The Center
for Health Affairs
Policy Snapshot
November 2011
the Leading Advocate for
Northeast Ohio Hospitals
Of all the provisions in the recently enacted federal healthcare reform law,
none has evoked as much controversy as the law’s minimum coverage
requirement, which requires most individuals to maintain minimum
essential health coverage starting in 2014 or face a financial penalty.
Popularly called the individual mandate, the law’s minimum coverage
requirement is chief among provisions fueling lawsuits and legislative
challenges across the country.
The potential for the individual mandate to ultimately be deemed
unconstitutional has caused many to consider how such a ruling
would impact federal healthcare reform. Can the law achieve its goals
without the minimum coverage provision? With the fate of the law’s
individual mandate in question, experts have begun considering feasible
alternatives should the provision be struck down.
Background
As legal and legislative challenges wind their way through courts and
statehouses across the country, supporters and opponents are carefully
honing their arguments. While supporters argue that the individual
mandate is crucial to creating effective health insurance markets where
risk is spread widely across both the sick and the healthy, opponents
argue that it is not within Congress’ power to regulate inactivity (in
particular, choosing not to purchase health insurance).
The Supreme Court will have the final say in the battle over whether the
federal healthcare reform law, or key provisions of it, pass constitutional
muster. To date, federal appellate courts have reached conflicting
decisions. The Justice Department recently asked the Supreme Court
to hear its appeal of a decision by the 11th Circuit Court of Appeals that
struck down the individual mandate as unconstitutional and severed it
from the remainder of the law, raising the probability that the Court will
review the law and reach a decision prior to the 2012 election.
Federal Health Reform and
the Individual Mandate
Part II: Policy Alternatives
eliminated, 16 million more individuals will become uninsured compared
to current law, bringing the number of uninsured to an estimated 39
million by 2019.2
Not only will the number of uninsured rise in the absence of the individual
mandate, but research also suggests that in the absence of a mandate,
those who enroll in health coverage will be less healthy, on average,
than if the mandate were in place.3 Given the adverse selection that
results in the absence of a mandate, supporters of the law have argued
that many of the law’s insurance industry reforms will be unreasonable
to require of health insurers.
Under current law, insurance companies are barred from turning away
individuals with pre-existing conditions and are required to charge a
common premium to all members of a risk pool. If the individual mandate
is found to be unconstitutional and severed from the remainder of the
law, individuals who need healthcare the most would still have access
to coverage, yet there would certainly be cost implications.
Goal: Lowering Costs
Keeping insurance industry provisions
intact while stripping the individual mandate
from the law creates a market in which
healthy individuals who don’t anticipate
needing health care services face little risk
by waiting to purchase health insurance
until they need it. When fewer healthy
individuals purchase health insurance, yet
insurance companies are required to cover
the sicker individuals that remain in the
pool, it logically follows that costs will rise.
Evidence supports this claim.
Eliminating the
federal healthcare
reform law’s individual mandate is
expected to increase
health insurance
premiums in the
individual market
by an estimated
Without the Individual Mandate, Can Key
Goals of the Law Be Achieved?
While a review of the law by the Supreme Court seems all but
certain, what is less clear is how the Court will eventually rule. If the
individual mandate provision and related financial penalty are deemed
unconstitutional and severed from the remainder of the law, can the law
still achieve its goals?
Goal: Expanding Access to Care
Expanding access to care is a central goal of the federal healthcare
reform law with estimates showing that the law, as enacted, would
provide an additional 32 million individuals with insurance by 2019
and lower the number of uninsured to 23 million.1 A 2010 study by the
Congressional Budget Office (CBO) found that if the individual mandate is
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Eliminating the federal healthcare reform
15 to 20 percent,
law’s individual mandate is expected to
increase health insurance premiums in
compared to
the individual market by an estimated 15
current law.4
to 20 percent, compared to current law.4
Furthermore, in Massachusetts, where a
mandate to purchase insurance is already
in place, insurance premiums in the individual market have fallen 40
percent while rising 14 percent nationally, evidence of the inverse
relationship between mandates and health insurance costs.5
However, while premium costs in the non-group market are expected to
rise if the individual mandate is found to be unconstitutional, there are
expected to be cost savings in other areas. Eliminating the individual
mandate is expected to reduce the federal budget deficit by $252 billion
over the 2011 to 2020 period, compared to current law, with the largest
portion of savings coming from lower Medicaid enrollment.6
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Alternatives to the Individual Mandate
Many health policy experts believe that the individual mandate is crucial
to the healthcare reform law. Yet, as the constitutionality of the individual
mandate has come into question the discussion in policy circles has
turned to ways to encourage voluntary health insurance enrollment,
rather than require it.
Based on interviews with 41 experts, a recent Government Accountability
Office (GAO) report explored policy alternatives to the individual mandate.
A variety of approaches emerged, with experts noting that a combination
of approaches aimed at encouraging voluntary enrollment would be more
effective than any single effort. The report’s authors stressed that experts
did not necessarily believe the alternative approaches were significant
or comparable to what could be achieved with the individual mandate.7
Modify open enrollment periods and impose late enrollment fees
Rather than the typical annual open enrollment periods to purchase
health insurance, some experts suggest that less frequent open
enrollment periods (such as once every 18 months or even once every
two or five years) would encourage voluntary enrollment by reducing the
likelihood that individuals would wait until they needed health insurance
to buy it. Those who failed to purchase health insurance during the open
enrollment period could face a range of financial penalties or restrictions
on access to coverage.
Expand employers’ roles in auto-enrolling and facilitating
employees’ enrollment
Under current law, large employers that offer health coverage are
required to automatically enroll their employees if they do not enroll on
their own, but employees do have the ability to opt out. An alternative
approach would be to expand the auto-enrollment requirement to small
employers in an effort to reduce the number of uninsured. Employers who
do not offer coverage could participate by facilitating their employees’
auto-enrollment into a health insurance exchange (state-run health plan
marketplace).
Conduct a public education and outreach campaign
A targeted public education and outreach campaign designed to teach
specific uninsured groups about the benefits of voluntary enrollment in
healthcare coverage could be launched. Included in the campaign could
be information about various plan choices, costs, and implications of
not enrolling.
Provide broad access to personalized assistance for health coverage
enrollment
To assist individuals in finding and enrolling in the most appropriate health
insurance, one-on-one support could be provided in high-traffic locations,
such as schools, libraries, and pharmacies. Staffed by qualified, licensed
individuals, this type of personalized attention would aim to boost health
insurance participation rates.
Impose a tax to pay for uncompensated care
An alternative to the reform law’s financial penalty associated with the
individual mandate would be to impose a sliding scale tax on all taxpayers
to help pay for emergency room and other uncompensated care
costs incurred by the uninsured. Those individuals who demonstrated
proof of insurance could have the tax waived or rebated. Variations
of this approach include assessing the tax only on those who receive
uncompensated care or, alternatively, on those employers whose
employees are not offered health insurance and incur uncompensated
care costs.
Allow greater variation in premium rates based on enrollee age
Under current law, insurers offering individual or small group insurance
are permitted to adjust premium rates by a ratio of no more than 3 to 1
based on certain factors, including enrollee age. An alternative would
be to allow for greater variation in premium rates based on enrollee
age - such as by a 5-to-1 ratio - to further encourage younger, healthier
individuals to enroll in health coverage.
Condition the receipt of certain government services upon proof of
health insurance coverage
Under another approach, government services could be tied to proof of
insurance coverage. For example, individuals applying for college loans
could be encouraged or required to have health insurance coverage.
Use health insurance agents and brokers differently
Currently, insurance companies pay agents and brokers to sell health
insurance plans. Another approach to encourage voluntary enrollment
would be to develop alternate ways of hiring and compensating agents
and brokers. For example, small employers that don’t offer insurance
or health insurance exchanges could hire agents and brokers to help
employees or the uninsured select and enroll in appropriate plans.
Require or encourage credit rating agencies to use health
insurance status as a factor in determining credit ratings
Individuals could be encouraged to improve their credit rating score if
health insurance status were a factor used to determine credit ratings.
Conclusion
Policy alternatives that have been explored in place of the individual
mandate leave many unanswered questions, particularly since a few of
them haven’t been tested. Some of these approaches, such as imposing
a tax to pay for uncompensated care, would not be palatable to the
same people who oppose the individual mandate because they would
view it in the same vein. Furthermore, some of these approaches incur
additional costs, some of which could be significant, such as for a public
education and outreach campaign.
Whether the individual mandate - and possibly the entire federal
healthcare reform law - is deemed constitutional, or not, will ultimately
be decided by the Supreme Court. If the estimates developed by the
CBO are accurate, the tradeoff that comes from eliminating the individual
mandate and trimming the federal deficit is the cost of more uninsured
individuals and higher health insurance premiums in the individual
market. The coming year promises to be a nail-biter as the fate of the
individual mandate, and possibly the whole federal healthcare reform
law, hangs in the balance.
Endnotes
1.
2.
3.
4.
5.
6.
7.
Congressional Budget Office. “Health Care.” http://www.cbo.gov/publications/collections/
health.cfm
Congressional Budget Office. “Effect of Eliminating the Individual Mandate to Obtain
Health Insurance.” June 16, 2010. http://www.cbo.gov/ftpdocs/113xx/doc11379/Eliminate_
Individual_Mandate_06_16.pdf
Ibid.
Ibid.
Gruber, J. “The House Proposal Lowers Non-Group Premiums.” November 2, 2009.
http://voices.washingtonpost.com/ezra-klein/Gruber%20House%20nongroup%20
premium%20analysis%2011-2.doc
Congressional Budget Office. “Effect of Eliminating the Individual Mandate to Obtain
Health Insurance.”
For a more complete discussion of the pros and cons of each alternate approach, please
see the full GAO report available at: http://www.gao.gov/products/GAO-11-392R