Senate Republicans are targeting the Affordable Care Act to help pay for their proposed tax overhaul, adding renewed uncertainty to the health insurance market just as people are deciding what ACA plan to get for 2018.

The Senate's latest tax proposal would eliminate the ACA requirement that most Americans buy health insurance or face a penalty. For 2018, the penalty is $695 for each adult and $347.50 for each child without insurance.

Ending the penalty would allow younger, healthier people--as well as middle-class Americans whose premiums have soared under the ACA--to stop buying health insurance. But it likely would mean higher rates for everybody else who remained in the ACA.

The actual impact on those still in the ACA market is unclear, however. Because of the way the law is structured, much of the increase in premiums would be offset by tax credits that many Americans get for their insurance costs. Some in Congress are also discussing reviving a bi-partisan bill to restore insurance subsidies that were recently cut by President Trump.  

Adding to the uncertainty is that the House GOP tax plan doesn’t include repealing the individual mandate. Whatever each chamber of Congress ends up passing will have to be reconciled, so there's a chance the repeal may not survive. The Senate plans to vote on its bill the week after Thanksgiving.

More on health insurance

The Senate plan wouldn't actually end the mandate until 2019, but the expectation of a repeal could have an immediate impact on the individual insurance market for 2018.

The sign-up period for people who want to buy health insurance on the ACA exchanges is happening now through Dec. 15. While premiums are locked in for 2018, the prospect that there would be no penalty could dampen demand, with people either not signing up or dropping out later, says Sara Collins, vice president of health care coverage and access at the Commonwealth Fund, which focuses on health policy issues.

There is already confusion about whether the penalty still exists. According to a Kaiser Family Foundation poll in October, 41 percent of uninsured people and one-third of all people said they don’t know whether the penalty for not having health insurance is still in place.

Insurers already built in the possibility that the individual mandate wouldn’t be enforced into 2018 insurance premiums, says Collins. Premiums on ACA Silver plans are priced an average 34 percent higher than 2017, according to Avalere Health.

The uncertainty around the individual mandate started earlier this year, when the IRS said it wouldn’t implement a program that would hold up processing returns for people who didn’t indicate that they had qualifying health insurance. In October, the IRS reversed itself and said it will go after people who don’t pay the penalty, but the confusion remained as President Trump continued to call for repealing the ACA. 

While the individual health insurance market would feel the biggest impact from a repeal, it also could affect people who are on Medicaid or get health insurance through work.  

Here's how it could play out:

Higher premiums. Premiums for insurance sold on the individual market would rise an average of 10 percent a year, according to an analysis by the Congressional Budget Office.  

“Every time premiums go up, more healthy people, especially those who don’t get subsidies, drop out,” says Timothy Jost, a health policy expert and emeritus professor at Washington and Law School of Law. 

While people who qualify for tax subsidies will be insulated from those higher rates, about 7 million middle-income people who don’t qualify for tax subsidies will pay more, according to the Kaiser Family Foundation.

Older people, who can already be charged three times more for insurance than a younger person, would feel the biggest impact. For example, currently, a married 63-year old couple in Memphis that doesn’t qualify for financial help to cover premiums pays an average $45,000 a year or $4,500 a month for health insurance. A 10 percent increase would raise their premiums another $4,500 a year.

More uninsured. More than half of the 13 million increase in the uninsured would come from people forgoing individual insurance.

But there would also be about 5 million fewer people on Medicaid, the federal health insurance program for low-income children and adults, according to the CBO.

While most people who are eligible for Medicaid are exempt from the penalty, awareness of the mandate encourages people to explore their coverage options, says Jost. Since the ACA, many people who didn’t know they qualified for Medicaid but worried about the penalty went to the ACA exchanges to sign up for health insurance and found out that they were Medicaid eligible. Without the mandate, many people won’t know that they qualify or won’t apply until they get sick, says Jost.

The CBO also estimates that there would also be 2 million fewer people with job-based insurance.

Less choice. Even though Republican tax plans don’t call for outright repeal of the ACA, eliminating the individual mandate could hurt the individual insurance market long term, says Collins.

If more insurers leave the market, consumers could end up with even fewer choices than they do now. There also could be more places with no option to buy subsidized health insurance on the individual market.