Why does Obamacare have an individual mandate?

Justice Ginsburg’s concurring opinion in the Obamacare Supreme Court decision has a good summary of why Obamacare has an individual mandate.

Congress knew that encouraging individuals to purchase insurance would not suffice to solve the problem, because most of the uninsured are not uninsured by choice.1According to one study conducted by the National Center for Health Statistics, the high cost of insurance is the most common reason why individuals lack coverage, followed by loss of one’s job, an employer’s unwillingness to offer insurance or an insurers’ unwillingness to cover those with preexisting medical conditions, and loss of Medicaid coverage. See Dept. of Health and Human Services, National Center for Health Statistics, Summary Health Statistics for the U. S. Population: National Health Interview Survey–2009, Ser. 10, No. 248, p. 71, Table 25 (Dec. 2010). “[D]id not want or need coverage” received too few responses to warrant its own category. See ibid., n. 2. Of particular concern to Congress were people who, though desperately in need of insurance, often cannot acquire it: persons who suffer from preexisting medical conditions.

Before the ACA’s enactment, private insurance companies took an applicant’s medical history into account when setting insurance rates or deciding whether to insure an individual. Because individuals with preexisting medical conditions cost insurance companies significantly more than those without such conditions, insurers routinely refused to insure these individuals, charged them substantially higher premiums, or offered only limited coverage that did not include the preexisting illness.2See Dept. of Health and Human Services, Coverage Denied: How the Current Health Insurance System Leaves Millions Behind 1 (2009) (Over the past three years, 12.6 million nonelderly adults were denied insurance coverage or charged higher premiums due to a preexisting condition.).

To ensure that individuals with medical histories have access to affordable insurance, Congress devised a three-part solution.

  • First, Congress imposed a “guaranteed issue” requirement, which bars insurers from denying coverage to any person on account of that person?s medical condition or history.3See 42 U. S. C. §§300gg–1, 300gg–3, 300gg–4(a) (2006 ed., Supp. IV).
  • Second, Congress required insurers to use ?community rating? to price their insurance policies.4See ?300gg. Community rating, in effect, bars insurance companies from charging higher premiums to those with preexisting conditions.

But these two provisions, Congress comprehended, could not work effectively unless individuals were given a powerful incentive to obtain insurance.5See Hearings before the House Ways and Means Committee, 111th Cong., 1st Sess., 10, 13 (2009) (statement of Uwe Reinhardt) (“[I]mposition of community-rated premiums and guaranteed issue on a market of competing private health insurers will inexorably drive that market into extinction, unless these two features are coupled with . . . a mandate on individual[s] to be insured.” (emphasis in original)).

In the 1990’s, several States–including New York, New Jersey, Washington, Kentucky, Maine, New Hampshire, and Vermont–enacted guaranteed-issue and community rating laws without requiring universal acquisition of insurance coverage. The results were disastrous. “All seven states suffered from skyrocketing insurance premium costs, reductions in individuals with coverage, and reductions in insurance products and providers.”6Brief for American Association of People with Disabilities et al. as Amici Curiae in No. 11-398, p. 9 (hereinafter AAPD Brief). See also Brief for Governor of Washington Christine Gregoire as Amicus Curiae in No. 11-398, pp. 11-14 (describing the “death spiral” in the insurance market Washington experienced when the State passed a law requiring coverage for preexisting conditions).

Congress comprehended that guaranteed-issue and community-rating laws alone will not work. When insurance companies are required to insure the sick at affordable prices, individuals can wait until they become ill to buy insurance. Pretty soon, those in need of immediate medical care—i.e., those who cost insurers the most–become the insurance companies’ main customers.

This “adverse selection” problem leaves insurers with two choices: They can either raise premiums dramatically to cover their ever-increasing costs or they can exit the market. In the seven States that tried guaranteed-issue and community rating requirements without a minimum coverage provision, that is precisely what insurance companies did.7See, e.g., AAPD Brief 10 (“[In Maine,] [m]any insurance providers doubled their premiums in just three years or less.”); id., at 12 (“Like New York, Vermont saw substantial increases in premiums after its . . . insurance reform measures took effect in 1993.”); Hall, An Evaluation of New York’s Reform Law, 25 J. Health Pol. Pol’y & L. 71, 91-92 (2000) (Guaranteed-issue and community-rating laws resulted in a “dramatic exodus of indemnity insurers from New York’s individual [insurance] market.”); Brief for Barry Friedman et al. as Amici Curiae in No. 11-398, p. 17 (“In Kentucky, all but two insurers (one State-run) abandoned the State.”).

Massachusetts, Congress was told, cracked the adverse selection problem. By requiring most residents to obtain insurance,8See Mass. Gen. Laws, ch. 111M, §2 (West 2011). the Commonwealth ensured that insurers would not be left with only the sick as customers. As a result, federal lawmakers observed, Massachusetts succeeded where other States had failed.9See Brief for Commonwealth of Massachusetts as Amicus Curiae in No. 11-398, p. 3 (noting that the Commonwealth’s reforms reduced the number of uninsured residents to less than 2%, the lowest rate in the Nation, and cut the amount of uncompensated care by a third); 42 U. S. C. §18091(2)(D) (2006 ed., Supp. IV) (noting the success of Massachusetts’ reforms). Despite its success, Massachusetts’ medical-care providers still administer substantial amounts of uncompensated care, much of that to uninsured patients from out-of-state. See supra, at 7-8.

In coupling the minimum coverage provision with guaranteed issue and community-rating prescriptions, Congress followed Massachusetts’ lead.10National Federation of Independent Business v. Sebelius. I edited the opinion to pull the inline notes out into footnotes, broke it into paragraphs, and added some whitespace, all in an attempt to make a supreme court opinion look friendly and readable. Lawyers are used to reading right past all that noise until it’s needed, but it can be daunting at first glance. For those of you who want to read all that goodness, it’s in the footnotes, right above this one. ;-)

Both the House’s proposed legislation and the newly-released Senate’s discussion draft eliminate the individual mandate.

Update. The “skinny repeal” apparently eliminates the individual mandate, though it’s not entirely clear as the text has not been released.

By Brent Logan

Engineer. Lawyer. WordPress geek. Longboarder. Blood donor. Photographer. More about Brent.


  1. Thanks for making it more readable and friendly. Health care is a problem everywhere. Good reason to seriously take care of our individual health. Seriously, intentionally, diligently. Of course that still doesn’t help the pre-existing but it could lessen the load for the future. Just a little soap-boxing!!

  2. I’m all for personal responsibility.

    I hope the concept of responsibility is used to decrease expenses in general instead of limiting coverage for individuals. After all, we’ve all heard stories of non-smokers getting lung cancer and vegetarian marathoners getting ovarian cancer. If otherwise healthy people can get cancer, it would make sense that some percentage of those participating in unhealthy behaviors also get cancer from other causes.

    There are other ways to encourage healthy behavior. Changing defaults is a good way, from whether we are organ donors to the size of soft drinks we purchase.

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