be available to a larger percentage of the individual market population as premiums rise and subsidies become increasingly necessary to keep net premiums affordable; the CBO estimates that the elimination of the mandate will result in an additional 10 percent increase in individual market premiums each year.)

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