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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20 replies »

  1. 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 with the mini-meds and that’s like saying the average wind speed is 10 mph on the Florida coast (including that one day when a 100 mph hurricane destroys everything). In both cases, taxpayers pick up the tab.

  2. 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

  3. “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”

    Except Obama’s definition of high is about half of what everyone calls high

  4. 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 were experienced in nice even annual amounts, none of us would need insurance. But in reality, years of zero health problems are punctuated by a major illness or accident which would bankrupt and/or force the cost on the public through Medicaid, county hospital emergeny rooms, etc. Mini-med policies are worthless in this situation and guess who makes up the difference, the taxpayer and those with real health insurance, through cost shifting.

    Legitimate high deductible policies as mandated in 2014 actually drive cost down because they discourage unecessary care “because its free”, like going to the doctor when you have the flu or getting unecessary tests or procedures. I have a high deductible HSA plan and just paid a doctor for a nasal endoscopy (he didn’t ask me in advance, just did it) to confirm I had post nasal drip which had nothing to do with my issue. When he learned I was paying out of pocket, he said “you need to get insurance”.

    Unecessary care and fraud are the two biggest contributors to high health care costs.

  5. 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 main lines of business i make $120 to $240 per employee per YEAR. If I fail to report an individual to CMS for Medicare reporting they fine me $100 per DAY. If a doctor gives me the wrong name with their TIN I get fined $50 by the IRS. The penalities are beyound punative, you can lose your entire business by one quarterly upload failing.

    COBRA, HIPAA, and similar laws need rewritten to put more responsibility on the employee and remove the punative damages against employers. I.e. in many small businesses people perform multiple duties. Your shop manager and salesman might also do your HR. If they forget to update an employees address and accidently send a COBRA notice to the old address the business could be bankrupted. Even though the employee knows about COBRA they are not required to make any effort to sign up or get the info. All of the onous is on the employer along with a ton of liability. This makes no sense to pucnish employers for trying to do the right thing and offer insurance.

    In most states and metro areas the local chamber of commerace sponsors plans for their members. Most of the time these are guarantee issue for small employers, so any employer no matter how bad the risk can join and get coverage at large pool rates.

    PEOs are employee leasing companies/Professional Employer Organizations. They assume the responsibility of being employer and handle the payroll, benefits, WC, and HR functions. They also usually pool risk for healthcare enabling small groups to get large group rates and benefits.

  6. 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 year old court challenge by the AMA that ruled that the individual doctor’s right to privacy trumped the need of the public or outside analysts to know the payments. Perhaps as costs continue to rise that balance can and should shift as well. It’s probably an issue that requires federal legislation as opposed to a new court challenge.

    With respect to what might happen to the ACA if the individual mandate is overturned but nothing else is, we could presumably go to open enrollment periods or a significant premium surcharge for those who don’t sign up as soon as they’re eligible in order to mitigate adverse selection. The insurance industry, though, would likely still be worse off even with those provisions because there would still be some adverse selection.

    I think the rules related to high deductible plans that take effect in 2014 are extremely unfortunate, especially for those of us able and willing to take on additional financial risk in exchange for a lower insurance premium.

    By the way, what are chamber plans and PEO’s? I’ve never heard of either.

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

    Really, ‘eh?


  8. 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 no motivation to share how much they have been ripping off small employers or offer a product that would eliminate this. With the assistance of government they have been able to prevent most competition. Even when government pays lip service to competition and the markets the regualtions are so complex and expensive the prevent small companies and competition.

    Small groups benefit from pooling in Chamber Plans, Associations, PEOs, and other pools. The easing of the regualtions that prevent these would help lower cost considerably.

    Your correct on individual pools, once in everyone gets the same rate increase regardless how your health has changed since joining the pool. They do maintain rate tiers though, as you age you will move up age brackets which would be an increase in addition to the pool trend. But no individual underwriting or health is factored into your rate after joining.

    We have a new client Nov 1st. They were on a $500 deductible plan with major local insurer. Max out of pocket was $2500 co-insurance plus the $500 ded or $3000 not counting co-pays. They got a 20% plus renewal and were not happy. We took a look at their apps, no claims experience available, and didn’t think their rates were justified. We went back to the same carrier and got a quote for a $5000 deductible 100% plan. $2000 in additional total liability worst case. The rates drop 49% for the plan change. If we went to the 7500 plan they drop 58%. So the group takes the 49% premium savings and self funds the risk back to the $500 deductible the employee had before. First year doing this their cost should end up being slightly lower then what they paid last year.

    More importantly they know have access to claims data. We already got one employee to go to an independent lab instead of the hospital for some lab work and changed the pharmacies some employees went to saving some more. Clients that have been doing this for 4-5 years on average are still paying less then when they satarted doing this.

    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.

    This is why insurance in heavily regualoted states like NY, MA, NJ cost so much more then states that stay out of the way and allow businesses to innovate and solve problems, like they excel at doing.

    There use to be a very vibrant small group self funded market where employers had data and the ability to manage cost. Some, not all, of the factors that killed it;

    COBRA laws poorly written so employers didn’t know how to comply until they were taken to court, an expense small business couldn’t afford.

    Medicare secondary laws, a hospital could bill Medicare instead of the employer, employer did nothing wrong, but Medicare would come back 3-5 years later demanding claims need reimbursed. Small employers had reinsurance written on annual policies, since their protection expired they were out of pocket, again running small employers out of the market

    HMO Act 1973 mandating that employers offer HMOs. We had clients with very successful self funded plans, an HMO would come in and they would have to offer it per the law. The HMOs would pick off the young healthy risk killing the self funded plans.

    Minimum specific deductibles or aggregate ratios. Some states just plain outlaw small group self funding

    Employers don’t offer insurance becuase government has driven them out of it. I have a dozen prospects on my desk now that don’t offer insurance but would like to. With all the regualtions and limits on plan designs its nearly impossible to start a health plan for an existing group affordably.

    Instead of these people having a limited medical plan or one custom designed to them they have nothing. How is no coverage better then limited coverage? Another great example of rank political ignorance. Exchanges and guarantee issue don’t start until 2014, why would you out law mini meds and limited medical plans in 2011? What were those people suppose to do for 3 years? ObamaCare created a problem to justify itself.

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

  9. 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 10% of the people under age 65 who get their health insurance in the commercial market. One question that perhaps you can clarify is what happens to the individual who passes underwriting but gets sick a year or two later? Are you saying that his premium will only rise in line with the pool’s overall medical trend plus normal aging but won’t be bumped up because he’s now sick? Hopefully that’s the case, though if he’s too sick to work he presumably won’t be able to afford the insurance he had before or a policy from the high risk pool.

    I’ll offer a personal anecdote regarding insurance costs. I’m retiring at the end of this year and will need to pick up COBRA coverage for my wife until she is old enough for Medicare. While I work in NYC and live in NJ, most of our company’s U.S. employees are in PA, IN and IL. I was told that the COBRA cost for one person at 2011 rates is $468 per month for a good PPO policy. I thought that was a bit high so I told my wife to call Horizon Blue Cross to see if she could find a better deal. Their quote for a comparable (but not quite as good) policy was $788 per month! Granted NJ is a community rating state.

    Even $468 per month, which I can easily afford, works out to about $2.80 per hour for a 2,000 hour work year. Family coverage would be roundly triple that or $8.40 per hour. Insurers tell me that their high deductible and tiered network products are about 15%-20% cheaper while their highly restrictive HMO products are about 30% cheaper than a low deductible PPO. It’s clearly a challenge for both individuals and employers to afford health insurance for low wage and even middle income workers as the equivalent hourly cost of health insurance is very high as a percentage of total compensation. As a result, many employers don’t offer health insurance, stopped offering it or require employees to pay a very high percentage of the cost of family coverage which many can’t afford.

    I don’t know what the answer is. I certainly don’t support a single payer plan and never have. I would prefer to attack healthcare utilization with tort reform, a more sensible approach to end of life care, price and quality transparency tools, fewer coverage mandates and refusal to cover treatments that either don’t work or cost more than they’re worth.

  10. 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 per insurer, after initial underwriting you have to treat everyone in the pool the same, Again there is no way to eliminate a sick person unless you shut down your entire pool and exited the state for a number of years.

    Its been failed government regualtion that have excluded people from the private insurance market, not the insurance companies cherry picking risk.

    most 55-64 year olds work, instead of demonizing employers and making it harder and more expensive to insure their workers we get out of the way and let them do what they have willing done for 60+ years. The number one reason employers don’t offer insurance is cost. The number one reason insurance is as expensive as it is, government.

    There is no more efficient and cost effective way to deliver insurance in the world then employer based. You get the benefit of scale. You get an engaged buyer looking to control cost so you reduce fraud and waste. Yoiu get innovation and failure. Being such a clear victor over government ran insurance no wonder so many politicians are in such a rush to do away with it.

  11. “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 to stomach pumping out $100 billion per year to insure five million very sick people, especially since many of them are too ill or infirm to vote. Moreover, it sounds like a system that tells insurers that they can insure all the relatively healthy people and the moderately sick who can pay premiums high enough to cover their medical costs plus the insurers’ administrative costs and cost of capital but taxpayers will insure the very high cost sick folks. When a given individual moves into the very sick category, he/she will then be dumped into the taxpayer funded high risk pool. At the very least, it’s a tough sell politically.

    In addition, what do you do about the millions of people working in low wage industries like hospitality, restaurants and retail trade where wages range from $7.25 to $12.00 per hour or so? Maybe the young and healthy could find cheap coverage but what do we do about the 55-64 year olds who, at the population level consume 5-7 times more healthcare than people in their 20’s? Some would qualify for Medicaid but many wouldn’t.

  12. 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 higher and faster.

    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, far less then the trillion we are blowing now with 50 million uninsured.

    “By contrast, getting everyone into the pool is seen as the only way to keep costs down and maintain the insurance system.”

    Not true at all, those that really know the business, i.e. those not working in academia or for the government, know a poorly ran pool with everyone in it is far worse then a well ran pool with a few people outside of it. Look at Medicaid and the 15 to 20 milliion people eligiblie that don’t sign up, Its by choice, they rather be outside a terrible pool then in it. Take the exchanges, smart employers are looking to ways to be outside the pool becuase they know it will be poorly ran and expensive.

    For a sustainable system you need multiple pools, thousands, and you need some of them to fail. Without growth yoou don’t have evolution and without evolution you kill the species.

    ” things would still be better than if we did nothing at all.”

    Lets look at history, something you would think academia would do by default. Every time the government has passed reform they have used that exact same line, every time they were wrong and something was worse then nothing. Ted Kennedy and his HMO Act of 1973 being a perfect example. So the question we really should be asking is why would we believe some propogandist from the Lewin group when they have never been right about anything? Why should we listen to any of the academist and government officials when they have never been right. We have a 46 year history of them being wrong numerous times, but we are to believe this is it, this is the one time they finally get things right? Why do all the people that do this for a living disagree with them?

    Two things will hold true, the government can’t afford the promises they have made, the increase in Medicaid rolls will BK the States and the Feds don’t have the cash to step in. And second all the experts will be off by a magnatude of 10. The number of uninsured will increase over present if PPACA is implemented, with or without the mandate. Goverment has never decreased the number of uninsured for any meaningful amount of time and they never will.

    2019 I’ll be back here to tell you I told you so. And complaining about the latest stupid idea for government to solve the problem of 100 million uninsured

  13. 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!!!!

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

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

  16. 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 release, 5-3 to uphold, Kagan recusing, Scalia, Alioto, and Thomas in dissent. (Based on Roberts’ and Kennedy’s voting history on Commerce Clause cases).

    “If the Court finds the individual mandate unconstitutional, the White House will have more actuaries and health economists crunching numbers than you can imagine.”

    Yeah, and every dollar spent on this crap is a dollar not spent providing actual health care.

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