Friday, September 6, 2013

HEALTH: The Individual Mandate and Puerto Rico: A Comparative Analysis

The IRS recently published its final rule for the individual mandate stipulating that everyone in the continental United States who can acquire health insurance must purchase it or be fined. This provision does not apply in Puerto Rico even though the Treasury Department states that the “individual responsibility provision is integral to delivering the Afforable Care Act’s consumer protections at an affordable cost”.  The fact sheet released by the Department of Treasury last week also indicated that the individual mandate makes the ACA’s consumer protections possible “by ensuring that individuals do not just wait to purchase insurance when they are sick and drop coverage when they are well – driving up premiums for everyone.”

The lack of an individual mandate for Puerto Rico opens the door to a potential increase in health insurance premiums for individuals and small businesses on the Island. According to the Congressional Budget Office, the implementation of the ACA without the individual mandate is estimated to produce an increase of 15 to 20 percent in the cost of premiums in the Unites States. A similar analysis has not been published for Puerto Rico, but our understanding is that the result would be similar, which dictates an imperative for local action to prevent an increase in the price of local premiums.

The imperative for the implementation of an individual mandate is based on the experiences of the four states that implemented the ACA’s consumer protections without an individual mandate: Kentucky, New York, Vermont, and New Jersey. Each of these states experienced an increase in premium prices and/or a reduction in enrollment which is the opposite effect of what the ACA intends. The most striking case is New Jersey which adopted policies similar to those that will apply to Puerto Rico with disastrous results.

Specifically, New Jersey developed a health coverage program to guarantee coverage for its residents regardless of their health condition. These plans initially enrolled approximately 186,000 individuals, but within five years this number dropped dramatically, by 54%, to only 85,000 members. In the same period, the price of premiums increased between 48% and 155% depending on the plan. These increases were due to the fact that people enrolling in the plans had greater medical needs, supporting the theory that, even with guaranteed access to coverage, many healthy people wait to become sick before enrolling in a plan. Ten years later, only 49,000 people remain in the health coverage program, and the state of New Jersey reacted by developing “Basic and Essential” insurance alternatives, which do not cover essentials such as prenatal care, in order to lower premium costs.

The ACA also stipulates essential health benefits which in many cases are more robust that the current offerings in Puerto Rico and therefore, if the market on the Island reacts like the States that have already established these reforms without an individual mandate, we will have few possibilities for lowering the costs of health insurance. In addition, given the lack of a Puerto Rican Health Insurance Exchange certified by the federal government, the Puerto Rican government will be obligated to allocate the $925 million to its Medicaid program which funds MiSalud, instead of offering subsidies or tax credits to help moderate or low income citizens acquire health insurance.

There are a strategies the local government could employ to attend to this developing situation.  These could include local legislation for an individual mandate similar to the compulsory car insurance program, defined inscription periods like those for Medicare Advantage, penalties for late inscription modeled after those for Medicare Part B, incentives and tax credits similar to those awarded by the ACA, and other, more complex, systematic reforms. However, these decisions cannot take place in a vacuum. Puerto Rico needs to establish mechanisms to study, model, and analyze the consequences of the implementation of the ACA in light of the realities of the local health system in order to leverage the knowledge developed through the course of various local health reforms and the federal funds available for health system reform. The health of our people depends on it.

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