What happens if the individual mandate falls

at 03:44 PM ET, 04/04/2012

If the individual mandate falls, the Washington health policy community is left with a difficult question: What policy, that isn’t a tax penalty, could stand in its place?

Some might say the question is moot. If the Supreme Court rules against the mandate, congressional Republicans will never permit the Obama administration to repair the battered law. But it might not be up to them. If the mandate is overturned but the rest of the law stands, many states might go looking for policy solutions to stabilize the health-care markets that they set up under the Affordable Care Act, but that are now missing the steadying influence of the mandate. And they’ll probably start with a 2011 Government Accountability Office report that lays out nine alternatives to the individual mandate.

The GAO begins by defining the problem the mandate is intended to solve: “A federal requirement may be necessary to prompt many individuals, such as younger, healthier individuals, to obtain coverage they otherwise would forego — particularly once they are guaranteed access to that coverage later when they may need it.” The fear is that without the requirement to buy coverage, young, healthy Americans will skip buying insurance until they’re sick. That will leave only older, less healthy individuals in the pool, and that will mean higher premiums for everybody.

“It’s pretty much about carrots and sticks,” says Cori Uccello, the senior health fellow at the American Academy of Actuaries. “You either want to use incentives or penalties to get to the same goal: Getting healthy people into the insurance pool.”

The Sticks

At the top of the GAO report’s list is setting strict open-enrollment periods, which limit the times at which an individual can purchase coverage. “That’s going to create an incentive, as you wouldn’t have the ability to enroll for a couple of months, or even years,” explains Uccello. “It also protects insurers from people buying insurance on the way to the hospital.” Open-enrollment policies can get increasingly aggressive if they’re set further apart — by two or three years, for example — or for a more limited amount of time.

Open-enrollment is also the policy we know the most about: Medicare, alongside many large employers, use it to stop subscribers from switching policies mid-year should they run into unexpected medical costs. But it’s not a perfect analogy. “Medicare is different because, no matter what, everyone is getting the basic, Part A coverage,” says Paul Fronstin of the Employer Benefits Research Institute. “So I don’t know that you could use Medicare as the best experience.”

Massachusetts has also used open-enrollment periods to strengthen its mandated purchase of insurance. The policy was not included in the original law passed in 2006, but the Department of Insurance saw people dropping on and off of benefits in the individual market. The legislature added an open-enrollment period to that market in 2010.

The GAO does contemplate other types of penalties for those who don’t purchase health insurance, such as taxing uncompensated care or even requiring credit rating agencies to take one’s health insurance status into account. Those could do some work to increase enrollment, but they’re a risk: no one has really implemented them, and so we don’t know how well they’ll work.

“A lot of this is related to behavioral economics and how do you frame choices,” says Fronstin. “I don’t know there’s a lot of real world experience out there on these options, as opposed to opinions about the pros and cons.”

The Carrots

About half of the GAO report is devoted to options to make it easier to enroll in health insurance coverage by taking away financial and bureaucratic barriers. One way to do that would be through employer auto-enrollment, where workers are automatically added into an insurance plan. It would take additional work to opt out. Auto-enrollment has proved to increase enrollment in retiree benefit plans.

Whether it could address the issue of uninsurance, is a different story. Most people with an employer offer of insurance already take the coverage; this policy wouldn’t be able to touch the unemployed, who make up the majority of uninsured Americans.

Another incentive could be allowing insurance companies to charge young people significantly less than older subscribers. This is known, in insurance jargon, as “age rating:” Charging insurance subscribers more based on how expensive their health needs are expected to be. Right now, the Affordable Care Act says that insurance companies can only charge older subscribers three times as much as their younger customers.

Allowing insurers to charge young customers less could, theoretically, net healthy subscribers who tend to eschew coverage. “The thought there is trying to get the younger peoples’ premiums to better reflect their costs, and entice them to buy coverage,” says Uccello.

New Jersey is one of five states that requires insurers to accept all customers, regardless of health status. The state also disallowed any age-rating, mandating that each customer get charged the same monthly premium. Shortly after that requirement passed in 1992, insurance premiums spiked by 415 percent. Looking to bring rates down, the state passed a law in 2008 allowing insurers to charge older subscribers 3.5 times as much as younger ones. The approach, however, was not especially successful. The average individual market premium in New Jersey was $364 per month in 2010, well above the country’s average of $215.

There are smaller carrots that the GAO suggests, too, things like public outreach campaigns and broader access to enrollment assistance. Fronstin, for his part, is skeptical that those could do much to move the needle on a coverage expansion.

“This isn’t like putting out forest fires with Smokey the Bear,” he says. “I find it hard to imagine creating a campaign that would get people to buy insurance just by sending the right message. There’s also got to be some penalty.”

 
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