June 19, 2012: From the desk of SHADAC Director Lynn Blewett
The US Supreme Court will rule sometime in June about the constitutionality of the provision in the Affordable Care Act (ACA) that requires every US citizen to purchase health insurance coverage – the so-called individual mandate. The issue in question is whether the US Congress, under its authority to regulate interstate commerce, can require this action of all US citizens.
The Important Role of the Mandate
The individual mandate has been seen as pivotal to getting private health insurance plans to support and offer coverage through the health insurance exchange. The logic behind the mandate is that for exchanges to work, the young and healthy must pay into the system along with those who are less healthy in order to lessen the overall financial impact of the sicker, higher-cost enrollees.
The individual mandate has also been critical in getting private insurance plans to accept additional insurance reforms beyond the mandate. Specifically, with the mandate and its effect of spreading risk more broadly, private insurers are more accepting of the requirement that they provide coverage to anyone who applies regardless of any pre-existing health condition (a concept called "guaranteed issue"). Additionally, private health insurers cannot price premiums higher for people with pre-existing conditions; instead, they must adhere to a modified community rating with no rating based on gender or health status and limitations on rating with regard to age. Unless enough people sign up for coverage in the exchange (as facilitated by the individual mandate), however, insurers would be unable to cover their costs with these regulations in place, and ultimately they could refuse to participate. In fact, the Obama administration has warned that if the individual mandate goes, the guaranteed issue and community rating provisions must also go.
State Options if the Mandate Goes
Loss of the individual mandate does not need to be a deal breaker, at least at the state level. There are several options a state could pursue if the individual mandate, along with guaranteed issue and community rating, are overturned by the Supreme Court.
The idea behind the mandate is to get the healthy people along with the sick to sign up for the coverage in order to spread out the risk. For a state like Minnesota with a fairly stable individual insurance market—due in large part to a well-establish high risk pool, which also bypasses the need for a guaranteed issue rule—the subsidies provided in the exchange might provide sufficient incentive for a wide swath of individuals to purchase coverage in the exchange. The state would have to ensure through regulation that rating rules within and outside of the exchange are the same, and we would need to maintain the high-risk pool separately from the exchange, at least until there is some experience and data to inform whether it makes sense to move the high risk pool into the exchange.
Another option is for a state to implement its own individual mandate under state regulatory authority. Massachusetts, which already administers a health insurance exchange, established its own state mandate for both individuals and employers. States also could implement the ACA’s modified community rating and guaranteed issue policies under state law. If a state were to put regulations in place to support its own individual mandate and its own modified rating and guaranteed issue provisions, the ACA would continue to provide both the start-up funds for the development of the exchange and the financial subsidies to help bring down the costs of the premiums offered.
A third option is for states to design an open enrollment period and encourage people to sign up when they are young and healthy. If an individual chooses to remain uninsured for a year, the cost of signing up would be higher the next year. (This is similar to how Medicare has designed its Prescription Drug program: If you don’t sign up the first year you become eligible for Medicare, the cost of signing up during the next open enrollment period will be higher.)
Moving Forward
Many states can and will move forward with establishment of a health insurance exchange in the absence of the federal individual mandate. Of course, each of the above options would require legislative action as well as a bipartisan approach to the development and implementation of a state-based exchange—an approach that can be difficult. However, abandoning exchange development, even without the individual mandate, would be a wasted opportunity. The federal government is moving forward to develop its own health insurance exchange for states that choose not to act. If we don’t act, we risk giving up a solution tailored from the ground up to meet specific state needs in exchange for a generic federal model. A state-based exchange is the right option in many states--Minnesota among them--with or without a federal mandate for all US citizens to purchase health insurance.