Reform May Survive if Supreme Court Kills Mandate
Life + Money

Reform May Survive if Supreme Court Kills Mandate

The Supreme Court’s imminent decision on the Affordable Care Act will trigger a political firestorm whether they accept the legislation in its entirety, throw out every page of the 906-page bill or do something in between, which is the most likely outcome.

If the high court follows the polls, it probably will rule the requirement that individuals purchase insurance – the mandate – is unconstitutional but leave the rest of “Obamacare” intact. A CBS/New York Times poll released earlier this month showed that 41 percent wanted the entire law overturned, 24 percent supported it fully and 27 percent supported it but wanted the mandate eliminated.

Pooling the latter two groups suggests there is majority support for the coverage expansion, insurance protections and delivery system reforms contained in the bill – as long as there is no mandate. It was only the Obama administration’s decision to include the requirement that individuals purchase health coverage – something done to win insurance industry backing for the law – that gave opponents the cudgel they needed to stoke widespread opposition to reform.

The insurance industry, recognizing many of the reforms are popular, is already preparing for a thumbs-down ruling on the mandate. Three major carriers, UnitedHealth, Aetna and Cigna, said last week they would continue to allow young adults to stay on their parents’ plans until age 26, pay for 100 percent of preventive services and eliminate lifetime caps on coverage, reforms from the ACA that are already in place.

Notably, they did not mention two of the most important and popular changes that industry officials say depend on everyone or nearly everyone buying policies: guaranteed issue and community rating. Translated into everyday language, those regulations require insurers to sell coverage to all comers at any time without changing the rates to reflect their claims history (the law does allow insurers to charge older adults up to three times more than they charge younger people, recognizing people use more health care as they age).

America’s Health Insurance Plans (AHIP), the industry trade group, claims millions of people who already have insurance will drop it once they realize they can sign up at any time. Why bother buying a plan when you can sign up in the emergency room after you’ve had a serious car accident?

Enacting guaranteed coverage at community rates without a mandate will lead to a “death spiral” of rising rates for everyone who stays insured, the industry’s trade group says. “In 1993, Kentucky attempted health insurance reforms without a mandate. Costs skyrocketed for consumers, and the number of uninsured increased,” AHIP’s public education campaign, dubbed “The Link,” says on its website.

Not everyone is convinced a death spiral will ensue if the mandate is struck down while the other consumer protections remain. “Recent research has found a lot of evidence of favorable selection in various insurance markets, because people who are risk averse and far-sighted are the ones who value insurance most highly,” said Henry Aaron, a senior fellow at the Brookings Institution and a reform proponent.

“They also tend to be relatively healthy, as they don’t smoke, don’t do dangerous things, exercise, and eat sensibly,” he said. “With rate bands and guaranteed issue and subsidies, a lot of favorable selection could occur—enough, perhaps, to offset, at least in part, the much feared phenomenon of ‘wait until you are sick and then buy insurance.’”

Conservative critics, on the other hand, say the Obama administration – or a successor – will have to either jettison the guaranteed issue and community rating provisions or slow-walk their enactment. “They will be working as hard as they can to find the authority that allows Health and Human Services to slow down turning the screws on the insurance industry,” said Joseph Antos, a former HHS official who is now the top health care scholar at the American Enterprise Institute. “They’ve got to make it possible for insurers to actually enroll people in 2014.”

But HHS could take a third path to maintain both guaranteed issue and community rating: creating carrots and sticks to get people to sign up for coverage that will have almost the same effect as a mandate. For instance, the government could establish a brief open enrollment period each year – similar to the window that most people get from their employers each year for changing plans. That would make waiting until for an accident or grave illness strikes a much more risky proposition.

Another option would be higher premiums for people who wait before obtaining coverage. Medicare does that already with the premiums for Part B or physician services. “If the individual mandate and nothing else is struck down, the Obama administration would aggressively pursue alternative solutions to make the risk pools work,” said Dan Mendelson, chief executive officer of Avalere Health, a health care consulting group.

Finally, if there is a change in administration after the mandate is struck down, a new Republican administration could give more flexibility to the states as they move to set up exchanges where insurance policies will be sold. Former Massachusetts Gov. Mitt Romney, architect ofthe state plan that the Democrats used as a model for Obamacare, has promised to issue 50 state waivers from the coverage requirements in the law.

There is already at least one model for what might happen, at least on Republican-run states. Though it gets far less press than the Massachusetts exchange set up under Romney, Utah set up an exchange that allows for high-deductible plans, which provide less coverage, are usually cheaper and require enrollees to pay more out-of-pocket for routine coverage.

“Many states will want to experiment with more limited exchange products such as that deployed in Utah,” said Mendelson. “A Romney administration could deploy that flexibility to help Republican governors who want to do something to reduce the ranks of the uninsured in the context of a private market solution.”