Individual Health Care Mandates and the Problem of Affordability

Executive Summary

This new PSN report, which updates a fall 2007 edition of the Stateside Dispatch [2], discusses the growth of legislative measures to protect consumers from unaffordable health care costs and uses the experience of Massachusetts' individual mandate as a case-study to demonstrate the need for strong language ensuring affordability. As the report [1] emphasizes, health care reform should have the goal of limiting families' exposure to potentially catastrophic health care costs, including premiums, deductibles, co-pays, and total out of pocket costs. This can be achieved by limiting all potential family health care costs to a proportion of family income. Such limits should allow for other family living expenses, including housing, transportation, education, food and clothing, and the ability to accrue savings.

A cornerstone of the 2006 Massachusetts health care reform law was a requirement that all individuals have health insurance, a so-called individual mandate. To help, the law put forth several initiatives to expand eligibility for public programs, bring more affordable insurance options to market, and provide premium subsidies to individuals and families with incomes up to 300% of the poverty line. The law has so far generated mixed success. While 300,000 previously uninsured residents now have coverage [3], a profound achievement, there are growing concerns about rising costs and the affordability of the health care coverage that residents could be required to purchase.

As we document, an individual earning just over 300% of poverty, or $31,000, and who is not eligible for subsidies, could face total health care costs of $7,100 when you include premiums and all out-of-pocket costs. This would amount to a whopping 23% of the individual's income. Accordingly, the state has exempted at least 65,000 residents from the individual mandate.

To address these affordability concerns, particularly in light of an individual mandate, several states have presented model legislation that would limit total annual health care costs to a percentage of family income. An early version of the recent California reform effort would have limited costs to 6.5% of income and, like Massachusetts, exempted individuals from financial hardship imposed by high health care costs. Increasingly, legislators are developing plans for reform that limit families' exposure to potentially catastrophic health care costs, including premiums, deductibles, co-pays, and total out-of-pocket costs. As the report proposes, this can be achieved by making all health care costs proportional to a family's income through a "percentage-of-income limit" on family health care costs.