Wednesday, March 28, 2012

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.


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