The Healthcare Law: Can It Work Without A Mandate?

Many view the 2010 health-reform law’s requirement to purchase insurance (or pay a penalty) as the central element in the current Supreme Court case.  After considering this “mandate” itself yesterday, the Court today will debate “severability:”  If the mandate itself is unconstitutional, could the rest of the law stand in its absence?  Or as a Washington Post headline put it today, “Could the health-care law work without the individual mandate?

Public-opinion polls seem to indicate that many people dislike the Affordable Care Act (ACA) as a whole, but like virtually all of its parts – except the mandate.  People do not want to be forced to buy something they do not want or need.  And because many people believe that they are immortal and will be forever young, one thing they do not want to buy is health insurance, which they will never need – or at least will not need until some year in the distant future, which they will know in advance and with certainty.

However, some analysts believe that the mandate is necessary for the success of two other provisions of the ACA: guaranteed access and non-discrimination for pre-existing conditions.  Without the mandate, these analysts believe, the “smart” individual will figuratively apply for insurance in the ambulance on the way to the emergency room, and write his or her letter of withdrawal in the taxicab on the way home.  In the real world, the state of Washington enacted a law providing for guaranteed access at community rates.  An insurance company executive kept on his wall a letter from a woman thanking the company for providing her with insurance even though she had been three months pregnant at the time.  She subsequently had a healthy baby, which she attributed to the fine health care she received.  She terminated her coverage in the letter, but don’t worry, she told the executive; she was a fan, and she and her husband planned to have a second baby in about two years’ time, and as soon as she conceived, she would sign up for coverage again.

The Post article, however, reports that even some supporters of the law believe that guaranteed access at nondiscriminatory rates can work. Those experts cited a line of reasoning and an empirical example as backing for that argument.

Larry Levitt, a health insurance expert with the Kaiser Family Foundation, […] argues there is an important reason that the impact at the national level might not be so dramatic: In contrast to the state laws, the health-care statute will offer millions of Americans generous subsidies to help buy private plans.

This means that many more people — including healthy people — who are not currently buying insurance because of its cost will be prompted to enter the market voluntarily.

“It becomes a much better deal for you. So you are more likely to enroll even without a mandate,” Levitt said.

Paul Starr, a health policy expert at Princeton University, agrees and points to the high enrollment rates for Medicare’s Part B and Part D plans, which cover doctors and prescription drugs; in contrast to Medicare’s hospitalization plan, they are optional.

“Seniors don’t have to sign up, but they do because it’s a good deal,” Starr said.

He also notes that complex “risk adjustment” mechanisms would protect private insurers that end up with a disproportionately sick pool of customers.

The line of reason is that the ACA provides subsidies (admittedly only for low-income persons) to purchase insurance.  The argument goes that people who are eligible for subsidies will perceive health insurance as a good deal, and so many will sign up even if not compelled by a law enforced with penalties.  The empirical example is the experience under roughly similar circumstances with Medicare Parts B (Supplemental Medical Insurance, for doctor coverage in addition to the hospital coverage in Part A) and D (the prescription drug coverage).  Enrollment rates for both programs are relatively high.

I think these arguments are questionable.  The elderly, almost by definition, have figured out that they are not immortal and will not be forever young.  Many are motivated by a concern that their medical bills will be visited upon their children.  My gut tells me that generalizing from the elderly to today’s uninsured is overly optimistic.

Some have described the apparent public preference for guaranteed issue at community rates without a purchase mandate as wishing to have your cake without paying for it.  I think a more apt analogy would be wanting to have your soup without the bowl.  It is possible, but it would be very messy.  In the absence of a mandate, insurers would be highly concerned that they would be stuck with a costly risk pool – even with the ACA’s risk-adjusted premiums for insurance purchased through the exchanges.  As a result, insurers would be likely to price very cautiously.  These higher premiums would make purchasing insurance look even less attractive – even with the subsidies – and so could cause an accelerating spiral of withdrawals followed by still-higher premiums.  The danger of removing only the mandate is far too great.  If a majority of the members of the Court cannot abide the mandate, they must recognize and admit that guaranteed issue at community rates is an impossible dream.

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