If you are an individual without employer-provided health insurance that plans to get insurance on the exchange, the existence of the individual mandate (or lack there of) will likely have little or no impact on what you will pay in premiums.

The way the new exchange is designed is as follows:

• If you are an individual making less that 400 percent of the federal poverty level, you will qualify for subsidies to help you afford insurance.
• The size of your subsidy is based on individual income and the cost of the reference plan, which is the second cheapest, “silver” level plan.
• The subsidy is set so that after you pay a certain percentage of your income, the government will pick up all the cost over that.

For example, if you make $26,500 a year, the amount you are required to pay to get the second cheapest silver plan is capped at roughly 7 percent of your income, roughly $2,000. If that reference plan cost $4,000, your subsidy would be $2,000. If that reference plan cost $8,000 your subsidy would be $6,000 and you will still only pay $2,000. To you, the actual cost of premiums for this plan doesn’t matter.

Most people who are using the individual market exchange are likely going to be making less than 400 percent of the federal poverty level, and therefore qualify for subsidies that cap the cost of their premiums at a set percentage of their income. Individuals making significantly over 400 percent FPL are much more likely to have jobs that come with health insurance.

Rising premiums are government’s budget concern, not that of individuals on the exchange. [cont’d]

What this means is that, for most people on the individual exchanges, how much they pay has very little to do with the actual cost of the premiums. When the White House says removing the individual mandate would increase premiums by 20 percent they are talking about total cost, but that increase would barely affect how much people using the individual exchanges are paying.

This increase of premiums from a potentially smaller risk pool would mainly affect government spending, but not really, since the government is also saving money because some people are not buying insurance, and so don’t use their subsidies.

Because of the subsidies, though, what can’t happen is a true “death spiral,” where only the ill buy insurance, driving premiums so high that the slightly less sick drop out, leaving only the very sick in a pool with super-high premiums. The premiums people actually pay is capped, so even if real premiums rise sharply, that shouldn’t keep pushing more and more individuals out of the market. There should be, in effect, a level of healthiness relative to the cap on your premiums where you would benefit from buying insurance.

High enough subsidies can eventually even make American health insurance seem like a decent purchase.

The number of people who are super healthy and never need to see a doctor is small. Even with subsidies, and, for that matter, even with a small individual mandate penalty, the risk of going uninsured may seem like a good financial move. Remember there is still a risk of a big expensive sudden injury, I’m sure there will be some mechanism that stops people from being able to buy insurance while in an ambulance on the way to the hospital.

People like that are a minority though. Most individuals tend to have some small medical issues, need to go to the doctor occasionally, maybe have a few prescriptions, and/or fear a sudden accident. As long as the government is paying roughly 50 percent or more of the cost of premiums, which they would for most individuals making under $30,000 a year, always having insurance would probably make sense for even the fairly healthy as long as they could afford paying the set percentage of income set by the law.

Because of the design of the subsidies, losing the mandate can’t, in itself, cause many people to pay dramatically more, or lead to an unraveling of the health care law.

Even if the individual mandate is removed, the amount regular people using the individual exchange will be required to pay will remain almost unchanged. That is because the amount most people making less than 400 percent of FPL will pay will have little to do with the actual premiums or the risk pool, but instead be set by the government subsidies. What this means is that even if losing of the individual mandate does result in a slightly smaller, more expensive risk pool, that alone can’t cause a snowball of people actually paying higher premiums, pushing out all but the very sick. The individual mandate exchange is also separate from the small business exchange, so the effect would be mostly limited to the individual market.

Combine that with the fact that the subsidies in many cases are large enough to make maintaining insurance a good deal for even the relatively healthy, and the fact that most people actually want to be insured, and this individual mandate is too small to be a proper deterrent. And how easy it would be to fix this with an alternative. I simply don’t buy talk of the disaster that would come if the mandate is removed.

I think this reform is doomed, but for mostly unrelated reasons. Like, for example, how our health care spending will keep ballooning because of the systemic corruption of a Congress that crafts laws to protect the profits of the health care providers at great expense to consumers and the federal budget.