State Innovations and the Individual Mandate

In late 2017, President Donald Trump and Republican majorities in Congress eliminated the tax penalty tied to the individual health insurance mandate imposed under the Affordable Care Act. At the time, some journalists and commentators wrote obituaries and eulogies for the ACA’s most unloved feature, the mandate. Many assumed we would never hear of the policy again. However, it hasn’t work out that way, in more ways than one.

In early 2018, Texas Attorney General Ken Paxton used the penalty repeal to concoct a new federal lawsuit aimed at canceling the entire ACA, top to bottom, on grounds that the penalty elimination alone made the whole law unconstitutional. That case, now known as California v. Texas, reached the Supreme Court for oral argument last November. Between now and late June, we await a final judgment.

Surprisingly and with little notice, during this same period, several states enacted their own enforceable individual mandates in their health insurance markets. Today, four states and the District of Columbia have laws requiring all residents to purchase health insurance if they can afford to do so, or pay a tax penalty. The states are California, Massachusetts, New Jersey, and Rhode Island, plus DC, affecting 57 million Americans. There are stories to tell.

Massachusetts was the first to adopt a mandate in 2006, accompanied by a burst of attention for Republican Governor Mitt Romney who signed the law. It took effect in 2007 with remarkable ease – no protest marches, no angry petitions, nothing. The requirement is part of the state’s health policy infrastructure, with the penalty pegged to household income, equaling 50% of the lowest premium “silver” plan, between $264 and $1,620 annually in 2020.

Run by the Massachusetts Health Connector and the State Revenue Department, the mandate promotes enrollment and lowers premiums; it also helps regulators ferret out insurance scams, and targets outreach to uninsured households. The Connector’s Policy Director, Audrey Gasteier, observes that over 15 years “the mandate chugs along smoothly—no major issues or shifts in compliance or attitudes.” When the federal ACA mandate became effective in 2014, Massachusetts lawmakers put theirs on ice, available if a future President and Congress were to do who-knows-what. The state mandate became reactivated upon the federal penalty’s demise.

After the 2017 federal penalty repeal, officials at the DC Health Link, the energetic insurance exchange led by former Maine insurance commissioner Mila Kofman, got engaged. They recognized that the penalty repeal would harm enrollment and affordability, and won unanimous approval from the DC City Council to establish their own requirement, using funds generated by the penalty to improve affordability.

State leaders in New Jersey and Rhode Island saw similar needs and opportunities, enacting mandates in 2018 with a twist. Officials in those states used funds generated by the penalty to finance state costs to establish a “reinsurance” mechanism to stabilize and lower premiums, and including federal funding through a Section 1332 state innovation waiver. Newly elected New Jersey Democratic Governor Phil Murphy had just taken office when the ACA penalty was repealed. That year, his administration began to establish its own state insurance exchange, GetCoveredNJ, and stopped using the federal website, becoming the 14th state to do so. Pennsylvania has now followed them, creating Pennie (such a cool name!) as other states move in this direction. Interest in state exchanges is growing because evidence shows higher enrollments and lower premiums in states that do this themselves.

Like DC, Rhode Island has a small population and a small exchange, HealthSource RI, with just 40,000 enrollees. Anything that reduces premiums and protects consumers is welcome. Tying a mandate penalty to reinsurance made it an easy sell—with the penalty revenue financing the state’s share of reinsurance costs. Rhode Island officials set up a Market Stability Workgroup including insurers, business, providers, and nonprofits; they all agreed on the mandate/reinsurance link, according to former state Insurance Commissioner Marie Ganim. Since implementation, premiums have held steady. Rhode Island now boasts the 2nd lowest benchmark insurance premiums nationally, after Massachusetts.

California joined the trend in 2019 with its own spin. Rather than using reinsurance, policymakers added a new state-financed subsidy to lower premiums for consumers in their Covered California marketplace. According to CC Director Peter Lee, “we marketed hard on a carrot (new subsidy money), and more lightly on a stick (the penalty), and were consistent on our messaging.”

Other states explored establishing a mandate and could not make it happen, including Connecticut, Hawaii, Maryland, Vermont, and Washington. Vermont enacted a mandate in 2018, delaying a penalty because Republican Governor Phil Scott was not on board. In 2019, the Legislature and Governor still could not agree. So, like the federal ACA, the Vermont mandate exists in law without any penalty.

Some trends appear here.

The Democrat/Republican divide over state health policy continues. Individual mandates, state exchanges, and premium subsidy enhancements are all Democratic policies with zero interest from most Republicans. Aside from Massachusetts and former Gov. Romney, the only states that created enforceable mandates are controlled by Democratic “trifectas” where the Governor’s Office, the Senate, and the House are all Democrat-controlled. On the other side, Medicaid work requirements, short-term health insurance plans, and health savings accounts are all Republican policy pursuits, and Democrats need not apply.

One exception is Pennsylvania, where Democratic Governor Tom Wolf convinced large Senate and House Republican majorities to establish Pennie. Governor Wolf persuaded Republican legislative leaders that sending insurance administrative fees to Harrisburg was preferable to sending those dollars to Washington, DC.

Reinsurance, that flexible tool, also has been bipartisan, across at least 15 states, red, blue, and purple. Business groups, who lean conservative, tend to be dollars-and-cents pragmatists who sometimes can help Republican lawmakers to recognize common sense.

Interestingly, prescription drug price control is also a bipartisan hit. According to the National Academy for State Health Policy, which closely monitors this arena, since 2017, 48 states have enacted 166 drug pricing laws. Yes, 48 states and 166 laws.

A newer and growing piece of health policy real estate has yet to become partisan, state or federal. That’s the key area known as the “social determinants of health,” focusing on how issues such as housing, nutrition, safety, the environment, and more impact population health, especially for underserved communities. Though social determinants have been emerging as an issue for more than a decade, the hoof beats are getting louder. Growing numbers of public officials recognize that public demands for better value and affordability cannot be achieved just by squeezing providers. Addressing social determinants is becoming an imperative.

Stuart Butler, formerly of the Heritage Foundation and now at Brookings, is a true-blue conservative who writes regularly about how social determinants can be addressed in ideological boundary-spanning ways. An effective national effort to address these factors still might draw bipartisan support.

In the state health policy world, a lot is going on that, like the individual mandate, doesn’t get attention from the major leaguers in DC. Still, many states are making meaningful progress. Here’s hoping that the US Supreme Court in California v. Texas avoids making a holy mess of things.

McDonough, JE. State Innovations and the Individual Mandate. Milbank Quarterly Opinion. May 26, 2021.

About the Author

John E. McDonough, DrPH, MPA, is a professor of public health practice at the Harvard University TH Chan School of Public Health in the Department of Health Policy and Management. Between 2008 and 2010, he served as a senior adviser on national health reform to the US Senate Committee on Health, Education, Labor, and Pensions, where he worked on the writing and passage of the Affordable Care Act. Between 2003 and 2008, he was executive director of Health Care For All, a Massachusetts consumer health advocacy organization, where he played a leading role in the passage of the 2006 Massachusetts health reform law. From 1985 to 1997, he was a member of the Massachusetts House of Representatives where he cochaired the Joint Committee on Health Care. His articles have appeared in the New England Journal of Medicine, Health Affairs and other journals. He has written several books including Inside National Health Reform in 2011 and Experiencing Politics: A Legislator’s Stories of Government and Health Care in 2000, both by the University of California Press and the Milbank Fund. He holds a doctorate in public health from the University of Michigan and a master’s in public administration from the Kennedy School of Government at Harvard University.

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