Categories
politics

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.

Categories
General

Obamacare Summary

I just finished reading the Obamacare Supreme Court opinion.1National Federation of Independent Business v. Sebelius, 567 U.S. ___ (2012), 132 S.Ct 2566. (pdf) Unfortunately, I’m still confused about how the decision should have gone down. The dissent does have a good summary of how the law was intended to work.

The whole design of the Act is to balance the costs and benefits affecting each set of regulated parties. Thus, individuals are required to obtain health insurance. Insurance companies are required to sell them insurance regardless of patients pre-existing conditions and to comply with a host of other regulations. And the companies must pay new taxes. States are expected to expand Medicaid eligibility and to create regulated marketplaces called exchanges where individuals can purchase insurance. Some persons who cannot afford insurance are provided it through the Medicaid Expansion, and others are aided in their purchase of insurance through federal subsidies available on health-insurance exchanges. The Federal Governments increased spending is offset by new taxes and cuts in other federal expenditures, including reductions in Medicare and in federal payments to hospitals. Employers with at least 50 employees must either provide employees with adequate health benefits or pay a financial exaction if an employee who qualifies for federal subsidies purchases insurance through an exchange.

In short, the Act attempts to achieve near-universal health insurance coverage by spreading its costs to individuals, insurers, governments, hospitals, and employerswhile, at the same time, offsetting significant portions of those costs with new benefits to each group. For example, the Federal Government bears the burden of paying billions for the new entitlements mandated by the Medicaid Expansion and federal subsidies for insurance purchases on the exchanges; but it benefits from reductions in the reimbursements it pays to hospitals. Hospitals lose those reimbursements; but they benefit from the decrease in uncompensated care, for under the insurance regulations it is easier for individuals with pre-existing conditions to purchase coverage that increases payments to hospitals. Insurance companies bear new costs imposed by a collection of insurance regulations and taxes, including guaranteed issue and community rating requirements to give coverage regardless of the insureds pre-existing conditions; but the insurers benefit from the new, healthy purchasers who are forced by the Individual Mandate to buy the insurers product and from the new low income Medicaid recipients who will enroll in insurance companies Medicaid-funded managed care programs. In summary, the Individual Mandate and Medicaid Expansion offset insurance regulations and taxes, which offset reduced reimbursements to hospitals, which offset increases in federal spending.

Maybe I just need to read the opinion again, and maybe the cases it cites… ;-)

Categories
politics

Obamacare Supreme Court Decision

Full text of the Obamacare Supreme Court decision [pdf]. Will you read it before ranting and/or raving? I just uploaded it to my Nook to read on the plane flight home.