How the Individual Mandate Could Save Obamacare

The requirement that everyone must have insurance is important for premium stability on exchanges.

Those determined to hate Obamacare on principle might soon find themselves rhetorically stuck between a rock and a hard place as enrollment season approaches.

In theory, the more people who enroll in the exchanges established under the law, the more stable premiums become. And with the penalty for being uninsured becoming more severe this year, the reason more people might enroll is the individual mandate.

The mandate is getting harsher, and that is the law's tool to drive healthy people into the exchanges, which should help moderate premium increases. So one Republican talking point is working against another.

"The individual mandate is the real wild card here. Some people point to the special enrollment period during tax season as an indication that the individual mandate is not looming large in people's minds. But I think that is not a good test," said Larry Levitt, senior vice president at the Kaiser Family Foundation. "I think 2016 will be the first real-world test of a tough individual mandate."

The special enrollment period that Levitt referenced took place earlier this year, allowing people who didn't know they would be fined for being uninsured to enroll in exchanges. The Centers for Medicare and Medicaid Services announced the period saying that some people would find out about the individual mandate—and their subsequent fine—for the first time during tax season, when they were required to indicate their insurance status during the tax-filing process for the first time.

But the numbers from the enrollment season were somewhat unimpressive. About 147,000 people enrolled using federal exchanges during that time, according to the Health and Human Services Department.

The difference between that enrollment period—or any enrollment period to date, for that matter—and the 2016 one that begins in November will be the amount owed to the government by someone who does not have health insurance. Last year, the fine was $95 or 1 percent of income per adult, whichever was greater. For 2015, this jumps to the greater of $325 or 2 percent of 2015 income. And for 2016, it increases to either 2.5 percent of income or $695, whichever is greater.

About 11.7 million Americans have enrolled through marketplaces, although only 10.2 million actually paid their premiums, according to CMS. One of the law's central challenges going forward is increasing those numbers. The Urban Institute found that 23.2 million people were eligible for tax credits in 2015, including those already enrolled through exchanges.

Greater exchange-enrollment numbers not only will advance Obamacare's goal of universal coverage, but also will impact its affordability to those already insured—and, subsequently, its popularity.

There's some evidence that early enrollees were sicker than average. A report by Express Scripts puts some numbers behind their health status, although there is no perfect evidence thus far. When compared with the first quarter of 2014, the number of new exchange-plan enrollees in the first quarter of 2015 who used at least one prescription medication declined 18 percent. Exchange-plan costs were also 36 percent lower in the beginning of 2015 compared to the beginning of 2014.

A Kaiser survey conducted in June 2014 found that 20 percent of exchange enrollees reported fair or poor health, while only 9 percent of ACA-compliant, non-exchange-plan enrollees said the same.

As more of the eligible population enrolls in exchanges, the risk pool should continue to improve. The risk pool is important in terms of premiums because the more healthy people who enroll in an insurance plan, the more money the company has to spend on those who require more health care—and the less it has to charge enrollees in premiums.

Insurance companies had to report premium increases greater than 10 percent by June 1. Although studies have reported that premium increases in 2016 will actually be modest, Oregon's insurance regulator approved several rate increases of more than 25 percent earlier this month.

Republicans in Congress have seized the pitched increases as evidence that Obamacare is not working and is a bad law. But it's hard to imagine that they'll advocate for the individual mandate and increased enrollment as the solutions to these increases.

"The economics of it are that right now, premiums are going up all across the country in spite of what the president promised. The president broke his promise to the American people, which is why the support for the law is still so low," said Sen. John Barrasso, who has lately acted as the Senate GOP's anti-Obamacare spokesman.

"If the president wants to continue to force things very unpopular with the American people down their throats," he added, "I don't think it's any surprise that so many people are rejecting the mandate, even though it's a mandate, and refusing to comply because they feel that for them, it's not a good deal."