OP-ED

What if the Supreme Court Strikes Down the Individual Mandate?


Any ruling by the Supreme Court on the constitutionality of the Affordable Care Act’s controversial individual mandate isn’t likely for at least another several months, but it’s worth thinking about what might happen after the case is decided. The first scenario is easy: If the Court upholds the mandate, the ACA goes forward as planned to the continued objections of many conservative Americans and politicians. The second scenario is less clear: If the Court finds the mandate unconstitutional, do they find it severable from the rest of the law? If not, they’ll strike the whole ACA down. This seems like the least likely outcome. If, on the other hand, they do invoke severability, the ball is back in the White House’s court. The decision at that point would be whether or not health reform can be successful without the individual mandate.

The concern here is the death spiral first described by Nobel Prize-winning economist Joseph Stiglitz. In essence, if we don’t require everyone to buy insurance, then insurance will be disproportionately purchased by the sick, making it more expensive and leading many to discontinue coverage in a continuous cycle that drives the price higher and higher until no one can afford insurance any more and the system collapses. By contrast, getting everyone into the pool is seen as the only way to keep costs down and maintain the insurance system. So the question is: What happens if the Supreme Court strikes down the individual mandate? Does the Obama adminsitration wash its hands of health reform, proclaiming that it can’t be done without the individual mandate because costs will rise too rapidly and the insurance system will collapse, or does it forge onward and see what happens?

Option one is the safe bet if you believe that a bad status quo is better than a potentially worse change, but it’s absolutely terrible politics. It would be admitting defeat on one of the defining aspects of the Obama presidency. Moreover, it would have tremendous negative implications for the future of health reform initiatives generally. Option two looks good politically for all of the opposite reasons, but it could destroy the health insurance market and hurt Americans in the process. That’s bad leadership. While such action might lead to the type of catastrophic collapse necessary to precipitate true change, it would be incredibly painful.

New evidence suggests, however, that the pain might not be as great as many–myself included–fear. John Sheils and Randall Haught of the Lewin Group ran a simulation model to see what might happen to coverage and costs if reform went forward as planned with the exception of the individual mandate. Remember, the concern is that fewer people would be covered and health insurance premiums would increase. What they found is that, yes, compared to estimates under health reform with an individual mandate, health reform without the individual mandate would mean fewer people would be covered and insurance premiums would increase, but things would still be better than if we did nothing at all.

How much better? Well, without reform, they estimate that 51.6 million Americans would be uninsured. With reform, that number drops to 20.7 million. With reform, but without the mandate, their estimate stands at 28.5 million. Not too shabby. As for premiums, the authors estimate that eliminating the individual mandate will mean a 12.6% increase. Not a welcome increase, but not necessarily the kiss of the death spiral.

That said, other estimates by the Congressional Budget Office and MIT health economist Jonathan Gruber have not been as optimistic. The CBO expects that axing the individual mandate will mean 16 million fewer insured persons and a premium increase between 15 and 20%. Gruber puts the figures at 24 million fewer insured and premium increases on the order of 27%. Because of the sheer volume of people involved and the uncertainty of their decision making processes, it’s really hard to know who’s calculations are the most reasonable.

What you can count on is this: If the Court finds the individual mandate unconstitutional, the White House will have more actuaries and health economists crunching numbers than you can imagine. These latest results from Lewin suggest that even if the Court says no to the individual mandate, it shouldn’t necessarily mean the Obama adminsitration should give up on health reform.

D. Brad Wright is postdoctoral fellow at Brown University and  holds a PhD in health policy and management from the University of North Carolina.  He has worked as the Assistant Director of Health Policy for the Association of Clinicians for the Underserved. You can follow him at his blog Wright on Health where this post first appeared.

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TimRickBarry CarolNate OgdenGary Lampman Recent comment authors
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Rick
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Rick

Thanks for the clarification. The out-of-pocket maximum under the ACA 2014 Bronze plan is something like $6,000 for an individual, $12,000 for a family, with no hidden caps or gotchas, which matches the annual HSA limit. Seems like a pretty high out-of-pocket threshold to me to achieve affordable insurance. Of course, its not just about a low monthy premium, there are other objectives in the new law, which have to do with cost incentives and limiting tax subsidies for high income earners. And there is a catastrophic plan available for under-30 set. But you are back to talking about averages… Read more »

Nate Ogden
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Nate Ogden

so everyone has the right answer here is the correct amount

Set a maximum of $2,000 annual deductible for a plan covering a single individual or $4,000 annual deductible for any other plan (see 111HR3590ENR, section 1302).

middle of EDI BS and couldn’t think, ya technology and advancement

Rick
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Rick

I was puzzled for a moment by the following statement by Nate: “Guess what happens 2014, its illegal to sell the high deductible plan that makes this all possible. Obama killed an entire small group market saving employers hundreds of millions. Now these employers will need to increase employee deductibles, increase employee contributions and pay more.” But then I figured out he is talking about those insurance policies that aren’t really insurance, the mini-med kind that WalMart and MacDonalds offer that cap at $3,000 a year. These employees think they have insurance until they need it. If family medical expenses… Read more »

Nate Ogden
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Nate Ogden

“But then I figured out he is talking about those insurance policies that aren’t really insurance,” Sorry Rick you haven’t figured anything out. I am not talking about mini meds I am talking about normal full blown insurance. PPACA doesn’t allow carriers to sell policies with deductibles over 2K or 2.5K one of them. nice rant about mini meds, doesn’t apply to what i said though and you also fail to explain how no coverage is better then a mini med that would cover 100% of 80% of the popualtions annual bills. “Legitimate high deductible policies as mandated in 2014”… Read more »

Nate Ogden
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Nate Ogden

Laws would need repealed and passed at both the state and federal level. On the State level any laws saying a group has to have so many employees or purchase a minimum amount of reinsurance would need to be eliminated. At the federal level the PPACA saying you can’t sell a deductible below a certain amount would need replaced with one saying employees have to be provided a maximum deductible of X but leave it up to the group on how they deliver it. The fines associated with reporting to the Feds need drastically cut., For example on my two… Read more »

Barry Carol
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Barry Carol

Nate – Those are interesting comments about the impact of regulations on smaller employers and small insurers. Regarding small groups now demanding their claims data and help in managing claims, how do the existing rules get changed? Does it require state legislation or can the state insurance regulator change the rules? Or, would it require a federal law to force release of claims information? In the context of fighting fraud, I was interested to read just this morning in the WSJ that CMS can’t release information from its massive claims database on payments to individual providers because of a 30… Read more »

Barry Carol
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Barry Carol

Nate – Thanks for the detailed response as always. I agree with your comments about the group market though my understanding is that many smaller employers who buy health insurance from insurers rather than self-insure cannot get access to their claims data which makes it more difficult for them to attack costs in a systematic way because they can’t see what their main cost drivers are. There is a lot of variance from one employer to another. An insurance company CEO once told me “When you’ve seen one account, you’ve seen one account.” The individual market only accounts for about… Read more »

Nate Ogden
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Nate Ogden

in the past small employers could not get claims data, now that cost has increased they are demanding not only claims data but assistance in managing their plans. If the government would stop restraining the market it would respond to this demand and provide such a product. The way markets usually work is small innovative companies take a risk and respond to new budding markets. Many fail but this is what creates solutions and solves problems. The problem we have in insurance now is government has made it almost impossible for small innovative companies to enter the market. BUCA has… Read more »

BobbyG
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“The answer is get government out of healthcare and break the jaw of any liberal that says otherwise.”
__

Really, ‘eh?

Interesting.

Barry Carol
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Barry Carol

“If we allowed the market to work there would only be 5 million or so uninsured Amercians. That’s a 100 billion a year problem” Nate – I agree with your sizing of the problem related to the five million that could not pass medical underwriting. However, insurance experts have told me that despite high premiums, most state high risk pools have medical cost ratios of 200%-300% with the losses covered by a combination of general state tax revenues and assessments on health insurers. Only about 200,000 people are in those pools today. From a politician’s perspective, it’s hard for them… Read more »

Nate Ogden
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Nate Ogden

There will be 5 million people like the 200K you describe that will be money losers. That is where the government, preferrably at the state level, will need to step in to pool and subsidize them. How do insurers cherry pick healthy people to cover? This is an urban myth of those pushing government solutions. You have two markets; Group which is a collection of many small pools. Insurers can’t control the individuals a company hires, if they hire a sick person or a person turns sick there is no way to remove that individual. Individual is one large pool… Read more »

Nate Ogden
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Nate Ogden

Few points that need cleared up; ” if we don’t require everyone to buy insurance, then insurance will be disproportionately purchased by the sick, making it more expensive and leading many to discontinue coverage in a continuous cycle that drives the price higher and higher until no one can afford insurance any more and the system collapses.” This is only true when you have community rating and/or guarantee issue, remove these and the problem is solved. Our uninsured problem is driven by failed government reform, every time the government tries to reduce the number of uninsured it pushes it up… Read more »

Gary Lampman
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Gary Lampman

The United States Supreme Has no Credability as they have shown their Partisanship siding against the Voters of the United States. The very people to uphold the Laws of the Land and have actively engaged in unethical Behavior!! Claiming that corporations are people is a monumental streach that the dead started to dig out from the Grave.
These reprobates need to be kicked into the streets!!!!

BobbyG
Guest

“Credability”? “streach”?
___

Uh, OK…

Tim
Guest
Tim

“furture years’ ”
Spelling error war…

MD as HELL
Guest
MD as HELL

This is not a commerce clause case. This is an unreasonable seizure case.

BobbyG
Guest

Well, you’re entitled to your opinion, but the linchpin issues before The Court is precisely Commerce Clause.

BobbyG
Guest

If, on the other hand, they do invoke severability, the ball is back in the White House’s court. The decision at that point would be whether or not health reform can be successful without the individual mandate.” __ It would leave PPACA effectively neutered, would it not? Also, what would happen to the ACO authorization (Section 3022) and the PCORI authorization (Section 6301)? Were SCOTUS to strike the whole enchilada, those would go away, ja? But if only the individual mandate is struck down, furture years’ funding is seriously crippled for PPACA initiatives. I’m hearing a May or June decision… Read more »

Tim
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Tim

If Kagan recuses Roberts will be forced to as well.

Nate Ogden
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Nate Ogden

why?