FOUR POSSIBLE SCENARIOS UNDER ALTERNATIVE SUPREME COURT DECISIONS
June 21, 2012
The upcoming Supreme Court decision on the Affordable Care Act could lead to one of several scenarios. We
outline the four most likely and describe their implications; we assume that the Medicaid expansion would not be
overturned by itself.
ONE: THE ENTIRE LAW IS UPHELD
Full implementation of the ACA would ultimately lead to 26 million fewer uninsured people, Medicaid
eligibility for poor and near-poor adults in all states, subsidies for people with low and moderate
incomes, access to adequate and affordable coverage in the nongroup market regardless of health
status, and small group and nongroup insurance markets structured to enhance competition based on
price and quality.

The leading states will continue to make progress as they are now doing, moving to fully implement in 2014.

Lagging states will need to move very fast to catch up by January 1, 2014, probably faster than practically
feasible. Some states may still resist movement in hopes that the presidential election will result in a
complete repeal of the law.

A major question arises as to whether the federal government can successfully implement federally
run exchanges or partnership models in the large number of states where this will be necessary by
January 1, 2014.

In addition, a question arises as to whether states will have sufficient provider capacity to meet the increased
demand by January 1, 2014.

Upholding the law raises the further question about whether there will be legislation to allow delays
in implementation in selected states. Passing legislation of any kind related to the ACA will be
challenging, to say the least. And if delays are not permitted, it is unclear how state readiness will be
assessed, particularly with respect to the Medicaid expansion, and what type of action CMS would take if
states are not ready to enroll new Medicaid eligibles or to determine eligibility for exchange-based subsidies
and enroll individuals in those plans by January 1, 2014.
TWO: ONLY THE MANDATE IS OVERTURNED
Many more Americans will have coverage than without the ACA, and insurers won’t be able to
discriminate against people with preexisting conditions. However, the total number of uninsured will be
higher (compared to the legislation with a mandate). Federal spending will be lower, but so will the
efficiency of federal spending. That is, each $1 million of new spending will cover fewer uninsured than
under the ACA with a mandate.

Insurers will likely be up in arms; they won’t want guaranteed issue and modified community rating
with no mandate and a smaller, somewhat sicker pool of enrollees.

Coverage will still increase significantly because of the Medicaid expansion and the exchange
subsidies, although the increases will be lower under both than with a mandate. Take-up of Medicaid
coverage will likely be lower without a mandate, so Medicaid enrollment increases will be lower. Without a
mandate, enrollment increases in the exchange will be about half as large as the increases projected with a
mandate.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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
Absent additional action, nongroup premiums (both inside and outside exchanges) would be higher
without a mandate than with one, but the nongroup market should not devolve into a “death spiral.”
Small group premiums (again, both inside and outside exchanges) would be higher than under the mandate
case as well, but the difference between the two scenarios is likely to be smaller in small group than in
nongroup insurance. Much will depend on how well exchanges work to encourage plan participation and
facilitate outreach and enrollment of the uninsured, ease of access to subsidies, strategies to prevent
adverse selection, and so on. The Administration will have the authority, without new legislation, to take
significant steps encouraging enrollment, including outreach to relatively healthy populations.

Total federal spending will decline, compared to the ACA with a mandate, because fewer people will
receive Medicaid and subsidized coverage in the exchange. On the other hand, average federal
spending per newly insured American will increase. Higher premiums in the nongroup market mean
higher federal subsidies per subsidized enrollee in the exchange because subsidies are linked to the
level of nongroup premiums in the exchange. Average cost-sharing subsidies will also increase, as those
enrolling will be lower income and have more health needs, on average, than in the mandate case. Average
Medicaid costs will rise, since the case mix will be sicker than with a mandate. And among people ineligible
for subsidies, fewer will enroll without a mandate.

States may continue resisting implementation, hoping that the presidential election will result in a
complete repeal of the law.

Congressional action, if it occurred, could reduce the risk-selection problems associated with not
having a mandate through such policies as late enrollment penalties, highly streamlined enrollment
procedures, and a period of preexisting condition exclusions for people uninsured after March 2014,
the end of the first open enrollment period. The combination of these strategies could be more punitive
from the perspective of consumers than the individual mandate. Any of these policy changes, however,
would require federal legislative action to implement. Legislative cooperation would require compromise
between Democrats insistent that the law be maintained and some Republicans responsive to pressure from
the insurance industry.

Individual states could impose their own mandate with penalties (as Massachusetts has done),
although only a small number of states are likely to find this politically attractive. Doing so, however,
would place a state’s nongroup and small group markets back into the scenario predicted for full
implementation of the ACA. States probably will not have the option to impose late enrollment penalties or
preexisting condition exclusions on their own because the ACA forbids adjusting premiums for factors other
than age, geography, and tobacco rating and explicitly prohibits preexisting condition exclusion periods.

If federal legislation is elusive and states do not impose mandates on their own, premiums in both
the small group and nongroup markets will be higher than expected with the mandate, due to
adverse selection. For individuals and families subsidized through the nongroup exchange, most of the
resulting premium difference will be borne by the federal government due to the structure of the low-income
subsidies. For the unsubsidized and for the small group market, consumers will bear the additional costs.

Multistate plans (those administered by the Federal Employee’s Health Benefits Plan) could become
important to the extent that commercial insurers do not want to offer coverage in the exchange
without a mandate. Fears of adverse selection could mean fewer carriers participating in these markets
and higher enrollment in the federally contracted plans. These multistate plans may or may not be
associated with new carriers in a state, and one could theoretically be constructed as a federal self-funded
plan, although OPM’s specific intentions in this regard have yet to be released. It might be difficult for OPM
to find a carrier willing to bear risk and participate under these conditions, although risk-adjustment,
reinsurance, and risk corridors could help. Such a situation might create a strong impetus for a federally
administered self-insured plan.

Policy consideration should be given to explicitly subsidizing excess risk associated with those
enrolling in the nongroup market. While we do not expect elimination of the mandate alone to destroy the
nongroup or small group markets, they will be more expensive for the unsubsidized population than under
the mandate, and insurers may overestimate, at least initially, the level of risk that they face participating in
these markets. Legislative action may be required to develop an additional federal subsidy program that
would go beyond risk-adjustment, reinsurance, and risk-corridor programs in compensating for higher than
average cost enrollment in these markets, stabilizing insurer participation and improving affordability for all
enrollees. Such an approach would strengthen the framework for maintaining modified community rating,
guaranteed issue, and other insurance reforms important to improving access and affordability to
populations with significant health care needs.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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
Just as is the case if the law is upheld in its entirety, a major question arises as to whether the
federal government can successfully implement federal exchanges or partnership models in the large
number of states where this will be necessary by January 1, 2014.

In addition, a question arises as to whether states will have sufficient provider capacity to meet the
increased demand by January 1, 2014.

This decision also raises the further question about whether there will be legislation to allow delays
in implementation in selected states. Passing legislation of any kind related to the ACA will be
challenging, to say the least. And if delays are not permitted, it is unclear how state readiness will be
assessed, particularly with respect to the Medicaid expansion, and what type of action CMS would take if
states are not ready to enroll new Medicaid eligibles or to determine eligibility for exchange-based subsidies
and enroll individuals in those plans by January 1, 2014.
THREE: THE MANDATE AND INSURANCE REFORMS ARE OVERTURNED

Much depends upon which reforms are overturned: just guaranteed issue and modified community
rating, or in addition to those reforms, actuarial value standards, essential health benefits, risk
adjustment, rules about relative pricing in and out of the exchanges, and so on. It is hard to imagine
the Supreme Court picking and choosing among these reforms. In their argument against severability (the
ability to sever the mandate from insurance reforms), the Administration focused on guaranteed issue and
modified community rating alone. These are thus the insurance reforms most likely to be overturned with the
mandate if the justices are convinced by the Administration’s arguments.

Although insurers could discriminate against people with preexisting conditions, the remaining
health reform law would still greatly reduce the number of uninsured by expanding Medicaid to serve
poor adults and subsidizing the uninsured who have incomes slightly above Medicaid eligibility
levels. Also continuing would be measures to slow cost growth by testing new methods for organizing and
paying for medical care, measures to improve Medicare by limiting the “donut” hole and paying for
preventive care, and many other policies. Most important, an infrastructure for a reformed health insurance
system would remain in place, which a future Congress could improve by restoring insurance reforms,
coupled with incentives, like those described above, to encourage enrollment by healthy consumers.

Depending on how HHS interprets the decision, the subsidy system for low- and moderate-income
nongroup enrollees could be impaired or even become unworkable, especially for consumers with
health problems. Subsidies are linked in the ACA to the second-lowest cost premium for silver
coverage available to an individual or family. With medical underwriting, variations in premiums
according to individual characteristics would persist, meaning that identifying the second-lowest
cost plan in a way reflective of premiums facing any individual or family would be extremely
challenging. Using a premium for a healthy person to determine the subsidy level would substantially
increase financial burdens on individuals with less-than-perfect health, relative to the intent of the law, unless
the exchange can develop new rules to limit the financial exposure faced by consumers charged higher-than
-average premiums, in which case federal subsidies for those individuals could become very costly.

Without a mandate or insurance reforms, the total number of uninsured would be higher than under
the mandate case. Federal spending would thus be lower as well, but so would the efficiency of
federal spending. That is, each $1 million of new spending would cover fewer uninsured compared to the
ACA with a mandate and health insurance reforms. In addition, federal spending would be more highly
concentrated on healthy enrollees if carriers are permitted to exclude those with health problems from
nongroup market coverage, as they do today in the vast majority of states. As with the previous case, total
federal spending would be lower than under the ACA as passed, while average federal spending per newly
insured American would be higher.

Creating an insurance market environment with conflicting risk-selection incentives for insurers
could make people with preexisting conditions worse off than today, in some cases. For example,
eliminating guaranteed issue and modified community rating but leaving essential health benefit and
preexisting condition exclusion prohibitions in place may increase the rate of denials of nongroup coverage
compared to today. Eliminating benefit exclusions and prohibiting preexisting condition exclusions will likely
lead insurers to rely more heavily on the risk-selection strategy that they have available, which is denial of
coverage outright. The public may have a surprising reaction to the lack of available coverage. Those who
liked the idea of ending discrimination against people with preexisting conditions may find it surprising that
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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these protections are no longer available without full implementation of the ACA— that they were linked to
the mandate in the Supreme Court decision. Ironically, the ACA’s least popular provision—the individual
mandate—was closely tied to perhaps its most popular provision—ending discrimination against people with
preexisting conditions.

Small employers and their workers would also be very adversely affected by this outcome. Small
employers are the least likely to offer health insurance coverage to their workers today, and their
workers are among the least likely to have insurance coverage. Creating a stable, affordable, and
accessible nongroup insurance market under the full ACA provided clear advantages for small employers
and their workers. Today, small employers face significant barriers in obtaining insurance coverage for their
workers: they have a workforce with lower average incomes; they face higher administrative costs of buying
coverage due to small group size; and their size provides little opportunities for sharing risk, so year-to-year
premium variation is much larger than for large employers. These disadvantages often make small
employers less competitive for labor relative to their larger counterparts.
Under the full ACA, workers in small firms would have guaranteed access to affordable, adequate insurance
coverage through the health insurance exchanges. Exchanges give workers a reasonable and attractive
alternative to large employer coverage, making employment in a small firm significantly more appealing. By
eliminating guaranteed issue and modified community rating, many of those workers would not have such an
alternative, relegating small employers to their existing competitive disadvantage in hiring the most qualified
workers. And owners of small business, who are often older than their workers and very poorly served by the
individual market, would lose the benefit of the ACA’s insurance reforms.

States currently funding their own high-risk pools for medically uninsurable people may need to
continue those pools. State officials have largely been presuming that such funds could be redirected to
other state needs once the ACA was fully implemented. Removal of the insurance reforms would have
important implications for such decisions as these types of individuals would again by excluded from the
private insurance markets, and, as noted above, the number being refused coverage could actually
increase. Support for additional federal funding to expand the capacities of these generally small and highcost programs may materialize.

The elimination of insurance reforms could work to maintain small carriers in the market that have
been profiting from risk selection under current rules but would likely be unable to operate profitably
under full implementation of the ACA. Even if the Medical Loss Ratio and Essential Health Benefits are
maintained, carriers are likely to be able to meet the requirements and remain profitable by just enrolling
healthier individuals, particularly if risk adjustment is not sufficiently effective.

The incentives inherent in the ACA that could stimulate competition based upon price and quality
would largely be eliminated, as savings from avoiding the high cost would swamp the financial
implications of better management of care. Risk adjustment, if maintained, could mitigate some of this
effect, but it is unlikely to be sufficiently effective under these conditions to reverse the incentives.

Multistate plans (those administered by the Federal Employee’s Health Benefits Plan) could become
important. Fears of adverse selection could mean fewer carriers participating in these markets and higher
enrollment in the federally contracted plans. These multistate plans may or may not be associated with new
carriers in a state, and one could theoretically be constructed as a federal self-funded plan, although OPM’s
specific intentions in this regard have yet to be released. It might be difficult for OPM to find a carrier willing
to bear risk and participate under these conditions, although risk-adjustment, reinsurance, and risk corridors
could help. Such a situation might create a strong impetus for a federally administered self-insured plan.

Some insurance reforms are sufficiently popular that, even if they are overturned as part of a broad
judicial action, political action may put them back in place, and insurers could offer them voluntarily
(as some have already promised to do). Examples include the ability to enroll dependents up to age 26 on
their parents’ policies; coverage of some preventive services without copays; and the prohibition against
cancelling insurance policies when people get sick, except for cases of fraud in the applications.

As noted above in the no-mandate case, states could take steps on their own to implement an
individual mandate with penalties comparable to those in the ACA, and they could also legislate
insurance reforms that are struck down by the Supreme Court. Doing so would place those states back in
the scenario of full ACA implementation.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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
The nongroup and small group markets would likely remain as they were before the ACA was
passed, which means that people with preexisting conditions would often be unable to get coverage,
and, if they could, they would face very high premiums. Older adults would be affected similarly
because they have higher expected costs. Risk selection would remain a serious problem, particularly in
the nongroup market but also significantly in the small group market. Denials of coverage and large
variations of premiums would continue in the nongroup market. Small group insurance was already
guaranteed issue in every state before the ACA, but premiums in most states can still vary substantially
across small employers due to health status rating, and large swings in annual premiums impact these
employers’ ability to offer. Federal subsidy costs for young people would be lower without the insurance
reforms because the ACA’s age-rating bands would tend to lower premiums for older adults and raise them
for younger adults, but the premium differences would be largest for older less healthy people.

Those with incomes below 400 percent of the federal poverty level (FPL) who could get a policy (i.e.,
who are not denied coverage due to health status, claims experience, etc.) and who are eligible (i.e.,
do not have an affordable employer-sponsored insurance offer) would be financially protected by
subsidies that cap premium liabilities relative to income. Those with incomes above 400 percent of FPL
will see higher premiums relative to the scenarios with the ACA’s insurance reforms upheld if they have
current or past health problems or if they are older, due to the elimination of limited age-rating bands and the
prohibition on health status–related rating. The same is true of younger Americans with health problems
whose incomes are over 400 percent of FPL, since premiums will be able to vary based on health risk.

“Job lock” will continue—that is, some people who would prefer to change jobs or start a new
business will instead remain with an employer to retain access to health insurance. Some individuals
would continue to make employment decisions based upon health insurance concerns as opposed to taking
the job with the best fit for their particular skills.

This decision also raises the further question about whether there will be legislation to allow delays
in implementation in selected states. Passing legislation of any kind related to the ACA will be
challenging, to say the least. And if delays are not permitted, it is unclear how state readiness will be
assessed, particularly with respect to the Medicaid expansion, and what type of action CMS would take if
states are not ready to enroll new Medicaid eligibles or to determine eligibility for exchange-based subsidies
and enroll individuals in those plans by January 1, 2014.

As before, some states may continue resisting implementation, hoping that the presidential election will
result in a complete repeal of the law.
FOUR: THE ENTIRE LAW IS OVERTURNED

Recent research identifying trends in coverage, access, health care spending, and affordability have
shown definitively that, over the past decade, coverage, access, and health care affordability have
deteriorated, while health care spending has continued to grow faster than incomes and GDP.
Moreover, these issues disproportionately affect low-wage workers and those who are sick. Without
significant reforms, such as those contained in the ACA, there should be no expectation other than that
these trends will continue and that circumstances will continue to worsen for many individuals.

First-dollar coverage for preventive services in Medicare and private coverage would be eliminated;
coverage of Medicare prescription drugs in the so-called “donut” hole would be eliminated; funding for
medical homes, health homes, and other payment and service delivery demonstrations would be eliminated;
and enhanced funding for community health centers would be eliminated, along with an array of other
initiatives.

Without the Medicaid expansion, uninsured rates among the low income, particularly poor childless adults,
will remain high and grow, and there will continue to be substantial variation across states in uninsured rates
and uncompensated care burdens.

Those with health problems and those with low or modest incomes would be those most severely
affected by the law being completely overturned. Job lock, medical underwriting, and difficulties for the
sick in securing coverage would persist, and large government financial burdens associated with
uncompensated care would continue to grow unabated.

States would be unable to save money by shifting the cost of uncompensated care to the federal
government.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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
Small employers and their workers would also be very adversely affected by this outcome. Small
employers are the least likely to offer health insurance coverage to their workers today, and their
workers are among the least likely to have insurance coverage. Creating a stable, affordable, and
accessible nongroup insurance market under the full ACA provided clear advantages for small employers
and their workers, as discussed in the previous section. Under the ACA, workers in small firms would have
guaranteed access to affordable, adequate insurance coverage through the health insurance exchanges.
Exchanges give workers a reasonable and attractive alternative to large employer coverage, thus making
employment in a small firm significantly more appealing. By eliminating guaranteed issue and modified
community rating, many of those workers would not have such an alternative, relegating small employers to
their existing competitive disadvantage in hiring the most qualified workers.

The ACA cuts in Medicare payments would be overturned. They may be reenacted and used for
deficit reductions. The Medicare payment/delivery reform demonstrations would presumably end.

The delivery system reform momentum that has developed over the past few years may well continue, but
without CMS leadership and at a considerably slower pace.

To the extent that they are already in place and they have sufficient federal funding going forward,
the IT systems that states have been developing will be a lasting benefit to the Medicaid/CHIP
programs.

Some states may continue to try building exchanges, but the absence of federal funding for the
development of the exchanges and for the subsidies could make large-scale transformation unlikely;
in addition, exchanges without financial assistance are unlikely to attract sufficient enrollment to
remain viable or to make significant impacts on insurance markets.

Complete overturn is likely to mean there will be no attempt at serious coverage expansion for a
long time. There will be efforts to scale back Medicare and Medicaid, likely by advocates of Medicare
premium support and Medicaid block grants. Federal budget deficits will increase, since the ACA’s
revenue-raising measures exceed the ACA’s spending increases. This will make it more difficult for
Congress and the President to address the coming “fiscal cliff” at the end of 2012.

States could well reduce Medicaid enrollment relative to today given that the ACA prohibitions on eligibility
reductions would be eliminated and financial pressures on state budgets are likely to continue. States that
have already expanded Medicaid coverage in advance of 2014 may need to roll back those expansions.

Medicare beneficiaries may be surprised to learn that they no longer are covered for copayment -free
preventive care and that the “donut” hole for prescription drug coverage is reopened.

Some popular aspects of the ACA may be retained—for example, some private insurers have already
indicated that they plan to continue covering young adults on their parents’ plan even if the ACA is
overturned; it is also possible that some popular provisions, such as coverage of children with preexisting
conditions and prohibitions on dollar limits for annual and lifetime benefits may be continued.
The views expressed are those of the authors and should not be attributed to the Urban Institute, its
trustees, or its funders.
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that
examines the social, economic, and governance problems facing the nation. For more information,
visit www.urban.org.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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Related Publications:
Virtually Every State Experienced Deteriorating
Access to Care for Adults over the Past Decade
Genevieve M. Kenney, Stephen Zuckerman, Dana
Goin, Stacey McMorrow, May 2012
We use the Behavioral Risk Factor Surveillance
System (BRFSS) to explore state-level changes in
access to care over the past for all nonelderly adults
and for uninsured adults. Deterioration in access to
care was evident in virtually every state and the
situation was worse for the uninsured than for other
adults in most states. At the end of the decade, the
uninsured were at a dramatic disadvantage relative to
the insured. This analysis suggests that the potential
benefits of the coverage expansion in the Affordable
Care Act (ACA) are large and exist in every state.
The Individual Mandate in Perspective
Linda J. Blumberg, Matthew Buettgens, Judy Feder,
March 2012
The "individual mandate"-the requirement that
individuals either have health insurance coverage or
pay a fine-is both the best known and the least popular
component of the Affordable Care Act (ACA). That
people know about the mandate-and may even worry
about it-is not surprising, given both the heated political
controversy and the constitutional challenge
surrounding this provision of the law. What may be
surprising, however, is that if the ACA were in effect
today, 94 percent of the total population would not
have to newly purchase insurance or pay a fine. While
a small number of people would be affected by the
individual responsibility requirement, the overall benefit
to the population would be large, in terms of reducing
premiums and increasing stability of insurance
markets.
A Decade of Coverage Losses: Implications for the
Affordable Care Act
Fredric Blavin, John Holahan, Genevieve M. Kenney,
Vicki Chen, February 2012
This study creates a pre-reform baseline trend for an
evaluation of the Affordable Care Act’s (ACA) impact
on health insurance coverage in the United States.
Using the 2000 to 2010 Current Population Survey
(CPS), this brief analyzes coverage trends among
children, parents, and childless adults, overall and by
ACA-relevant income groups. We find that over the
past decade, rates of employer-sponsored insurance
(ESI) have steadily deteriorated across these
population groups, with more substantial declines
occurring among the lower-income categories; all three
population groups saw increases in Medicaid/CHIP
coverage, with children experiencing the largest
increase; and the percent of parents and childless
adults without health insurance steadily increased
whereas the percent of children without health
insurance has slightly decreased.
Eliminating the Individual Mandate: Effects on
Premiums, Coverage, and Uncompensated Care
Matthew Buettgens, Caitlin Carroll, January 2012
The federal requirement for most Americans to have
health insurance-the individual mandate-is an
important part of how the ACA would reduce the
number of uninsured. We use the Health Insurance
Policy Simulation Model to estimate the effects of
health reform with and without the mandate. With the
mandate, the number of uninsured would decrease
from 50 million to 26 million. Without a mandate,
about 40 million would remain uninsured. Depending
on the effectiveness of the health benefit exchanges
in enrolling those eligible for subsidized coverage,
exchange premiums would be 10 to 25 percent higher
without a mandate.
THE BIGGEST LOSERS, HEALTH EDITION
Who Would Be Hurt the Most by a Failure to Enact
Comprehensive Reforms?
Linda J. Blumberg, February 2010
This brief describes the groups with the most to lose if
comprehensive health care reform is not enacted—
people who either lack coverage today or who are
required to pay the most for health insurance and
medical care. These include the self-employed, those
working for small employers, those with health
problems, older working-age adults and early retirees,
the low-incomes, and others without access to
employer-based insurance. Reform's combination of
Medicaid expansions, subsidies for exchange-based
coverage, broader-based sharing of risk, and
administrative economies of scale would make
meaningful coverage affordable for the vast majority
of individuals disadvantaged by the current system.
Health Reform: The Cost of Failure
John Holahan, Bowen Garrett, Irene Headen, Aaron
Lucas, May 2009
This report uses the Health Insurance Policy
Simulation Model (HIPSM) to quantify the
intermediate and longer-term implications if America’s
health care system is not significantly overhauled.
Under a range of economic scenarios, the analysis
shows an increasing strain on business owners and
their employees over the next decade if reform is not
enacted. There would be a dramatic decline in the
number of people insured through employers, and
millions more could become uninsured. There would
be large growth in Medicaid/CHIP enrollment and
spending, and increased spending on
uncompensated health care. Middle-income working
families would be the most affected.
© 2012, The Urban Institute Health Policy Center • www.healthpolicycenter.org
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