Capitol Alert

California health insurance premiums expected to rise under Republican tax plan

Despite successfully beating back Republican efforts to repeal and replace the Affordable Care Act, the future of the federal health care law appears uncertain after congressional Democrats were unable to defeat a provision of the GOP tax plan that dismantles the foundation on which Obamacare is built.

Republicans’ $1.5 trillion tax bill scraps the so-called individual mandate in Obamacare that requires most Americans to have insurance or pay a tax penalty. Nearly 778,000 Californian tax filers paid the fine in 2015 – year two of the Affordable Care Act – and paid $377 million in fines, according to IRS data from the latest year available.

At its core, the mandate is aimed at making health insurance cheaper. By compelling young, healthy people to have coverage or pay a fine, health insurers were able to create larger risk pools to help absorb financial risks associated with covering sicker, more needy patients.

Without the mandate, those who choose to not purchase health insurance will face no end-of-the-year tax penalty.

Repealing the mandate helps pay for broader tax cuts. The nonpartisan Congressional Budget Office predicts repeal would save the federal government $338 billion over roughly the next decade, largely because fewer people would choose to buy insurance and it wouldn’t have to cover as much in health subsidies, according to a recent analysis. Repeal is projected to leave 13 million Americans uninsured by 2027, and average premiums would shoot up an estimated 10 percent by then.

“Those effects would occur mainly because healthier people would be less likely to obtain insurance and because ... the resulting increases in premiums would cause more people to not purchase insurance,” the analysis found.

By expanding Medi-Cal and encouraging people to sign up for coverage on the exchange, California has drastically reduced its uninsured rate, now at 7.3 percent, according to latest Census Bureau figures. There are now 2.8 million uninsured Californians, down from the pre-Obamacare figure of 6.5 million in 2013.

Covered California outpaced last year’s enrollment gains, signing up 10 more people for coverage this year compared to 2016, with 220,000 people added, according to new figures out Wednesday. Many qualify for federal subsidies to purchase health insurance.

Some worry Republican efforts to undo Obamacare could send insurance markets into a death spiral, with fewer people signing up amid skyrocketing premiums.

“This is just repeal without replacement, and there will be consequences for that,” said Anthony Wright, executive director of Health Access, a Sacramento-based consumer advocacy group. “If you don’t have the penalty, there will be some percentage of people who won’t be motivated to sign up. That leads to a smaller and sicker pool, and that leads to rising premiums.”

The effect of repealing the mandate will likely play out over the longer term, he said.

“I don’t think that this will implode everything on day one,” Wright said. “It does undermine the marketplace and we could see some insurers pulling out of the market as a result of this uncertainty.”

Covered California said Wednesday changes at the federal level “may” cause health insurers to leave the marketplace due to a “a shrinking pool of consumers who are less healthy.” Executive Director Peter Lee warned that health insurers who remain in the marketplace could reduce coverage to “Swiss cheese policies that were common prior to the Affordable Care Act.”

Gerald Kominski, director of the UCLA Center for Health Policy Research, said he doesn’t think the market will collapse.

“Too many people have benefited from subsidies under the Affordable Care Act to suddenly forgo them in favor of becoming uninsured to avoid a tax penalty,” he said.

Still, those who don’t receive federal subsidies could have a ripple effect on the state’s insurance market.

“I think there will be Californians who will choose to be uninsured again, and take their chances,” Kominski said. “It’s likely to be younger, healthier people than older, sicker people.”

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