June 15, 2012: From the desk of SHADAC Director Lynn Blewett
Health care reform is complex with many interlocking pieces. The jargon and acronyms that permeate the field, creates additional barriers to understanding all the moving pieces. This series of articles will describe the more important constructs of health reform in an attempt to sift through the complexities, the jargon and interlocking pieces; first up - the Individual Mandate.
The first thing to understand about the Individual Mandate is that it is integrally linked to three other provisions included in President Obama’s Affordable Care Act (ACA) - the Health Insurance Exchange, Guarantee Issue and Modified Community Rating. If the Supreme Court rules that the Individual Mandate is unconstitutional, the other provisions may fall as well. These are technical insurance terms integral to the Obama health care reform strategy.
The second thing to know about the ACA is that the insurance reform provisions are designed to provide affordable health insurance to a relatively narrow target population: small business (business with 50 employees or less) and individuals purchasing coverage on their own without the help of an employer. In Minnesota, we’re talking about five to eight percent of the state’s population. From a regulatory perspective, there is less concern large employers as insurance companies are able to price health insurance premiums based on the average risk of a large group. The large number of employees also allows the insurance company to absorb the cost of any one employee having a catastrophic health event. The problem with a small business is that there just aren’t enough employees to get a good, low average premium, especially if some of the employees have a health condition which jacks up the price for everyone.
The Health Insurance Exchange provides for one-stop shopping for health insurance coverage for individuals and small businesses. The idea is to use the Exchange to create a larger enough group so that the average premium offered through the exchange is affordable. Application for coverage will be done via an on-line through a web-based portal. You hop on your computer, find the website, and then enter your age, location, whether you are a tobacco user and your taxable income. You will receive a menu of coverage options and if eligible, the amount that federal government will contribute to the cost of the premium cited.
The Individual Mandate requires all US citizens to have and maintain health insurance coverage and is considered key to the success of the Health Insurance Exchange. The Individual Mandate virtually guarantees that thousands of people will purchase coverage in the new Health Insurance Exchange. The Individual Mandate provision was critical to the political negotiations and was key to getting the buy-in of the insurance companies and an agreement to offer their products in the Exchange. Without the Individual Mandate the insurance companies feared that only people with current health care needs would want to purchase coverage. If only sick people show up, the cost of providing health insurance coverage would be high and two other provisions in the ACA would prevent insurance companies from charging the higher premiums needed to cover their cost. So now is where the other two insurance provisions come in –Guaranteed Issue and Modified Community Rating.
Guaranteed issue is the provision that requires insurance companies to provide insurance coverage to everyone who applies for coverage in the Exchange. Health screening to assess pre-existing health conditions including weight and prior use of services is no longer allowed. Regardless of health condition, the insurance company is required to offer or “guarantee” you an offer of coverage.
There are also new limits on how the insurance company can set its average premium rate for coverage offered in the Exchange. States generally regulate the business of insurance, and have rules regarding how insurance companies set their premiums. Generally, if you are older, sicker or female you cost more (and pay a higher premium) than if you are a young, healthy male. Under the Modified Community Rating Provisions, health plans cannot charge different premiums for males vs. females, and cannot charge higher premiums for those with health conditions. The insurance companies can make some adjustments for the age of the applicant, but only within limits. Under these strict conditions, in order to get insurance companies to offer affordable coverage in the Exchange– a lot of young, healthy people need to show up. The Individual Mandate helps to bring enough people in to form a large enough group and hopefully enough healthy young people to assure a reasonable average premium.
Many argue that without the Individual Mandate, the whole concept of the Health Insurance Exchange could unravel. In fact, the Obama administration has warned that if the Individual Mandate goes, the Guaranteed Issue (the provision that requires health plans to insure everyone at the average rate who shows up at the door) and the Modified Community Rating provisions (which restricts health plans from establishing premiums based on health conditions) must also go. The US Supreme Court will rule on the constitutionality of the Individual Mandate in June. The issue in question is whether the US Congress, under its authority to regulate interstate commerce, can require all US citizens to purchase private health insurance. Whatever the Court decides, it will have a significant impact on whether new affordable options will be available to individuals and small business that do not currently have advantages that large employers do. Next up, the pros and cons of the Health Insurance Exchange.