The Mandate May Fall, But Not Reform

Merrill Goozner

Posted 3/24/12 on Gooz News

Opponents of health care reform, whose case will be heard next week by the Supreme Court, base their complaint against the Obama administration’s signature domestic achievement on the claim that its individual mandate to purchase health insurance is unconstitutional.

Challengers, including state attorneys general and governors in a majority of states, say it represents an unwarranted extension of the constitution’s commerce clause into the personal realm of individual choice. If people do not want to buy a particular product – in this case health insurance – the government has no right to make them.

It is a popular position, if for no other reason that it resonates with Americans’ self-identity as rugged individualists who can make it on their own without government interference or help. It’s easy to make fun of Tea Party activists who carry a flag saying “don’t tread on me” in one hand and a protest sign saying, “Keep the government’s hands off my Medicare” in the other. But in a society where many people haven’t had a raise in years while the government hands out billions in bailouts to the banks, it’s no wonder that some people get mad when told they might have to do anything, much less buy a product that most people get as a benefit from their employer.

Given the high court’s politics, the challengers could win, at least on the narrow issue of the constitutionality of the mandate. Though the insurance industry and health care providers back it, the Roberts court has been consistently pro-business, and legal scholars say it is safely within the federal government’s power to regulate interstate commerce and impose taxes, it’s entirely possible that a majority of justices in this election year will follow their political instincts and back the popular option.

A Washington Post-ABC News poll taken in early March showed 67 percent of the public opposed the mandate (with 42 percent opposing the entire law). But if the mandate were dropped, support for the rest of the law surged to 51 percent of the general public.

Should the mandate fall, though, it won’t drag down the rest of the law despite claims by many supporters that the intricacies of the insurance marketplace make the mandate economically necessary. Indeed, briefs before the court suggest the economics behind the mandate are iffy.

Candidate Barack Obama, for one, understood the politics of the individual mandate. He was against it in his primary races against Sen. Hillary Clinton before he was for it as president. Republican frontrunner Mitt Romney, when he was governor of Massachusetts, understood the economics of the individual mandate. He was for it before he was against it in his primary races against more conservative candidates.

Mandate Designed to Avoid Cost-Shifting

Their support for the mandate wasn’t the product of some mushy-headed liberalism. The individual mandate is a quintessential conservative idea, created by conservative economists and initially backed by conservative think tanks (the Heritage Foundation, for one) because it was deemed necessary to make the private marketplace for individual and small group insurance policies more efficient and affordable. It worked by expanding the pool of participants, which would lower insurance costs for everyone.

How does that work? If families that buy insurance have to pick up the tab for people without coverage when they fall ill, the cost of every policy goes up. Estimates for uncompensated care provided to the uninsured range as high as $116 billion a year – enough to cost the average family $1,000 a year in higher premiums, according to the brief to the court submitted by the Obama administration.

Supporters of the Affordable Care Act have passionately endorsed the individual mandate, largely based on those economics. Jonathan Gruber, the Massachusetts Institute of Technology economist who helped Romney design the state law that became the model for “Obamacare,” claims the mandate makes all the other insurance reforms in the law possible. In particular, it enables the requirement that insurance companies sell policies to everyone no matter what their health status – known as guaranteed issue – at rates that do not discriminate based on health status – dubbed community rating.

Without a mandate, young and healthy people, knowing they could sign up at any time, even if there was a late enrollment penalty, “would take their chances . . . rather than sign up for insurance that they don’t fully value,” Gruber wrote recently in a brief for the Center for American Progress, a liberal think tank. “As these young and healthy individuals leave the (state) exchanges (where policies will be sold), they will raise prices for those left behind, causing even further exit – and potentially unraveling the entire market.”

Gruber estimated that insurance costs in the non-group market would rise 27 percent without a mandate. Two-thirds of the 32 million people expected to get coverage under reform wouldn’t bother, he claimed.

Since the Obama administration was arguing that the mandate was crucial to reform and the opponents were arguing against the law entirely, the high court asked for a “friend of the court” brief to make the case that guaranteed issue, community rating and other insurance reforms could stand without the mandate. The brief, prepared by H. Bartow Farr III, a prominent Supreme Court litigator who began his career as a clerk for William Rehnquist and worked in the solicitor general’s office during the Carter administration, not only argued that Congress never said the mandate and the other parts of reform were joined at the hip and thus were “severable,” but that they weren’t economically joined, either.

Pointing to a Congressional Budget Office analysis, Farr noted the act contained provisions that would mitigate so-called adverse selection where healthy people opt out of coverage. “For example, the act permits insurers to establish limited enrollment periods each year to discourage the uninsured from waiting until they are sick before purchasing insurance,” he wrote. “And, even more importantly, the Act provides generous subsidies to enable low-income people – many of whom are young and in relatively good health – to purchase insurance.”

He estimated the higher insurance costs due to dropouts could range as low as 10 percent (not just the 27 percent estimated by Gruber), “falling short of the ‘death spiral’ that the petitioners (opponents of the entire law) and the United States are warning about.”

There are also behavioral aspects of health insurance that enter into the equation, which weren’t addressed in his brief but should have been. Most people, whether they are young, middle-aged or nearing retirement, want health insurance, just like they want to own a car, buy a house and get a good education. That’s why millions of people without employer coverage already purchase plans from the overpriced and dysfunctional individual insurance market, even without reform. It is one of the benchmarks of being a responsible member of society. It makes daily life more secure and family life possible.

Those desires won’t go away and will serve as a countervailing force to the purely econometric logic of adverse selection if the individual mandate is struck down. Most people will not choose to throw away insurance they already have simply because they can get it later if needed, especially given an Affordable Care Act that, with or without the mandate, will make their policies more affordable through subsidies. To believe otherwise is to suggest that most people are like those Tea Party activists: though they don’t want to be told what to do or contribute to the common good, they are perfectly willing to show up to collect benefits when they get sick.

Americans are better than that. The Supreme Court could strike down the mandate. But that won’t strike down reform.

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