Insurance companies, hospitals, and health-policy watchers are wringing their hands about what will happen if the Supreme Court takes down the individual mandate at the heart of the 2010 health reform law. But it turns out that a different option on the table—one recommended by the Obama administration—could create an even bigger policy headache.
If the justices opt to strike down the law’s mandate to buy coverage, as many Court-watchers think they could, they must then decide what to do with the rest of the law. The administration’s position is that the mandate is too closely tied to two other popular insurance reforms to be separated. If the Court says no to the mandate, administration lawyers argued, they should also eliminate requirements that insurers take all comers and rules that limit how much they can vary premiums to keep premiums from spiraling out of control.
The problem with that? Washington’s top health economists, including those at the Congressional Budget Office, say that position could lead to an even more complex breakdown of the law’s interlocking provisions than just losing the mandate. CBO declined to comment for this story, and the White House also declined to comment on whether it is worried about complications that might result from its position.
But several congressional staffers said that CBO has been asked to score the scenario, and the office demurred, saying it’s too difficult to game out the consequences. According to economists, the scenario is not just complicated, but also potentially expensive—and could lead the estimated $461 billion in insurance tax credits through 2021 to balloon.
That’s because the health care law’s rules for how to calculate subsidies rely on insurance prices being relatively predictable.
Those key rules, known as “guaranteed issue” and “community rating,” mean that insurance companies have to charge every 55-year-old woman the same price for her insurance policy, regardless of health history; her tax credit would be based on her income and the price of the second-cheapest plan on the market. But in a universe where insurance companies could vary prices according to age, raise premiums for those women who have a history of, say, hay fever, or refuse to cover the allergy-stricken altogether, those formulas could easily break down.
“It is unclear to me how that would be translated, because the premium could vary on an individual, person-by-person basis,” said Christine Eibner, an economist at the RAND Corp. who wrote a paper on what would happen to the law without the insurance mandate. “There are all these other assumptions that would have to go into the model, like the size of the subsidy, or what happens if they get denied coverage.”
Linda Blumberg, a senior fellow at the Urban Institute, said she’s also not sure how such a system could work.
“Now you’re going to have this enormous variation in premiums—you can’t predict anything in advance,” Blumberg said. “How does the exchange calculate the subsidy?”
In its filings and oral arguments, the Obama administration has argued that eliminating the guaranteed-issue and community-rating provisions is the only way to salvage the law if the Supreme Court strikes down the coverage requirement.
“Guaranteed-issue and community-rating enacted in isolation create a spiral of higher costs and reduced coverage because individuals can wait to enroll until they are sick,” says a government brief.
When the Supreme Court decided it wanted an advocate to defend eliminating the mandate alone, it had to hire an outside lawyer to argue the position.
If the mandate goes, a clearer picture will emerge of what will happen. Estimates have varied among different policy shops, but every economist who has looked carefully at what would happen if the mandate alone is struck down has predicted that fewer Americans would obtain insurance and premiums would be higher than they would be under the intact law.
Few have predicted the dire “death spiral” that the insurance industry warns about where only sick people would sign up for insurance, and premiums would spin out of control. On that scenario, the CBO did offer a score: without the insurance mandate, the government would save $282 billion as 15 million fewer people sign up for health insurance.
This article appears in the June 21, 2012, edition of National Journal Daily.