BY GAIL WILENSKY, PHD ON MARCH 30, 2012
The question of whether the Affordable Care Act (ACA) can proceed without the mandate that all US individuals purchase health insurance or pay a penalty if they don’t is just one of several questions the Supreme Court will have to decide by June or whenever it issues its opinion. It depends in part on how the Court looks at the issues that have been brought before it. It is the mandate that is being challenged as being unconstitutional, not the other portions of the bill, as well as whether the ACA’s provision for Medicaid expansion is coercive.
The challenge to the mandate also raises the question of whether the lack of a severability clause in the act—a statement that specifies that if part of the act were deemed unconstitutional the rest of it would still survive—necessarily takes down the rest of the bill. Even if the individual purchase mandate is severable, there’s also the belief by some that the it is so central to the functioning of the legislation that its dismissal would be tantamount to the dismissal of the whole act.
As a policy person and an economist, the answer for me is that the lack of a mandate need not take down the rest of the bill. If the entire bill goes down, it would be far preferable that it be by an act of Congress, as happened with the Medicare Catastrophic Act in 1989, and not by the Supreme Court. Because most of the significant changes regarding ACA-related subsidies and the establishment of state health insurance exchanges don’t occur until 2014, there is ample time for the Congress to make clear its intentions as a result of any action taken by the Court.
If there is no mandate, the most direct concern involves the requirement that insurance offered in the health insurance exchanges be provided without regard to preexisting conditions (prohibiting insurers from charging sick people more than healthy ones for insurance and requiring insurers to offer coverage to all applicants), and that premiums would cost the oldest age group no more than 3 times as much as the premiums for the youngest age groups, which is a narrower range than would occur if determined actuarially. We know that if these provisions continue, they will raise the cost of insurance over what would otherwise occur. We know that because New York and Massachusetts (before their most recent reform legislation) had these provisions without a mandate and have had very high insurance rates.
But of course, New York and Massachusetts also have had extensive mandated benefit provisions as well, which also drives up the cost of insurance. Thus far, the discussions on the essential benefit package seem to suggest that the ACA may be more cognizant of the repercussions from requiring too extensive a benefit package, so the problems should be smaller than those experienced by both New York and Massachusetts, even without a mandate.
The rhetoric we are hearing about the individual mandate makes it sound as though the main reason people purchase insurance is because they are legally required to do so and that without a mandate, few would purchase it. But the vast majority of us who have employer-sponsored insurance purchase it because we desire insurance, are provided access to group insurance, and receive subsidies from the tax system from the employer’s contribution. Some lower-income workers may also receive subsidies from higher-income workers who work for the same employer because of the way premiums are calculated. Since the lower- and middle-income individuals who will be accessing the health insurance exchanges will also be getting access to group insurance and receiving substantial subsidies—frequently more than their counterparts in the employer-sponsored insurance world—the notion that it is only or primarily the mandate that keeps them in the exchange makes no sense.
The current form of the mandate has light penalties on the individual and major constraints on the insurance companies. I could argue that it could as easily exacerbate the “free rider” problem as it is likely to prevent it—especially for people above 3 times the poverty line and our so-called young immortals in particular. Unlike those who will be eligible for Medicaid or for significant subsidies, this “higher-income” group includes the individuals most likely to say “thanks, but no thanks” to the availability of insurance in the exchange since their subsidies will be quite small relative to the cost of medical insurance. Under the rules of the ACA, they know they can wait until they have a major illness, pay what initially is a penalty as low as $100, and purchase insurance with no penalty when they need it.
What Congress could have done—and could still do if the mandate is declared unconstitutional in its present form—is to take a lesson from Medicare. Medicare doesn’t require seniors to participate in Part B, which pays for physician care, or Part D, the outpatient drug benefit passed in 2003. Both require nontrivial monthly premium payments from all but the lowest-income seniors and substantial premiums from the highest-income seniors. Participation is high, close to 100% for Part B—at least in part because seniors know that if they don’t sign up during the first year they turn 65 or after they lose comparable coverage from another source such as employer, they will pay a penalty for as long as they are on Medicare.
In similar fashion, people who don’t purchase insurance the first year it is available on a nondiscriminatory basis could be charged a penalty for 3 to 5 years or some period of time whenever they do purchase insurance, to cover the cost of adverse selection (the technical term for free riding) that they impose on others. There may be other strategies that could be considered that use a combination of incentives and disincentives rather than the “mandate/penalty” combination.
The major irony if the mandate/penalty is regarded as unconstitutional is that the issue probably would have been moot if Congress had been willing to label the penalty as a tax since there is little question about the ability of the federal government to impose taxes. “Hoisted on their own petard” is the phrase that comes to mind.
About the author: Gail Wilensky, PhD, is an economist and Senior Fellow at Project HOPE, an international health foundation. She directed the Medicare and Medicaid programs, served as a senior adviser on health and welfare issues to President George H. W. Bush, and was the first chair of the Medicare Payment Advisory Commission. She is an elected member of the Institute of Medicine.
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