Clarifying the Individual Mandate Alternative
In a recent post I suggested that President Barack Obama should abandon the individual mandate contained in the Patient Protection and Affordable Care Act. My theory is that the uncertainty surrounding the constitutionality of imposing a fine on Americans who fail to obtain health care coverage starting in 2014 is both a political and public policy risk that is simply not worth taking – especially since the penalty for failing to be insured is unlikely to achieve its public policy purpose.
I’ve received several questions about how this would impact the PPACA. Questioners have asked whether, without an individual mandate, the PPACA collapse? Does the reform law mean anything without a mandate? Would the exchanges be necessary without the mandate? That kind of thing.
So, to clarify.
Perhaps the title of my post, “President Obama Should Jettison the Individual Mandate.” is causing some confusion. What I was addressing was the individual mandate as defined in the PPACA. The law includes one approach to encouraging individuals to take the responsibility for obtaining and maintaining health insurance. I was not suggesting that the President strip this individual accountability provisions from the health care reform law. Quite the contrary, I was suggesting he replace the current, government-enforced mandate with a privately enforced version.
The PPACA imposes a fee (or a tax, depending on whom you ask and when) if an individual fails to obtain health insurance. This is the constitutional weak-link in the law. Those asking the courts to overturn the law describe this approach as Congress forcing Americans to engage in an economic activity or pay the equivalent of a fine to the government.
Instead of this government-centric approach, I proposed replacing the fine with alternatives enabling carriers to protect themselves from consumers who have waited until they are on their way to a hospital before seeking coverage. As has happened in New York and New Jersey, without such protections premiums skyrocket even faster and higher than medical inflation would normally require. Creating an open enrollment period (perhaps the applicant’s birth month) would counteract this dynamic. Allowing carriers to set premiums higher for those who have gone without coverage and to exclude pre-existing condition for some period of time, would help keep the cost of insurance lower, too. (These are financial disincentives imposed on individuals who fail to maintain medical insurance. Fairness would dictate that these disincentives should be commensurate with how long the individual went without coverage, thus the limited time during which a premium surcharge or benefit exclusion would be permitted).
Carriers would not be obliged to impose these penalties. If they were commanded to do so by law some would argue they are simply agents of the government and the Administration would be back defending the constitutionality of a government-imposed individual mandate. By allowing, but not forcing, carriers to use an open enrollment period, increase premiums, or exclude coverage for existing conditions, the government is out of the equation. And so are constitutional challenges – at least to this provision.
The impact of this approach on other provisions of the Patient Protection and Affordable Care Act is minimal. In fact, by shifting the enforcement of personal responsibility from the IRS to private carriers this alternative might even save money overall.
Nor would removal of the individual mandate as currently defined in the law mean the rest of the PPACA would collapse – even if it were not replaced by an alternative. For example, exchanges can (and do) exist without an individual mandate. In fact, many Republicans and conservatives who are ardent supporters of exchanges oppose requiring all Americans to obtain coverage. They, like Democrats supporting the exchanges, believe a primary benefit of exchanges are to allow individuals to aggregate their purchasing power to obtain better pricing from carriers just as large employers do today. Exchanges and the individual mandate are aimed at two different policy goals and each can survive without the other. (This is not to say there’s not plenty of reasons to oppose exchanges or to seek changes to how they’re envisioned in the PPACA).
Without an individual mandate, but with a requirement that carriers accept all applicants for coverage, premiums will rise substantially. However, it is possible (if unwise) to have the one without the other (as is the case in New York and New Jersey). Nor would would the PPACA collapse if the individual mandate was removed and not replaced by something along the lines I’m suggesting? The PPACA is about a lot more than the individual mandate. The law creates exchanges, enables co-ops, imposes limits on carriers’ administrative expenses, establishes market reforms (such as requiring carriers to keep dependent children on their parent’s policies until age 26), changes rating practices (eliminating premium variations based on gender), creates new taxes, provides for premium subsidies, launches demonstration projects in an attempt to lower medical costs, expands Medicaid, reduces out-of-pocket expenses for some Medicare beneficiaries, and a whole lot more. The individual mandate is one part of a much larger whole.
All of which makes the risk that the individual mandate could lead the Supreme Court to find the entire PPACA unconstitutional an even greater incentive for President Obama to change the way individual responsibility is encouraged (or, more accurately, enforced). That the President should seek a different approach to individual responsibility is both good public policy and smart politics. Whether Congress and the White House could agree on what those changes should be an altogether different question.
Alan Katz blogs regularly at The Alan Katz Health Care Reform Blog.
