What Would Individual Health Insurance Cost if the Court Strikes the Mandate Down and Still Requires Insurers to Cover Everyone?

With the Supreme Court justices sounding like they might strike the mandate down, this is a question I've been getting a lot lately.

I have pointed to New Jersey as a real life example of what can happen when insurance reforms take place but there is no incentive for consumers to buy it until the day they need it.

In 1992, New Jersey passed health insurance reform that required insurance carriers to either offer individual health insurance on a guaranteed issue basis or pay an assessment to carriers that did. Other elements of the legislation were:

• Guaranteed coverage and renewability for all eligible people regardless of their health status. A pre-existing condition exclusion does allow insurers to limit coverage during the first 12 months (a limitation which is not contained in the Affordable Care Act).
• Guaranteed renewal of policies, provided (1) the insured does not become eligible for coverage under a group plan; (2) premiums are paid in a timely fashion; and (3) no fraud is committed by the insured.
• Community rating of the premiums, with variation allowed only for family status (single, adult plus child, husband and wife, and family). (The Affordable Care Act allows rate variations of up to three times from young to old.)
• Standardized insurance plans, referred to as Plans A, B, C, and D (indemnity options) and a single HMO plan.

New Jersey does not have a individual mandate or any other means to encourage participation in the health insurance pool.

What does the health insurance market look like today in New Jersey?

First, there are relatively few insurance plans participating in the New Jersey insurance market. According to the New Jersey Department of Banking and Insurance, if you want to buy a two adult plan with a $2,500 deductible and 80% coinsurance for example, there are only three carriers offering it. Aetna at $4,913 per month, Celtic at $12,322 a month, and Horizon a $6,127.78 per month. These rates do not vary by age.

You can buy a $2,500 deductible, 80-20 coinsurance plan for a family. Only one health plan, Oxford, offers it and it is age rated. If you are age 25, it will cost $2,498.20 a month, at age 40 it will cost $2,978.75 per month, and at age 60 $4,054.97 per month.

The cheapest family plan I found on the state site is a Horizon plan with a $10,000 deductible that costs $1,434.72 a month--$17,217 a year. The cheapest HMO plan was a Horizon plan for $1,546.08 a month--$18,500 per year. Although, the state does also offer very limited and scheduled benefit plans that cost as little as about $600 per month.

You can see the complete chart of rates at the New Jersey state website by clicking on the icon: "See Monthly Rates for All Standard Plans."

If anyone has Anthony Kennedy's email address I'd appreciate your sending this over.

If the Supreme Court Overturns the Individual Mandate

First, trying to predict how the Court will rule is at best just speculation. I know what Justice Kennedy said both today and yesterday and it certainly doesn’t look good for the Obama administration and upholding at least the mandate.

But I will remind everyone, based upon oral arguments, most Court watchers expected a ruling in favor of the biotech industry on a recent case involving health care patents. “Surprisingly,” the Court ruled against the industry.

Whatever the justices are now thinking, there isn’t a lot anyone could do differently until we actually get a ruling and know exactly what gets thrown out, if anything, in the 2,800-page law.

But if the mandate is overthrown, then what?

First, exactly how the Court rules on severability will be critical. What could go out with the mandate?

The Obama administration has smartly tried to build a firewall around the rest of the Affordable Care Act (ACA) by arguing before the Court that only the insurance reform elements of the bill should fall if the mandate goes down—that the mandate is the only quid pro quo for the insurance industry in exchange for taking all comers. That looks to me like the most logical outcome for overturning the mandate—but my perspective is one of an insurance veteran not a Court expert.

The Obama firewall strategy is a smart strategy for two reasons. First, it leaves the rest of the health law standing. Second, losing the most popular part of the new law, the insurance reforms, leaves the administration with lots of political leverage later on to fix the bill. Ironically, the Court, in accepting the Obama arguments, would be overturning both the most unpopular element of the law as well as the most popular.

From a policy perspective, I would see fixing the law in the wake of losing just the the mandate an easy thing to do. In place of the individual mandate, I would suggest a provision that:

• Has no mandate for any individual to buy insurance.
• Allow individuals and families to be able to buy insurance at any time.
• Upon purchase, everyone in the family would be covered under any of the plans available.
• But, if the insurance were not purchased at any time the individual was newly eligible, any preexisting condition would not be covered for two years.

Such a solution would provide guaranteed insurability if the insurance was purchased when first offered, no mandate to buy, people could purchase at any time and be covered, other family members would not be penalized, and the insurance pool would be protected.

The policy fix is easy.

But politically, in the current hyperpartisan environment, the Republicans have no interest in helping the administration fix the Affordable Care Act. Until both sides are willing to work together on a comprehensive compromise on health reform, there will be no fixes.

What happens if the mandate falls, the Court leaves the insurance reforms in place, and the political paralysis continues?

New Jersey. That state has had insurance reform and no mandate for a number of years and it’s a mess—even more unaffordable rates and enormous anti-selection in the insurance market.

The lack of a mandate won’t hurt the larger already efficient employer market and it won’t help the already problematic small group market. The employer mandate for those with more than 50 employees would continue.

In the exchanges, where the ACA would provide good subsidies for the poor and near poor, there would likely be adequate spread of risk among these lower income groups in a completely voluntary market because the insurance is affordable. But higher insurance rates will mean the CBO’s estimates for the cost of the subsidies will be way off. Remember, the ACA’s subsidy system caps the cost for health insurance based upon income—higher insurance premiums mean higher federal costs.

Without a mandate and with the insurance reforms still in effect, the anti-selection would be most pronounced in the middleclass where the subsidies were always insufficient anyway.

What happens if the Court throws out the mandate as well as the insurance reforms? The insurance industry would get the benefit of many more customers because the subsidies would still be in place. But they would be healthy because the insurance underwriting and pre-existing condition provisions would remain. While the insurance industry would do well, the providers would still suffer the ACA's payment cuts and not have as many patients coming in with insurance cards as they expected—particularly the most sick and costly for them.

If the Court throws out the individual mandate, as well as perhaps the insurance reforms, the law would have to be fixed.

But the political environment would have to change markedly before Republicans and Democrats could come together on a comprehensive fix to the new law.

Will the Pace of Innovative Change Overtake the Financial Imperative to Slash Spending?

I thought it was worth passing along the comments by Jim Tallon, president of New York's United Hospital Fund, in a recent post.

Tallon reflected on an international meeting he attended with health care leaders from a number of industrial nations--"nations whose health care systems, indeed underlying philosophies, ranged from market orientation through hybrids to government authority:"

"Across the industrialized world, people are coming up with fresh ideas and vital approaches to the profound, central challenge that health care constitutes—new ideas on organization, financing, and care, on far greater use of real-time information technology, and on patients’ greater engagement in their health…

"What were these leaders’ 'keeps me awake at night' concerns? Their answer, almost uniformly, was that the pace of innovative change would not overtake the financial imperative to slash spending.

"The challenge within the challenge, then, is how to take individual ideas and models to scale. With considerable consensus on the problems, and individual projects being implemented—whether generated in local communities or institutions or stimulated by government or private-sector support—we are now at a critical juncture: can the ideas that are being tested ultimately alter economic and societal trends, in which health care plays a major role? How do individual ideas, even the sum of those individual ideas, expand into systemic change that ultimately can get us the health care system we need, accessible for all, of the highest quality, and—the biggest challenge—actively altering the constant upward movement of the cost curve?"

We are 30 years into what could generally be described as managed care—all of the attempts to create an affordable quality health care system. But 30 years in, we may have done little more than to blunt our escalating health care costs.

Time is running out. And, not just in the U.S. And, not just in market-based systems.

Tallon’s full comments on the United Hospital Fund website.