Home > Employee Benefits > Can Healthcare Reform survive without the Individual Mandate?

Can Healthcare Reform survive without the Individual Mandate?

The SJC heard three days of oral arguments about the individual mandate last week. The arguments were many: Do prior laws prevent us from even discussing it? Is it constitutional? Is it severable from the rest of the law? First I want to take a step back and say that I feel very fortunate to live in a country with the kind of government that thinks very carefully about our civil liberties, especially after seeing the governing body in The Hunger Games (!). I’ll also say that the Supreme Court Justices could easily rule on the individual mandate either way and back it up with a beautifully written opinion. There were compelling arguments on both sides. The truth is the Justices have already made their decision. We just have to wait until June to find out what it is.

If the individual mandate is to stand, then we move forward with the PPACA we know, in its totality, barring any other changes. Luckily, we have had two years to come to terms with PPACA and its requirements. I think most people know what to expect at this point. 2014 will be a pivotal year for employer groups, that’s for sure.

Conversely, if the individual mandate does not survive, what will that mean for individuals, employer groups, insurers and federal health care reform as a whole? Because the individual mandate provides an important framework, I believe that invalidating it would weaken the remaining law calling into question several other provisions, or “patient protections” and potentially threatening overall affordability of health insurance which we all know is the main goal of healthcare reform in the first place. Some experts estimate that removing the individual mandate will raise premiums an estimated 30% and diminish the number of newly insured by two-thirds (from 27 million additional people insured to just over 16 million). I’ll give you a few examples of why:

The Elimination of Pre-Existing Conditions Limitation

One of the key provisions of PPACA that has already gone into effect is the elimination of pre-existing conditions exclusion clauses in health insurance contracts for children, which is to extend to adults in 2014. Although HIPAA significantly reduced the application of pre-existing conditions clauses in 1996, stopping short of getting rid of them altogether, they still exist and continue to be a nuisance that seems to disadvantage the wrong people at the wrong time. A pre-existing conditions clause is built-in protection for the insurer that they do not have to assume the liability for someone that is already sick, or more specifically, someone that is buying insurance simply because they are sick (a phenomenon in insurance known as adverse selection). Categorically removing pre-existing conditions clauses from health insurance contracts increases the risk that the insurance companies bear, but would be mitigated if everyone had to buy insurance because arguably the insurers could manage the risk with an influx of revenue insulating them. However, without the individual mandate, health insurers will likely increase their rates to offset this anticipated liability, ultimately impacting all of us in a negative way.

Essential Health Benefits

The Essential Health Benefits package is another concern. If the individual mandate is not in place, and insurance companies are not able to offset premium costs with the increased revenue, it may not be possible to make the required Essential Health Benefits package affordable enough for people to buy. The Essential Health Benefits package includes an impressive list of medical services that the law felt constituted “comprehensive care”. Guidance was later released that allowed states to have final say in what the Essential Health Benefits package would look like using the description, “that which is provided under a typical employer plan or a group health plan offered in the small or large group market within a state.” But without affordability, there is really no point in having an Essential Health Benefits package. Who would benefit?

Other States Have Tried It

Furthermore, other states, most notably New Jersey, have tried to enact health care reform without a mandate for individuals to purchase health insurance and failed miserably. According to the Director of the Center for State Health Policy at Rutgers University, “If there is guaranteed issue and no mandate, it essentially spells the end of the health insurance industry as we know it….Eventually the insurance market would become so dysfunctional that carriers would pull out, premiums would go through the roof, and enrollment would collapse. That’s certainly consistent with what happened in New Jersey.” Other states, such as Kentucky, New York and Vermont have all suffered similar fates ending up with, skyrocketing premiums, lower enrollment rates or a combination of the two. This is what happens when you don’t have the political and legislative support to go all the way with it. As with many tough choices, if there is a happy medium available, it is usually more appealing to the masses, but far less effective. By contrast, in 2006, Massachusetts passed bold healthcare reform measures that included an individual mandate. Statistics show that more than 98 percent of residents are currently insured and premiums in the individual market have fallen by 50 percent (relative to national trends). Furthermore, premiums in the group market are not increasing any more than they were before the reforms began.

On the upside, some economists speculate that the law will make a significant difference in health care in this country even without the individual mandate. For example, data from The Rand Institute suggests that eliminating the mandate would have “little effect “on premiums for individuals. Furthermore it’s fair to assume that Congress would find other ways to make participation in the insurance markets attractive to consumers, perhaps by implementing periodic “open enrollment periods” like those in place for Medicare.

Maybe it’s because I’m from Massachusetts and I’m already living with an individual mandate to have health insurance, but I do not think it is unconstitutional. If requiring everyone to have health insurance reduces overall costs, increases patient protections and ensures quality of healthcare, then I am all for it. If health insurance coverage is optional, there will always be those people who choose not to buy it, even if they can, and the effects of that roll down an entire society of consumers who face large premium increases in order to either directly or indirectly fund uncompensated care pools. Quality health care, though not a birth right, is something that everyone should be able to access affordably.

(Visit WGA’s Health Reform Advisory Corner for the most up to date information on health reform.)

About the Author

Sara LaVallee is a Senior Vice President at WGA, where she focuses on full-scale service to large groups. Her role involves the handling of all lines of coverage in an account management and retention capacity. She is also a key member of the Health Reform Advisory team at WGA.

617.646.0355 SLaVallee@wgains.com  Connect with Sara on LinkedIn


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