PPACA: The Individual Mandate

Roger Collier The individual mandate is the single most controversial feature of the Patient Protection and Affordable Care Act. Everyone who can afford coverage—unless an undocumented immigrant or exempted on religious grounds—is required to have it or pay a penalty of $695 or 2.5 percent of income.

The rationale is straightforward: without a mandate, many people would wait until they needed care before buying insurance, driving up premiums for those with ongoing coverage, and potentially creating an “insurance death spiral” as the higher premiums lead to increasing numbers simply dropping their coverage. (This last part is basically what we have today, but will be magnified by PPACA’s ban on preexisting condition exclusions.)

The individual mandate was preferred for obvious reasons over the alternative of a general tax offset by credits for premiums paid. Democratic lawmakers had no wish to be blamed for imposition of a new tax—no matter how reasonable the arguments in its favor. In fact, as President Obama made clear in an ABC television interview “I absolutely reject that notion [that the penalty is a tax].”

The individual mandate has now become the centerpiece in Republicans’ legal fight against reform. Suits challenging PPACA have been filed by the attorneys general of twenty states (with the first, in Virginia, already being argued), with the constitutionality of the mandate a key issue in every case.

The latest Health Affairs includes articles affirming and denying the mandate’s constitutionality, by Timothy Jost and Ilya Shapiro respectively. Jost argues that the mandate is covered by the commerce clause of the Constitution, allowing the government to regulate interstate commerce—broadly defined as all economic activity—since a decision not to buy insurance has an economic impact on those who do have coverage. Shapiro argues that the government’s constitutional power cannot extend to a non-activity, like not buying insurance. Both authors also discuss whether or not the mandate penalty is really a tax and, if so, whether the government can impose it. Not surprisingly, Jost concludes that the penalty is a legitimate tax, and Shapiro concludes the opposite.

The Supreme Court’s eventual response is anyone’s guess, although reform advocates might well worry about the Court’s present conservative leaning. The timing of a Court ruling is equally uncertain; Jost notes that the Court might find the issue premature until the government attempts to impose the mandate penalty on specific individuals, something that will not happen until 2015 at the earliest, while Shapiro suggests that the Court may try to find a way to duck the constitutionality issue entirely.

All this uncertainty has important implications. States involved in the various legal challenges may drag their feet in setting up the insurance exchanges, possibly leaving the federal government to step in at the last minute. Insurers, already faced with actuarial problems, will face even more uncertainty in estimating enrollment from the currently uninsured (and typically healthier) population. And individuals, of course, will have their own gamble: risk the penalty or not.

What would be the possible impact of a Supreme Court finding of unconstitutionality? The federal government will lose anticipated penalty revenues of some $10 billion a year. Insurance premiums for individuals and small groups will rise with the loss of enrollment of many younger and healthier individuals. Most important of all, the number of uninsured will be significantly higher than if the penalty were in force, somewhere between the CBO estimate (assuming mandate penalties) of 22 million and today’s 50 million.

The reactions of individual states to an unconstitutionality finding would presumably reflect their politics, with states to the right of center being able to claim a fundamental failure of reform, especially as premiums increase in the absence of new healthier enrollees. Left-leaning states might take the option, however, of imposing their own individual mandates consistent with their state constitutions—much as Massachusetts did in 2006, although possibly with a different, more effective structure that would further lower the number of uninsured. And that might make for some interesting comparisons.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care REFORM UPDATE.

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14 replies »

  1. I think what we will see (based on 30 years in the health care business) is many healthy people purchasing health coverage OUTSIDE of the Exchange, putting increased pressure on the financial numbers inside the Exchange.
    Rates will ultimately climb with the deficit continuing to grow. The mandate will have to be increased…perhaps doubled or tripled.

  2. Mr. Collier,
    This mess was inserted pr by the majority without benefit of opposition input because none was to be tolerated. Don’t lie about the facts.

  3. Devon Herrick’s suggestion of mandated high deductible coverage obviously comes rather late, but would have been a logical centerpiece for a conservative counter-proposal to the Democrat’s reform legislation. We have tax-based health plans for the old (Medicare) and the poor (Medicaid), why not a plan for the sick? It’s a pity that Republicans refused to make any positive contributions to the reform debate, because we might (perhaps, perhaps) then have reached a simpler and fairer (because income-based) reform, rather than the heap of new regulations imposed on an already dysfunctional system.
    However, as Margulit Gur-Arie implies, mandating high deductible coverage alone is insufficient to help those with incomes that are too high for Medicaid but too low to make comprehensive coverage affordable. PPACA does provide subsidies for many of those who fall into this category, but how effective they will be remains to be seen. For the moment –and depending on potential court rulings – the mandate should at least produce lower premiums than otherwise.

  4. Education was state funded until the feds meddled. There is nothing in the federal constitution to prevent a state from requiring payments for public education, or for health care for that matter. But the federal constitution should and does preclude such practices. The feds don’t follow the constitution though, do they.

  5. Health care? The care is so poor in America I wouldnt call it care. I would call it carlessness. Why should i pay for health carelessness. You can have a go along to get along attitude but that wont improve things. We need real reform where there really is caring for people in the health ” care” system. Americans serve the health “care” system much more then the health “care” system serves us. Its time for American to take control of the system- the sooner the better

  6. I love all the whining I see about sharing the Load for affordable Health Care>.Enough of the freeloaders that claim that Health Care is a Privilage and Not a Right!
    You have no RIGHT to drive a Car.It is a Privledge,but it has strings attached. Car Insurance,Yearly Registration(tags),wearing seat belts yada yada. If you want to drive you must have a license…
    Health Care has been Raping: Paying Health insurance members so the Dead Beats can Play. Any worthwhile endeavor is not easy but it appears that the Founders had far more Compassion and wisdom to choose what right for this Nation.

  7. Thats not a Nation where people without a real voice in their own affairs are forced to pay for special interest groups special interests masquerading as the public good.

  8. “…substantially (and coercively) boost cross-subsidies from young to old; and healthy to sick.”
    Exactly. Just like the public education system is “coercively” boosting cross-subsidies from the old to the young, and disaster relief is “coercively” boosting cross-subsidies from the entire country to hurricane stricken cities, and the draft is “coercively” boosting the ultimate cross-subsidies from the young and able to everybody else. Such arrangement is usually referred to as a Nation.

  9. The argument some people use to support an individual mandate is the uninsured will free-ride on the system and end up costing taxpayers (and hospitals) if they become sick. If that’s the case, then why not mandate high-deductible policies that only pay in the event people have catastrophic medical needs. For that matter, a limited benefit plan would be enough for something like 95% of the population. The individual mandate is more insidious than a mere stop loss for the indigent with high medical bills. The mandate requiring individuals enroll in comprehensive health coverage is designed to substantially (and coercively) boost cross-subsidies from young to old; and healthy to sick. There are more efficient ways to help people with chronic conditions and expensive medical problems.

  10. Why should individuals pbe forced to pay for a system where there is “taxation without representation” Where are the citizen councils in health care? In our feudalistic health csare system individuals are relegated to moral vagabondage and forced as if serfs without rights to heed our feudal masters wishes regarding our own health care. Our feudal masters have aggravated their own store to the detriment of the rest of society. The experts in health care industry have failed the American public. So why should I pay for health care wherein i essentially have no say-where my voice is mute and meaningless and as distant as fading stars to the feudal lords in charge of the American health care system

  11. The individual mandate has been a key point of Republican health care plans, from Eisenhower, through Nixon to Romney and Gingrich, until January 19, 2009. The hypocrisy is overwhelming.

  12. Kenz300,
    Our children are on the hook for your social security and Medicare benefits! Payroll taxes should vary, with those with no children paying enough to fully fund themselves.

  13. Why is health care pricing only at 3 levels
    1. Single
    2. Married
    3. Married with children
    Why should a single person and a family with 2 children subsidize people with 8 or more children (octomom).
    Family policy prices should be based on the number of users. If you have more people in your family you should pay more. Certainly a family with 4 or more children has more doctor visits than a family with one child.

  14. The mandate is a bill of attainder, imposing a penalty without benefit of a trial. Unconstitutional. Case closed.

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