The optimist’s guide to repealing the individual mandate

June 21, 2012

If you've spent any time listening to pundits talk about the health reform law's individual mandate, you might think it spells doomsday for the Affordable Care Act if the Supreme Court strikes it.

It's health care apocalypse, where the only people who buy insurance are the sick people who really need it. High medicals bills drive premiums up --  and drive healthy people out of the market. A death spiral ensues, as prices go higher and higher, and subscribers become fewer and fewer. Pandemonium and other sorts of chaos reign as the insurance market collapses.

That's the conventional wisdom. Not everyone, however, predicts doom and gloom. In fact, a small tribe of health policy experts isn't hyperventilating at all. It includes people like Paul Starr, a Princeton economist who advised Bill Clinton on health policy, who is quite relaxed imagining health reform without a mandate.

"I don't think we ought to regard the end of the mandate alone as being so decisive," says Starr. "I think it's completely severable."

Starr's argument -- supported by others -- is this: the Affordable Care Act can still make decent strides toward achieving its main goal of expanding access to affordable health insurance. The health reform law the Supreme Court is now weighing, they say, isn't like the efforts states have taken on in the past -- and that makes them more optimistic for its future.

"I don't want to say the mandate is unimportant, but I would say there is so much more to the Affordable Care Act that goes to the heart of the protections that people receive," says Ron Pollack, executive director of the pro-health reform Families USA. "It's a far, far bigger deal that the remaining parts, like the Medicaid expansion, go forward even if the mandate is struck."

Most of what we know about the individual mandate comes from Massachusetts, which began requiring its citizens to carry coverage in 2006. The state now has the lowest rate of uninsurance in the nation.

We learned an individual mandate worked in Massachusetts -- but that doesn't necessarily mean it will work for the rest of the country.

Massachusetts passed its health reform law with bipartisan support and the law has always been popular in the state. With the national law proving more divisive, its hard to know whether the mandate will deliver the high levels of enrollment it did in Massachusetts.

"The rhetoric is important," says Harvard University's Amitabh Chandra, who has studied the Massachusetts law. "Suppose there's a lot of rhetoric that the pro-America thing is not to buy. You could have a lot of people who decide not to buy."

All the anti-Obamacare rhetoric could, in Chandra's view, mean some people don't buy insurance "because they see it as a politically defining issue, a way to express their views."

Expressing political views, meanwhile, would not be that expensive: The fee for not carrying insurance would be $695 or 2.5 percent of income, whichever is higher. That's a lot less expensive than $2,985, the average cost of a health insurance plan in 2009.

"If you don't pay, your tax refund can be withheld," says Starr. "That's not really losing as much as people assume."

Massachusetts showed what happened when a mandate was in place. Other states have shown us what happens when there isn't. When Washington state ended pre-existing conditions but didn't require all residents to carry coverage, premiums went up and insurers stopped selling plans -- essentially, the health care apocalypse insurers worry about.

Turns out, Washington might not make a great analogy for the federal law either: It did not provide premium subsidies, where the Affordable Care Act does, for everyone up to 400 percent of the federal poverty line. Those subsidies could encourage people to buy, even if they are healthy, by making insurance affordable.

"One of the reasons our model doesn't show more healthy people fleeing is that people are strongly incentivized to purchase coverage," says Christine Eibner, a senior health-care economist with RAND. Her modeling shows that, without the mandate, 27 million Americans will still gain coverage with insurance premiums increasing 2.4 percent.

Premiums, in the Affordable Care Act get capped as a percent of income: An individual earning $22,340, for example, won't be expected to pay more than 6.3 percent of her income on premiums. A federal subsidy will cover the rest, potentially insulating lower-income Americans from any premium increases that might happen.

Whether subsidies would be enough to encourage healthy people to enroll is hard to know, largely because we've barely tried it. One study of Massachusetts's law -- where subsidies became available before the mandate kicked in -- only saw a big spike in coverage after the mandate came online.

That could be indicative of fewer people signing up -- or it could be the same number of enrollees, just migrating into the program at a slower pace. Other insurance expansions, like the Children's Health Insurance Program, saw enrollment grow slowly year after year, and is still continuing to tick upward.

Meanwhile, Obamacare optimists also look at the law's big insurance expansion that has nothing to do with a mandate at all: the Medicaid expansion.

The Affordable Care extends Medicaid coverage to anyone below 133 percent of the Federal Poverty Line. The Congressional Budget Office estimates that 16 million people will gain coverage through this expansion. It also assumes that 6 million of those newly eligible for Medicaid just won't sign up -- meaning that, if there's aggressive outreach, that expansion could become even bigger.

Get all those people into Medicaid and -- even if the mandate falls -- you're looking at the largest expansion of insurance since Medicaid and Medicare were created in 1965.

"Our top priority were the coverage provisions," says Families USA's Pollack. "We focused on the Medicaid expansion and the subsidies. If those things are protected, those are by far the most important."

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