Consider these two scenarios.
What if the Supreme Court:
1). Strikes down the requirement that everyone buy insurance, or pay a penalty (a.k.a. “the individual mandate”), but leaves in place the rule that insurers are required to insure everyone — including those who are suffering from a preexisting condition?
or 2). Throws out both the individual mandate and the provision which says that insurers cannot either deny coverage , or charge higher premiums, if someone is already sick?
Begin with the first scenario: you are not forced to buy insurance, but when you get sick, insurers will be forced to cover you, charging the same rates they charge healthy people in your community (a.k.a. “community rating”).
What would happen?
History suggests that some insurers would simply get out of the business, and those that stayed would lift premiums to unaffordable heights. The Center for American Progress reports on the results in eight states that passed “community rating laws,” without imposing a mandate that everyone purchase coverage:
Kentucky: Forty insurers left Kentucky’s market by some estimates, and only two remained before the law was repealed.
Maine: Thirteen of Maine’s 18 major insurance carriers stopped issuing new individual policies. Many also doubled their premiums.
New Hampshire: New Hampshire’s insurance law left it with nearly no carriers in its individual insurance market.The state enacted an emergency tax to compensate insurers for the costs of the law, which was repealed in 2002
New Jersey: Premiums rose as much as 350 percent in New Jersey after its pre-existing conditions law took effect. Even HMO plans, which tend to resist premium increases, nearly doubled in price]
New York: The percentage of nonelderly New Yorkers without insurance grew 21 percent, with premiums increasing as much as 40 percent per year.
Vermont: Vermont fared better than other states with similar laws, but its premiums spiked an average of 16 percent in two years.
Washington: Non-managed care options disappeared entirely from Washington’s individual market. Eventually, entire counties had no private individual insurance options at all.
In other words, some insures either fled or stopped selling new policies, while those who stayed hiked premiums to reflect the cost of caring for an insurance pool filled with sick or disabled patients. (Without a mandate, many healthy patients are inclined to stay out of the pool until they fall ill.)]
Keep in mind that, even with an individual mandate, the insurance industry, as we know it, is not likely to survive another decade. Not long ago, Aetna CEO Mark Bertolini startled an audience at a Las Vegas conference by declaring that, for all purposes, the industry is a dinosaur on the verge of extinction.
And he wasn’t just poor-mouthing, says one of the industry’s sharpest and most knowledgeable critics, Wendell Potter, a former insurance executive turned whistle-blower. Is it “Time to sing, ‘Ding dong the witch is dead’”? asks Potter. “Not quite, but the day when most Americans get their coverage from what we think of as an insurance company is close at hand. It won’t be long before most of us get coverage through either a state or federal government-run plan or a local nonprofit company. The big investor-owned corporations like Aetna and the companies I used to work for, Cigna and Humana, know that the days of making a killing off of basic medical insurance policies are over. While Bertolini was by no means predicting that Aetna and its competitors were about to close their doors and get the hell out of our lives, he most certainly sounded the death knell for the standard business model insurers have followed for many years — actually insuring people.”
“’The system doesn’t work. It’s broke today,’ Bertolini said. ‘The end of insurance companies, the way we’ve run the business in the past, is here.”
A combination of Wall Street’s demands for big profits combined with the spiraling cost care has caused insurers to raise premiums to a point that insurance has become all but unaffordable for more and more individuals and small companies. Large employers are self-insuring and paying insurance companies only to administer their plans. Insurers know that if they keep on lifting premiums, they will only lose more customers. Meanwhile, the underlying cost of drugs, procedures, hospital care and doctors’ visits continues to climb.
In a recent New York Times Op-ed Ezekiel Emanuel and Jeffrey Liebman, both former advisers to the Obama administration, agreed that the demise of the industry is drawing near: “By 2020,” they write, “the American health insurance industry will be extinct. Insurance companies will be replaced by accountable care organizations — groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.”
And that, Bertolini, Emanuel and Liebman say, is what will happen if the health reform legislation remains intact, and the individual mandate stands. Even then, over time, the insurance industry will wither away. This suggests that if the mandate is repealed, but community rating remains the law, the industry won’t gradually disappear: it could crash and burn.
In that case, anyone who is not protected by a large, generous employer who self-insures will be hard-pressed to find affordable insurance. Presumably, the subsidies for lower-income and middle-income Americans embedded in the health reform legislation would remain, but would they be rich enough to cover the new pricing? Probably not.
A More Optimistic View –Even if the Court Nixes the Individual Mandate, There are Remedies . . .
–Let People Opt Out of Insurance. Paul Starr, author of The Social Transformation of Social Medicine, has suggested that we let individuals opt out of the new insurance system, without a penalty, by signing a form on their tax return acknowledging that they would then be ineligible for federal health insurance subsidies for a fixed period — say, five years. http://www.nytimes.com/2010/03/04/opinion/04starr.html “During that time, if they had second thoughts and decided to buy health insurance, they would have no guarantee that they could find a policy or that it would cover pre-existing conditions. In other words, they would face a market much like the one that exists now,” he writes. “And while that’s hardly a desirable position to be in, they would have made the decision themselves, and the option to step outside the system would relieve Republican concerns about government mandates.”
I greatly admire Starr. If you want to understand what went wrong with our health care system, read his book. But if we tried his solution, what would happen to the children of those who decided to opt out? In our society, we would not turn our backs on them, even if their parents could not afford to buy insurance when they needed it. The children would receive care. Presumably, if the parents were in a car accident, or diagnosed with cancer, they, too, would be hospitalized and cared for, even if they couldn’t scrape together to money to purchase insurance. In other words, you and I would wind up covering them, and “free-ridership” would be alive and well.
Moreover, we need the premiums from the healthy, younger Americans who would be most likely to sign the opt-out clause. Without their dollars we won’t have the funds that we need to subsidize the care of sicker, poorer, and older Americans. To fund universal coverage, we need those premium dollars today, not twenty years from how. Eventually, (perhaps sooner rather than later, depending on the accidents of fate), the young and healthy will become sicker and older, and will find themselves on the receiving end of the subsidies. At some point, we all die, and getting off this planet tends to be expensive. In effect, healthy Americans would be setting aside money to pay for their future care. This is how insurance works.
This idea is appealing: carrots instead of sticks. It sounds like an easy way to persuade healthy people to jump into the pool. .As economist Mark Paul explained to Ezra Klein in a 2011 interview: “My fix would be to simply say raise everyone’s taxes by what a health insurance policy would cost — Congress definitely has the power to do that — and then tell people that if they obtain insurance, they’ll get a tax break of the same amount. So instead of a penalty, it’s a perfectly legal tax break.” http://voices.washingtonpost.com/ezra-klein/2011/02/an_interview_with_mark_pauly_t.html
Pauly, Klein explains, can be seen as the “father of the individual mandate.” Back in 1991, “he was the lead author of a Health Affairs paper attempting to persuade President George H.W. Bush and his administration to adopt a universal health-care proposal that would keep the government from eventually taking over the sector. ‘Our view is that excessive government intervention will make matters worse,’ wrote Pauly and his co-authors. ‘Our strategy, therefore, is to design a scheme that limits governmental rules and incentives to the extent necessary to achieve the objectives.’ At the heart of that strategy was the individual mandate,” Klein adds, “which would go on to be promoted by congressional Republicans, the Heritage Foundation, and Massachusetts Gov. Mitt Romney before being adopted by Democrats and becoming a bete noire of conservatives.”
It sounds like a perfectly reasonable proposal.
But here’s the catch. In order to generate the revenues needed to pay for the credit, Congress would have to raise taxes, or cut services. Given the stalemate in Washington, do you see legislators crossing the aisle to agree to a compromise that would do one or both? Even after the election in the fall, when no doubt voters will throw out some of the die-hards, it seems unlikely that liberals and conservatives will join hands. I hope I am wrong, but I suspect it will take at least two to four years before we have a working Congress.
In part 2 of this post, I will consider what will happen if both the individual mandate and the rule requiring insurers to take all applicants disappear.
For some of us, this is not the worst-case scenario. Premiums would not rise as rapidly. And some suggest, we could insist that the uninsured pay for their own care at point of service. In that way we could eliminate the “free rider” problem.
Meanwhile, reform would continue to move forward in ways that could lift the quality and lower the cost of health care in America. Some of the very best ideas in the Patient Protection and Affordable Care Act would remain in place. Those who believe in reform should not despair. .
I agree. But millions would remain uninsured. They be the big losers. And, in the end, all of us would wind up paying for their care, even if what they received was too little, too late, and exorbitantly expensive.
Finally, in part 2, I will ask: if the Court decides that the Affordable Care Act is unconstitutional, why not move directly to a single-payer system? While some question whether the constitution can force Americans to buy a product sold by private sector companies, we know that it is constitutional to ask everyone to pay a tax to support government health care. We call it Medicare.