That will be the big question on Thursday if the Court throws out the mandate and the parallel insurance reforms that would require health plans to take all comers without regard to their health status and require insurers to cover pre-existing conditions.
But before we get to that scenario, let’s look at another possibility.
The Court Overturns Both the Individual Mandate and the Insurance Reforms
First, if the mandate were to be thrown out, and with it the insurance reforms, the impact on the health insurance companies would only be positive—there would be no “adverse selection” from only the sickest buying insurance. Insurance companies could continue to underwrite--decide who and who not to cover--but would have the federal government spending $50 billion a year under the surviving parts of the Affordable Care Act (ACA) giving consumers subsidies with which to purchase their insurance plans.
On the surface, that would be a great thing for the health insurance business. It might even mean lower prices than those we have today, as millions of healthy people would be subsidized to enter the insurance pool.
However, these subsides would not be available until January 1, 2014. In the meantime, Democrats would do all they could to reinstate the insurance reforms and try to implement one of the alternatives to the individual mandate.
Republicans would do all in their power to “repeal and replace” the rest of the Affordable Care Act in the wake of what they hope will be an election victory this November. With control of the House, a minimum of 51 votes in the Senate, and Romney in the White House, Republicans would at least gut the remainder of the ACA, irrespective of what they might do to “replace” it. The insurance premium subsides would be the easiest thing to get rid of under Senate budget rules.
The only way I see insurance companies benefiting from a Supreme Court ruling that would toss the mandate, as well as the insurance reforms, is if the Congress later couldn’t agree on how to fix or repeal the ACA and the circumstance neither side supported continued indefinitely.
The Court Overturns the Individual Mandate and Keeps the Insurance Reforms in Place
The most problematic outcome would be if the Court only struck the mandate but allowed the insurance reforms to continue in place. In this case, insurance companies would be required to cover everyone—both the sick and the healthy. While there would likely be some administrative limits on when people could buy health insurance, consumers could generally wait until they were sick to get covered.
In a recent study, Larry Levitt and Gary Claxton at the Kaiser Family Foundation said, “It’s pretty clear that in a system like that, sicker people would be more likely to buy insurance, and premiums would rise as a result.”
But the authors went on to argue that, “It is by no means inevitable that the individual market will enter a death spiral.” They rightly point out that the ACA, unlike past state efforts to reform the insurance market, will grant subsidies to millions of people making coverage affordable for them.
As I have said on this blog a number of times before, a mandate is not needed if affordable health insurance is available. There is currently no mandate that employees buy insurance when it is offered at work yet we have an excellent cross section of risk in the employer health insurance market. The same is true in the Medicare Part D drug program where seniors have the option of buying the drug plan.
But, while there is no mandate in employer-based coverage, if a worker declines the coverage they and their dependents would be subject to a pre-existing condition limitation if they later choose to buy (both a protection for the insurance company and a penalty for the consumer)—not the case under the ACA. In Medicare Part D, late enrollees are penalized by paying higher premiums, something also not a part of the ACA.
The bigger problem is that while the ACA’s subsidies are very good for low-income people, they are far from adequate for the middle class—particularly families.
As the Kaiser study pointed out, the Congressional Budget Office (CBO) has estimated that about half those in the individual market will be eligible for a subsidy under the ACA.
I will suggest that what is critically important here is that those not getting a subsidy, or at least a big subsidy, are the ones the mandate was directed at in the first place.
Families making $20,000, $30,000, $40,000, or even $50,000 a year were always going to get a big percentage of their health insurance paid for under the ACA. For example, a family of four making $55,000 a year would pay about $400 a month for their insurance—close to what most families in employer plans now pay. Families making less would have much better subsidies—a family at 150% of poverty would only pay 4% of their income for health insurance under the ACA.
But families making 300% to 400% of the federal poverty level would have to pay 9.5% of their incomes for health insurance—a $60,000 family would have to find $5,700 in their already tight annual budget. Families making more than 400% of the poverty level would have to pay the entire cost of health insurance—which today averages $14,000 a year in employer plans.
There is another wild card—the ACA caps the premium older people would pay at three times the premium the youngest people would pay—it is often 5:1 today. The Kaiser study argued that this would help the younger and healthier buy coverage. That is true--presuming this insurance reform doesn't get tossed by the Court with the other insurance reforms. But I will also suggest the younger are more often the lower income people and that the tighter age bands in the ACA will make it even more expensive for older people to be able to afford coverage—more often the sicker part of the population that would gain from entering and exiting the market when it would be most convenient for them to do so.
There are a number of estimates that say without a mandate individual health insurance would cost 10% to 40% more.
The CBO has said that without a mandate 16 million fewer people would be covered and premiums would be 15% to 20% higher.
That looks to me to be the best case.
In practical terms, that could be $1,500 to $2,000 more each year in higher premiums for a young family and $3,000 to $4,500 a year more for older people.
Having a health insurance market that provides guaranteed health insurance at these costs is hardly a sustainable situation. And if history is the guide, high insurance rates the first year only get higher each subsequent year as fewer and fewer healthy people see the value in coverage.
I would also suggest there is another wild card, presuming the Republicans don't repeal the ACA, that could impact either of these Supreme Court scenarios—the states.
“Blue States”—those having a Democratic governor and legislature—could well fill the vacuum created by any Supreme Court ruling. With $50 billion in annual federal health insurance subsidies in the market starting in 2014, a state could enact a mandate as well as insurance reforms in the wake of a Supreme Court ruling against the law.
Ironically, most states have not been able to do health care reform largely because they don’t have the money. But if the bulk of the law, and particularly if the subsidies remain, they would have the money and the legislative power to pass an individual mandate, or more likely one of the alternatives to the mandate, and reform the individual and small group health insurance market.
That could be a very potent combination for those largely “Blue States” that are building insurance exchanges.
But in the end, what would health insurance cost if the Supreme Court overturns the individual mandate but leaves the insurance reforms in place?
A lot more than most people, who didn't have plenty of government assistance, could afford.
But you know what? The Supreme Court ruling, whatever it is, will likely be small potatoes compared to what the November elections could do to kill or preserve the Democrats' Affordable Care Act well before January 1, 2014.
Showing posts with label Individual Mandate. Show all posts
Showing posts with label Individual Mandate. Show all posts
Monday, June 25, 2012
Thursday, March 29, 2012
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:
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.
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:
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.
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.
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.
Wednesday, February 8, 2012
Dismantling the Affordable Care Act: The Obama Supreme Court Argument + 51 Republican Senators
I have no idea which way the Supreme Court will rule this year on the Affordable Care Act. Let me go out on a limb and predict a 5-4 vote on the question of whether the individual mandate is Constitutional. Just don’t ask me which way the vote goes.
I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.
But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.
Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.
But consider this potential scenario.
First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.
Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.
The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.
That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?
I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.
But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.
Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.
But consider this potential scenario.
First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.
Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.
The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.
That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?
Tuesday, February 15, 2011
Will the Congress Change the Health Care Law During the Next Two Years?
No. But I expect the Patient Protection and Affordability Act to be “relitigated” in 2013, to one degree or another.
I recently posted on the controversy over the individual mandate. I suggested a number of alternatives to the mandate—including my own ideas.
I was asked if I really thought the Congress would change the individual mandate in the short term.
As I have posted before, it will be the Democrats who will be calling for repealing the individual mandate and replacing it with an alternative—particularly the vulnerable Senators up for reelection in 2012.
Ironically, it will be the Republican opponents to the new health law and the individual mandate who will block them. The Republicans are not about to take the Democrats off the political hook the very unpopular individual mandate represents for them. Republicans are also not about to remove the potential ticking Constitutional time bomb the mandate presents—it could take the whole law down.
Until we hear from the Supreme Court and get the results of the 2012 elections we are going to hear a lot of rhetoric from both sides but I don't see any changes to core pieces of the legislation. Yes, the Congress will likely repeal the peripheral revenue raising 1099 provision and there could be some current budget cuts HHS is going to have to work around.
But the early provisions of the bill—things like keeping your kids on your policy until age-26—will continue until we at least here from the Supremes.
But in 2013, I see the potential to revisit the law:
But it looks to me like we are only two years away from some critical Congressional votes on the new health care law. In that context, the debate has begun and it isn't just a theoretical exercise.
In an earlier post, I outlined a number of areas where I thought Democrats and Republicans could eventually come to an agreement:
I recently posted on the controversy over the individual mandate. I suggested a number of alternatives to the mandate—including my own ideas.
I was asked if I really thought the Congress would change the individual mandate in the short term.
As I have posted before, it will be the Democrats who will be calling for repealing the individual mandate and replacing it with an alternative—particularly the vulnerable Senators up for reelection in 2012.
Ironically, it will be the Republican opponents to the new health law and the individual mandate who will block them. The Republicans are not about to take the Democrats off the political hook the very unpopular individual mandate represents for them. Republicans are also not about to remove the potential ticking Constitutional time bomb the mandate presents—it could take the whole law down.
Until we hear from the Supreme Court and get the results of the 2012 elections we are going to hear a lot of rhetoric from both sides but I don't see any changes to core pieces of the legislation. Yes, the Congress will likely repeal the peripheral revenue raising 1099 provision and there could be some current budget cuts HHS is going to have to work around.
But the early provisions of the bill—things like keeping your kids on your policy until age-26—will continue until we at least here from the Supremes.
But in 2013, I see the potential to revisit the law:
- If the Supreme Court throws it all out—not likely but not impossible—we will have to start over.
- If the Supreme Court overturns only the individual mandate—not likely but very possible—the imperative to fix that will open the entire bill up to changes as part of the bigger deal that will be required for both sides to come to agreement. The conservatives would want more in exchange for their votes than to just fix this one piece.
- Even if the Republicans sweep the elections—the White House and both houses of Congress—I can’t see how they will have 60 Senate seats and compromise will be needed for some critical non-budget changes with or without a Supreme Court ruling.
- If the Republicans only make modest gains or even lose seats (this election shouldn’t be taken for granted by either side), Democrats will still be facing an unpopular individual mandate and at least have some political incentive to do some fixing—most of those polled believe the law at least needs some improvement. Although, a big Democratic victory would likely mean no incentive for them to open the law up again in 2013 to any fundamental change.
But it looks to me like we are only two years away from some critical Congressional votes on the new health care law. In that context, the debate has begun and it isn't just a theoretical exercise.
In an earlier post, I outlined a number of areas where I thought Democrats and Republicans could eventually come to an agreement:
Improving The Health Law In 2011: Realistic Ways To Reach Bipartisan Compromise
Sunday, February 13, 2011
Alternatives to the Individual Mandate—Some Are A Lot Better Than Others
With Constitutional challenges to the individual mandate now threatening the very life of the new health care law, Republicans aren’t the only ones that would like to see it jettisoned and replaced with something better.
And it isn’t just the Constitutional challenges that are prompting a second look. The mandate doesn't work politically and it doesn't maintain the integrity of the market because either most middleclass families in the individual market would be exempted from it anyway or have to pay fines that are a small fraction of the cost of the insurance.
That has led to discussion of a number of alternatives:
The Medicare Part D Approach
Increase the premiums for people who sign up after they are first eligible for the rest of their life.
But I doubt this scheme has a lot to do with the success of the senior drug program. The drug benefit is a huge value and it only costs seniors about $25 per month. As a result most have signed up and the risk pool has been a good one—irrespective of the penalty for late enrollees.
The problem with this approach for comprehensive health insurance is that health insurance costs a great deal more—perhaps $1,000 a month for a family. How much of a penalty would you charge for the rest of the person’s life? An extra $100? That likely wouldn’t be enough of a penalty to encourage participation—especially if people can opt in and out of the system whenever they get sick. $500 for the rest of their life? Not practical.
Would you only charge the penalty for a few years? Even charging an extra $500 a month for a few years wouldn’t come close to off-setting the cost of a major claim—people would quickly calculate they could make money waiting and gaming the system.
The old underwriter in me will tell you that you can never charge enough of an anti-selection premium. The more you charge for the risk that you will only get the sickest people, the fewer and the sicker the people who will sign up. It just becomes one big game and a vicious cycle.
And, what would prohibit people from just getting in and out of the system every time they got sick? How would you even keep track of the penalties each time they reentered?
This has the potential to become a heavily gamed system that would only lead consumers to become cynical about the whole process.
Limited Open Enrollments
Allow people to sign-up for guaranteed issue health insurance only once a year—perhaps each January 1st.
The problem here is that a person who doesn’t sign up on January 1 and then gets sick in September has only a three-month wait for coverage. Knowing that the insurance is available each January 1 creates an inequitable, and likely, insufficient system to encourage participation. This system would be open to being gamed instead of being a real incentive to become part of the insurance pool.
Create an open enrollment every two years? That would be criticized as too long a wait to have any kind of insurance—both for pre-existing conditions as well as coverage for new conditions. Create an open enrollment period on the first anniversary of the first time a person is first offered insurance? That would be an administrative nightmare.
Voluntary Health Insurance and the Ability to Sign-up Whenever You Like—But With Responsibility
A Mandatory and Uniform Waiting Period Before Pre-Existing Conditions Are Covered for Late Enrollees.
I have suggested this approach before. My sense is that this is the simplest to understand, easiest to administer, and most effective in terms of creating the broadest possible insurance pool.
Simply, people could sign up for guaranteed issue health insurance when they first became eligible for it at work or in the exchange. Buying health insurance would not be mandatory—no individual mandate.
Besides being able to sign up for insurance when they were first eligible, people could sign up for it any other time they wished—a month later, a year later, whatever—and they would be covered at standard rates.
But if they did not sign up for insurance when they were first eligible, their pre-existing conditions would not be covered for a minimum period—perhaps one or two years. Such a system would also have the advantage of providing coverage for any new health problems and would cover all members of a family--neither of which would be immediately covered under the two alternatives.
Such a system would be easy to understand—you can sign up any time but if you don’t do it right away your pre-existing conditions aren’t going to be covered for a long enough time that you are better off entering the pool right away.
Such a system would be relatively easy to administer—the insurance industry already knows how to administer late enrollments and pre-existing conditions provisions.
Such a system could be completely voluntary—no individual mandate and no Constitutional challenge.
Such a system would be far more popular than the individual mandate because it wouldn’t be mandatory and it would be equitable—sign up whenever you like but you will be responsible for your actions if you later get sick and expect immediate coverage.
Some have argued, are even continuing to argue today, that only the individual mandate can force people to buy coverage--particularly younger people.
But that misses two critical points:
The problem with the Affordability Act is that the coverage is not affordable for most middleclass families would have to buy it on their own.
So long as that is the case, there is no alternative but to have a strong incentive to buy the coverage. But it does not have to be an individual mandate.
And it isn’t just the Constitutional challenges that are prompting a second look. The mandate doesn't work politically and it doesn't maintain the integrity of the market because either most middleclass families in the individual market would be exempted from it anyway or have to pay fines that are a small fraction of the cost of the insurance.
That has led to discussion of a number of alternatives:
The Medicare Part D Approach
Increase the premiums for people who sign up after they are first eligible for the rest of their life.
But I doubt this scheme has a lot to do with the success of the senior drug program. The drug benefit is a huge value and it only costs seniors about $25 per month. As a result most have signed up and the risk pool has been a good one—irrespective of the penalty for late enrollees.
The problem with this approach for comprehensive health insurance is that health insurance costs a great deal more—perhaps $1,000 a month for a family. How much of a penalty would you charge for the rest of the person’s life? An extra $100? That likely wouldn’t be enough of a penalty to encourage participation—especially if people can opt in and out of the system whenever they get sick. $500 for the rest of their life? Not practical.
Would you only charge the penalty for a few years? Even charging an extra $500 a month for a few years wouldn’t come close to off-setting the cost of a major claim—people would quickly calculate they could make money waiting and gaming the system.
The old underwriter in me will tell you that you can never charge enough of an anti-selection premium. The more you charge for the risk that you will only get the sickest people, the fewer and the sicker the people who will sign up. It just becomes one big game and a vicious cycle.
And, what would prohibit people from just getting in and out of the system every time they got sick? How would you even keep track of the penalties each time they reentered?
This has the potential to become a heavily gamed system that would only lead consumers to become cynical about the whole process.
Limited Open Enrollments
Allow people to sign-up for guaranteed issue health insurance only once a year—perhaps each January 1st.
The problem here is that a person who doesn’t sign up on January 1 and then gets sick in September has only a three-month wait for coverage. Knowing that the insurance is available each January 1 creates an inequitable, and likely, insufficient system to encourage participation. This system would be open to being gamed instead of being a real incentive to become part of the insurance pool.
Create an open enrollment every two years? That would be criticized as too long a wait to have any kind of insurance—both for pre-existing conditions as well as coverage for new conditions. Create an open enrollment period on the first anniversary of the first time a person is first offered insurance? That would be an administrative nightmare.
Voluntary Health Insurance and the Ability to Sign-up Whenever You Like—But With Responsibility
A Mandatory and Uniform Waiting Period Before Pre-Existing Conditions Are Covered for Late Enrollees.
I have suggested this approach before. My sense is that this is the simplest to understand, easiest to administer, and most effective in terms of creating the broadest possible insurance pool.
Simply, people could sign up for guaranteed issue health insurance when they first became eligible for it at work or in the exchange. Buying health insurance would not be mandatory—no individual mandate.
Besides being able to sign up for insurance when they were first eligible, people could sign up for it any other time they wished—a month later, a year later, whatever—and they would be covered at standard rates.
But if they did not sign up for insurance when they were first eligible, their pre-existing conditions would not be covered for a minimum period—perhaps one or two years. Such a system would also have the advantage of providing coverage for any new health problems and would cover all members of a family--neither of which would be immediately covered under the two alternatives.
Such a system would be easy to understand—you can sign up any time but if you don’t do it right away your pre-existing conditions aren’t going to be covered for a long enough time that you are better off entering the pool right away.
Such a system would be relatively easy to administer—the insurance industry already knows how to administer late enrollments and pre-existing conditions provisions.
Such a system could be completely voluntary—no individual mandate and no Constitutional challenge.
Such a system would be far more popular than the individual mandate because it wouldn’t be mandatory and it would be equitable—sign up whenever you like but you will be responsible for your actions if you later get sick and expect immediate coverage.
Some have argued, are even continuing to argue today, that only the individual mandate can force people to buy coverage--particularly younger people.
But that misses two critical points:
- The individual mandate is in big Constitutional and political trouble--all of the academic arguments in favor of the mandate may not matter.
- The way to get people covered is to provide affordable coverage--which the new act does not do for too many.
The problem with the Affordability Act is that the coverage is not affordable for most middleclass families would have to buy it on their own.
So long as that is the case, there is no alternative but to have a strong incentive to buy the coverage. But it does not have to be an individual mandate.
Wednesday, December 15, 2010
The Democrats Had Better Hope the Supreme Court Overturns the Individual Mandate Before the Middle Class Understands How Bad It Is For Them
This post first appeared as a column at Kaiser Health News
Is The Individual Mandate Really A Lynchpin In The New Health Law?
If the Supreme Court does rule the individual mandate unconstitutional will it really bring down the whole law?
I don't see it.
First, the individual mandate isn't even close to what it has been made to be -- a provision that would protect the integrity of the health insurance market by forcing people to buy health insurance before they became sick. At best, it's a tepid attempt at that.
The individual mandate's fine for not buying coverage is 1 percent of family income or $95 for each family member not covered, whichever is greater in 2014; 2 percent of income or $325 per family member, whichever is greater in 2015; and $695 or 2.5 percent of income or whichever is greater in subsequent years (kids are half price!).
These are meaningful fines for not buying insurance, but only a fraction of what a consumer would pay for health insurance.
Here's how the individual mandate's fine for non-compliance actually works for a number of representative family income levels based upon 2010 incomes and poverty levels:
Alternatively, here is what families would be required to pay under the health law toward their health insurance premiums based upon their total family income -- net of the federal subsidy -- in 2010 dollars:
A family of four making $55,000 per year is at 250 percent of the federal poverty level this year. Based upon today's incomes, the maximum they would pay in the exchange for health insurance is 8.05 percent of their income, net of the federal subsidy -- $4,428 annually.
So, under the health law's individual mandate, this $55,000 family would likely pay no more than $1,100 ($550 for each adult) in fines the first year, $2,200 the second year and $2,750 in fines the third and subsequent years; or, alternatively, have to pay $4,428 for insurance net of the federal subsidy in the exchange.
A family making $85,000 a year (400 percent of poverty) would have to pay $8,075 for their share of the cost of health insurance in the exchange or likely pay a fine in the first year of $1,700 that would likely cap out at 2.5 percent of $88,000, or $4,250, in later years.
Families would also have to pay their share of deductibles and co-pays within the insurance policies they purchased.
The fine families would pay for ignoring the individual mandate to purchase health insurance is significant but only a fraction of what the insurance would cost.
If the individual mandate is eventually held unconstitutional by the Supreme Court there will be attempts to substitute an alternative means to protect the insurance market from the "anti-selection" that would occur as people held back on purchasing health insurance until they needed it.
One possible alternative to the individual mandate would be to allow consumers to purchase coverage only at limited open enrollment periods -- buy it now or you won't be able to get it when you get sick.
Given how tepid the current individual mandate penalties are--the penalties don't even apply if health insurance costs more than 8% of a families income--such an alternative scheme could be much more effective in protecting the insurance markets, as well as far more politically palatable for consumers faced with paying either an unaffordable insurance fine or an even more unaffordable insurance premium, than the current weak individual mandate before the courts.
All of the focus on the recent Richmond federal court ruling misses the big picture on health insurance affordability under the new law: Many middle class families will not be happy with or be able to afford the fines nor will they be able to afford the much higher cost of health insurance -- even after the federal subsidy.
Is The Individual Mandate Really A Lynchpin In The New Health Law?
If the Supreme Court does rule the individual mandate unconstitutional will it really bring down the whole law?
I don't see it.
First, the individual mandate isn't even close to what it has been made to be -- a provision that would protect the integrity of the health insurance market by forcing people to buy health insurance before they became sick. At best, it's a tepid attempt at that.
The individual mandate's fine for not buying coverage is 1 percent of family income or $95 for each family member not covered, whichever is greater in 2014; 2 percent of income or $325 per family member, whichever is greater in 2015; and $695 or 2.5 percent of income or whichever is greater in subsequent years (kids are half price!).
These are meaningful fines for not buying insurance, but only a fraction of what a consumer would pay for health insurance.
Here's how the individual mandate's fine for non-compliance actually works for a number of representative family income levels based upon 2010 incomes and poverty levels:
Alternatively, here is what families would be required to pay under the health law toward their health insurance premiums based upon their total family income -- net of the federal subsidy -- in 2010 dollars:
A family of four making $55,000 per year is at 250 percent of the federal poverty level this year. Based upon today's incomes, the maximum they would pay in the exchange for health insurance is 8.05 percent of their income, net of the federal subsidy -- $4,428 annually.
So, under the health law's individual mandate, this $55,000 family would likely pay no more than $1,100 ($550 for each adult) in fines the first year, $2,200 the second year and $2,750 in fines the third and subsequent years; or, alternatively, have to pay $4,428 for insurance net of the federal subsidy in the exchange.
A family making $85,000 a year (400 percent of poverty) would have to pay $8,075 for their share of the cost of health insurance in the exchange or likely pay a fine in the first year of $1,700 that would likely cap out at 2.5 percent of $88,000, or $4,250, in later years.
Families would also have to pay their share of deductibles and co-pays within the insurance policies they purchased.
The fine families would pay for ignoring the individual mandate to purchase health insurance is significant but only a fraction of what the insurance would cost.
If the individual mandate is eventually held unconstitutional by the Supreme Court there will be attempts to substitute an alternative means to protect the insurance market from the "anti-selection" that would occur as people held back on purchasing health insurance until they needed it.
One possible alternative to the individual mandate would be to allow consumers to purchase coverage only at limited open enrollment periods -- buy it now or you won't be able to get it when you get sick.
Given how tepid the current individual mandate penalties are--the penalties don't even apply if health insurance costs more than 8% of a families income--such an alternative scheme could be much more effective in protecting the insurance markets, as well as far more politically palatable for consumers faced with paying either an unaffordable insurance fine or an even more unaffordable insurance premium, than the current weak individual mandate before the courts.
All of the focus on the recent Richmond federal court ruling misses the big picture on health insurance affordability under the new law: Many middle class families will not be happy with or be able to afford the fines nor will they be able to afford the much higher cost of health insurance -- even after the federal subsidy.
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