The Pros and Cons of Delaying the Individual Mandate

Posted: November 07, 2013

By Esmeralda Mercado, John Hansen, and Stephen Saucier

Recently, President Barack Obama issued an executive order to postpone the individual mandate penalty so that individuals and families may begin coverage as late as May 1, 2014 without having to pay a penalty. It’s a Win-Lose scenario. It’s probably a win for consumers at least in the short run and a loss for insurance companies. Consumers could save some money, but health insurance companies might take a hit.

Buggy application systems. That’s why! Lots of people are trying to enroll but are finding it very difficult. One of the reasons that it’s so hard right now is because the online systems that allow everyone to apply for Obamacare aren’t working very well. And so, as a result of all the bugs and glitches, countless people are finding it almost impossible to submit an application.

Others might want to wait just to save some money. For some people, Obamacare is going to cost them more than what they’re currently paying. In that scenario, why would they bother shelling out extra cash before they have to? Others are uninsured and don’t really want health insurance, so they’re going to wait as long as they can.

President Obama, in the face of much opposition, was trying to shore up the Affordable Care Act in any way he could. Fighting small attacks on the law with vigor, he was less likely to face larger attacks that could derail the implementation of Health Care Reform. However, due to so many system glitches the President decided to support this proposal put out last week by Daniel Lapinski (Democrat from Illinois) and eight other Democrats from the House of Representatives.

Health insurance companies were not convinced that delaying the individual mandate penalty would be beneficial because this course may create financial problems for insurance companies, and ultimately, for consumers. Delaying the penalty brings with it the anticipation that a good population of young or healthy people may opt to postpone buying health insurance until the last minute. If this happens, there might not be enough premium money from healthy people to offset the expenses for unhealthy people in the health insurance risk pool. Consequently, insurance companies could end up operating at a loss in 2014; this would in turn cause the insurers to pass those expenses on to consumers by way of higher rates in 2015.

But the delay only allows for one more month without coverage. So what’s the big deal? On one hand, the delay does only give consumers 16 more days to enroll and one more month to be without coverage. They can enroll as late as March 31st instead of March 15th. Their coverage can start as late as May 1st instead of April 1st. So on the face of it, it seems that this delay and all the raucous about it is simply much ado about nothing. On the other hand, health insurance companies are already concerned that the penalty is too mild and even as is will not be strong enough to get enough healthy, young people to enroll. So delaying the penalty only increases the risk of adverse selection (taking in lots of sick members without enough healthy members). This proposal and President Obama’s executive order has made it much more public that consumers do not have to enroll by January 1st to avoid the penalty. Had this proposal been rejected by the President, many consumers may still have maintained the false notion that they have to be enrolled by January 1, 2014 in order to avoid the penalty. In short, the insurance companies need as many healthy, young people to enroll by January 1st as possible, and this proposal and all the media hype around it puts the insurers at greater risk.

Some say that delaying the individual mandate penalty is a premature knee-jerk reaction to the enrollment systems problem that is expected to be fixed in the next few weeks. This camp cites the 2006 Massachusetts healthcare law that had a slow start but finished well. For more information, click here. Still others contend that more time is needed to get everyone signed up and delaying the penalty for late enrollment is a good idea. The delay eases the pressure on consumers. Also, it gives more time to state and federal run exchanges that may have great difficulty getting everyone enrolled on time.