What would individual health insurance cost if the court strikes the mandate down and still requires insurers to cover everyone?
With the Supreme Court justices sounding like they might strike the mandate down, this is a question I’ve been getting a lot lately.
I have pointed to New Jersey as a real life example of what can happen when insurance reforms take place but there is no incentive for consumers to buy it until the day they need it.
In 1992, New Jersey passed health insurance reform that required insurance carriers to either offer individual health insurance on a guaranteed issue basis or pay an assessment to carriers that did. Other elements of the legislation were:
- Guaranteed coverage and renewability for all eligible people regardless of their health status. A pre-existing condition exclusion does allow insurers to limit coverage during the first 12 months (a limitation which is not contained in the Affordable Care Act).
- Guaranteed renewal of policies, provided (1) the insured does not become eligible for coverage under a group plan; (2) premiums are paid in a timely fashion; and (3) no fraud is committed by the insured.
- Community rating of the premiums, with variation allowed only for family status (single, adult plus child, husband and wife, and family). (The Affordable Care Act allows rate variations of up to three times from young to old.)
- Standardized insurance plans, referred to as Plans A, B, C, and D (indemnity options) and a single HMO plan.
Sharp questioning in oral arguments before the Supreme Court raised serious questions about whether the “individual mandate” — the requirement that people carry health insurance — will survive.
At issue is Obamacare’s central requirement that every American buy health insurance or pay a penalty. Critics say this is an unprecedented expansion of federal power — that if the government can force people to buy insurance, it can force them to buy anything.
Supporters, including me, say the mandate is just a logical extension of federal authority to regulate this market — a market that everyone eventually participates in at one time or another. We also know that if the mandate is struck down chaos is inescapable.
Under one scenario, the court would invalidate the requirement while leaving the law’s many other rules and regulations in place.
In that event, insurance companies would have to insure anyone who asked for coverage — but they would be barred from charging premiums equal to a best guess of what the new customers will cost.
Limiting how much insurers charge can work, but only if the mandate is in place — if everyone, the healthy as well as the sick, has to have insurance. It can’t work if people can go without insurance until they get sick and only then call up their friendly insurance broker and say “Cover me.”
So, Congress would have to do something. But what? One option would be to repeal the parts of the law that the Supreme Court left standing. Finding the votes to repeal the health reform is unlikely, as the next Congress is almost certain to be closely divided.
Being in limbo is never a good feeling – it’s in our nature to make decisions, feel comfortable, and find solid ground. So many state leaders may be feeling uncertainty and hesitancy now, as they weigh the pressure to move forward with building a health insurance exchange with the knowledge that the Supreme Court will soon weigh in on the future of the regulations. As my peers have pointed out recently, states are taking different approaches to handling being in limbo. Some are moving forward with confidence, some are testing the waters, and others are doing nothing – determined to wait and see.
One thing is certain, however – there is an opportunity for states to examine how to best use technology and solutions to serve people, regardless of how the regulations play out. As the researchers at Urban Institute point out in this New York Times article by Robert Pear, the states currently making the least progress toward an exchange are actually the ones that could benefit the most from an Exchange, because they have large numbers of uninsured residents.
States can move forward now with the following considerations, which will be helpful in either the event that the health insurance exchange mandate is upheld and they are asked to move forward, or in the event that they have more flexibility, but still need to use technology to best serve their citizens.
Imagine that you’re being required to buy a car. You will have to pay for most of it, but you can’t choose exactly what you want. There are so many restrictions on your options that you’re forced to choose from a few used, four-cylinder, two-door sedans with manual transmissions. And there’s one more catch: If you don’t choose one yourself, the dealer will decide for you.
It’s not an enviable position to be in, but most of us would grudgingly decide that if we have to get one of the cars, it’s better to have a small say in what we get than to have someone else decide for us.
This is the same predicament that many state policymakers find themselves in regarding the creation of health insurance exchanges.
Health insurance exchanges are a key part of the health reform law. Supporters argue that exchanges will provide consumers with valuable information on their coverage options, while at the same time providing stricter regulation of health insurers. They are also the only way people can benefit from the lavish subsidies included in the law.
On Monday, the Department of Health and Human Services released a final rule governing the exchanges. The rule sets an ambitious timeline for getting the exchanges up and running in every state by January 1, 2014. Between now and then, states can either build their own exchanges and tailor them as much as federal law will allow or decide not to build exchanges at all.
But there’s a catch: If states don’t build their own exchanges, the federal government will do it for them.
Former Gov. Mitt Romney has taken considerable heat during the Republican primaries for the health-care legislation that passed while he was in office.
Sadly, election-year politics have overshadowed the real lessons of Massachusetts’ experiment.
The core question then-Gov. Romney was trying to answer was this: Should Massachusetts continue to pay hospitals more than $1 billion a year to care for the poor, or should it create a way for individuals to purchase their own insurance?
Romney’s original proposal was simple: Stop subsidizing expensive hospital care and instead require all residents to carry at least catastrophic insurance. Anything beyond that would be a matter of individual choice. The idea was to prevent taxpayers from having to pick up the tab for people unable or unwilling to pay for their own medical care.
To facilitate reform, Romney’s plan established a central agency, an “exchange,” where individuals could buy health insurance directly.
Though the overwhelmingly Democratic Legislature amended Romney’s proposal, the new law, if properly implemented, could have made the health-care market far more customer-focused.
But that didn’t happen. Just months after the law was passed Romney’s successor, Democrat Deval Patrick, became responsible for implementing the 2006 law. Since then, almost every key bureaucratic decision has leaned toward government control and away from individual decision-making and the market.
For example, the exchange’s idea of “minimum coverage” is equal to some of the most generous plans in other states. Additionally, roughly 40 percent of the people in the exchange pay no monthly premium for insurance, while small businesses have been hit with a variety of onerous requirements. Instead of creating a market with many choices, insurance has been over-standardized and the number of available plans limited, curbing innovation in plan design.
State after state is refusing to implement ObamaCare’s health insurance Exchanges. Republican David Merritt hopes they will “grudgingly decide” to change their minds.
Merritt is a health care adviser to Newt Gingrich. He is also a senior adviser at Leavitt Partners. Leavitt Partners is a consulting firm that makes money by helping states implement ObamaCare. In the Daily Caller, Merritt tries to persuade state officials to help implement a law they oppose.
Merritt begins his pro-Exchange argument like so: “Imagine that you’re being required to buy a car.” Would you rather choose that car yourself, he asks, or would you rather the dealer choose the car? Hmm, good question. I choose Option C: wring the neck of whoever is requiring me to buy a car. Not Merritt, though. He counsels states to choose their own “car.”
There are so many problems with this analogy that it’s hard to list them all. First, as Merritt essentially admits, states would be able to choose from such a narrow range of “cars” that it scarcely makes a difference whether they pick their own or let the feds do it. Second, states would only have to pay for their “car” if they pick it out themselves; otherwise, the feds pay for it. So Merritt is literally urging states to volunteer to pay for a “car” when the feds would otherwise hand them one for free. Finally, he says states should select their own “car” even though “no one knows what a federal [car] would look like.” How can Merritt counsel states to choose Option A if he admits he doesn’t even know what Option B is? Wouldn’t the prudent course be to wait and see? Especially since the Obama administration admits it doesn’t have the money to create Exchanges itself?
Merritt’s hypotheticals don’t make his point, either:
With less than two years before state-based health insurance exchanges are to be operational, most state legislators and health policy experts still cannot come to an agreement on how to set up, operate, monitor or fund state exchanges. However, despite persistent confusion and concerns surrounding health insurance exchanges, the White House recently released a report on the progress of state-level health insurance exchanges. This publication took a favorable and possibly misleading view of the headway being made by states that are creating their online insurance marketplaces.
The Administration claimed that there are currently 28 states making great progress in establishing an exchange. Even if that were true, this indicates that 22 states -or about 40 percent- are refusing to comply with the Patient Protection and Affordable Care Act (PPACA).
Although the report does not lie, it also doesn’t exactly accurately portray where most states stand either… The Administration chose to furtively count states that fall into a grey area as making progress toward setting up an exchange. Many states have, in actuality, refrained from any legislative activity or the state legislature has merely set up a committee to “study options”. What this really indicates is that many states are purposefully not complying with the PPACA mandate to create an exchange, but also managing not to violate it so that they are allowed to keep federal funding, at least until the January 2014 deadline.
What makes the contraception coverage debate currently raging in Washington unusually problematic is that both sides are exactly right. Female employees who receive part of their cash compensation in the form of health benefits have the right to benefits that include FDA-approved birth control methods. Employers defined by their religious values—not just churches, synagogues, and mosques, but also thousands of hospitals, universities, and charities—should not have to compromise those values with their own money, and the government has no right to trample the First Amendment by compelling them to do so. The Obama administration’s “accommodation” —shifting the new federal requirement to the insurers who administer those organizations’ health plans—is a cynical shell game that ignores the most basic tenets of business accounting.
As the problem is no more complicated than two sets of equally valid rights in direct opposition, neither is the solution all that complicated, at least in principle: employment and health insurance should have nothing to do with each other.
Unfortunately, this arrangement—a relic of the World War II civilian wage freeze and enshrined in the tax code as soon as workers got a taste of this new-fangled “fringe benefit” of employment—is now an enduring part of the U.S. healthcare system. The entanglement of our health insurance with our employment goes a long way toward explaining not just today’s conundrum over the birth control coverage mandate, but myriad other economic distortions, market dysfunctions, and cultural conflicts that define much of what is wrong with the U.S. healthcare system.
The Obama administration’s ‘accommodation’ last week is a cynical shell game that ignores the most basic tenets of business accounting.
You know we have entered the silly season when a major national debate gets underway over whether people should be given something for free that they could easily pay for out-of-pocket. Take the decision of the Obama administration to force Catholic universities, hospitals and charities to provide health insurance that includes free contraceptives. The reaction was poignant and hyperbolic, but (what can I say?) completely deserved:
What makes this so amazing is that it is déjà vu all over again, as Yogi Berra might say. Do you remember the death knell for HillaryCare? I bet you can’t.
Mammograms and Pap smears. Hard to believe, isn’t it?
[Yes, I know. There were many things that helped derail HillaryCare. The biggest mistake was the White House’s failure to throw everything aside and endorse the Senate Republican health plan, which was about as close to HillaryCare as RomneyCare is to ObamaCare. Hillary would have ended up with about 90% of everything she wanted. More about that, perhaps, in a future Alert.]
Reductions in the cost of genetic testing and improvements in what we know about what it tells us produce obvious benefits; if you know you are likely to have some particular medical problem, you may be able to take precautions against it. But they also have at least one potential downside.
The more is known about the chance of bad things happening to us, the less able we will be to insure against them.
A solution to this problem that is sometimes proposed is to permit individuals to have their genes tested but forbid insurance companies to require testing as a condition of insurance or to use the information it produces. The problem with that is adverse selection. If the customer knows his risk and the insurance company doesn’t, high risk and low risk customers are charged the same price, making insurance a good deal for the former and a bad deal for the latter. Insurance companies, realizing that most of those who choose to buy their insurance are bad risks, will charge accordingly, driving more of the low or average risk customers out of the market. In the limiting case, insurance is bought only by high risk customers, at a high risk price. A famous description of the problem is Akerlof’s article “The Market for Lemons.”
If we allow both insurance companies and their customers to make use of genetic information, then both high risk and low risk customers can buy insurance, but at different prices. The risk of having genetic variants that make you more likely to suffer some expensive medical problem is uninsurable, although you can still insure against the risk that, given those genes, the problem will actually appear.