The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Clarifying the Individual Mandate Alternative

Posted by Alan on February 7, 2011


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.

20 Responses to “Clarifying the Individual Mandate Alternative”

  1. Becky said

    I recently read a great book about healthcare reform titled, “Uproot U.S. Healthcare” It shows where all the money for our current health care system is going and how much waste we can recover, to use for patient care.

  2. Curt Cella said

    Alan
    Thanks for the **cough**cough**clarification**cough**cough**! Good grief: I guess it is true that there’s two things you don’t want to see being made: Law and sausage.

  3. JimK said

    The attached article is from today’s NY Times. The author is a Law Professor who believes that it is unlikely that the Supreme Court would uphold the challenge to the Individual Mandate. The Professor bases his conclusion on the fact that Justices Scalia and Kennedy would have to ignore their own line of reasoning in the Raich (Medical Marijuana Case).
    The interesting aspect of Scalia’s decision in the Raich case was that he based his decision on the Necessary and Proper Clause, the exact clause that Judge Vinson, in his Florida ruling stated was redundant and did not grant Congress any additional authority above the explicit enumerated powers.

    http://www.nytimes.com/2011/02/08/opinion/08tribe.html?ref=opinion

  4. JimK said

    Propose a change to the Program and rename it the States choice to join the PPACA and allow all of the States who oppose the PPACA to opt out of the program in its entirety. Any resident of the aforementioned States, if they moved to a participating State would be ineligible for participation for a period of between one and five years or in the alternative make the payments for the period where they were out of State residents.
    Additionally the new plan can shift the enforcement mechanism from the IRS to the States.
    In addition allow these same States to drop out of Medicaid and SCHIP. To discourage families to move to programs that maintain Medicaid and SChip the cost of these programs should be shifted back to the non-participating States, the non-participating States could petition the Federal government for funding equal to their old FMAP revenues.
    The government could then adapt the current FMAP formula whereby non-participating States will not receive any Medicaid funding and free this money for the States who currently endorse PPACA.
    This will have the practical effect of removing the burden of the Federal Government from the Red States who oppose “Big Government” and allow the residents of these States to live their ideology.
    I know this is a ridiculous proposal but it would allow residents of these States just how much they depend on Big Government.

    • Jim Thornton said

      http://www.taxfoundation.org/blog/show/1397.html

      It is interesting to note that the so-called donor states, which contribute more to the federal government than they receive back in the form of aids, are largely democratic “blue” states.

      Those states most critical of the federal government, on the other hand, and whose pols most vociferously want to keep “gubmint off our backs,” are largely republican strongholds.

      I like your idea on some levels, but I do feel sorry for those whose chances of obtaining better healthcare insurance options will be stymied in such efforts by the hypocritical blowhards in their red state state houses.

      • JimK said

        Jim

        It seems like Obama is adopting part of my plan; I think he should adopt my plan in its entirety. As Haley Barbour stated yesterday we want the authority to establish our own minimum coverage.

  5. Howie Feldman said

    One consequence of the health care reform is that most insurance carriers stopped writing child only policies. I had a frantic call the other day from a friend who friend just got custody of a 15 year old boy, in great health, but I could not write him health insurance. While they have custody, the will was not done properly and therefore a court battle must follow and the parents do not have proof of legal guardianship so they can’t add him to their group health plan.

    • Ann H. said

      Yikes! Howie, I don’t know what state you’re in, but perhaps you could enroll him in a short-term plan because some of them are accepting “child only” applications. It wouldn’t cover a pre-existing condition, but you said he is healthy. Ann H.

      • Howie Feldman said

        I am in Virginia, right next to our nations capital. I am not sure many carriers are now writing child only policies in any state? Thank you, I thought about the short-term plan and don’t think the parents will go for it.

    • Howie Feldman said

      I just spoke with Assurant and they also stopped writing child only policies. They will write a short term major medical plan though.

  6. Dan Boivin said

    March 4, 2010
    OP-ED CONTRIBUTOR
    A Health Insurance Mandate With a Choice

    By PAUL STARR
    Princeton, N.J.

    DESPITE President Obama’s letter on Tuesday offering to consider several Republican health-care provisions, hope for bipartisan progress on the issue has quickly faded. Republicans have already dismissed the changes as merely cosmetic, and the president has signaled his support for passing the final changes to the legislation through the budget-reconciliation process, which would require only Democratic votes.

    But the Democrats could modify one key provision of their legislation — the mandate that individuals buy insurance — in a way that goes to the heart of conservative and libertarian objections.

    President Obama clearly stated the rationale for the mandate at the last week’s health care forum. If Congress merely banned exclusions for pre-existing conditions, healthy people would have no reason to buy coverage until they got sick, and the insurance system wouldn’t work. So in addition to offering subsidies to enable people to afford coverage, the Democratic reforms impose tax penalties on those who remain uninsured — $695 a year or 2.5 percent of income, whichever is greater, under the president’s proposal.

    There is another way, however, to accomplish the same purpose: let individuals opt out of the new insurance system, without a penalty, by signing a form on their tax return acknowledging that they would then be ineligible for federal health insurance subsidies for a fixed period — say, five years.

    During that time, if they had second thoughts and decided to buy health insurance, they would have no guarantee that they could find a policy or that it would cover pre-existing conditions. In other words, they would face a market much like the one that exists now. And while that’s hardly a desirable position to be in, they would have made the decision themselves, and the option to step outside the system would relieve Republican concerns about government mandates.

    If this provision were added to the legislation, people without coverage through a group or Medicaid would have three basic choices in 2014, when the law goes into effect. They could use the new insurance exchanges to buy guaranteed coverage, receiving subsidies if their incomes were within four times the poverty level. They could take the five-year opt-out. Or they could refuse to do either and pay the annual penalties under the bill. (The legislation exempts them from penalties if the lowest-cost plan in the exchange exceeds 8 percent of their income or their income falls below the threshold for filing taxes.)

    Under the current proposal, the tax penalties would be low — perhaps too low — compared to the cost of insurance. For example, healthy individuals earning $50,000 a year might reasonably choose to pay the $104 monthly penalty instead of buying insurance, knowing that whenever they got sick they could go to the exchange to buy coverage with no exclusions. As a result, while the mandate arouses intense opposition from those who see it as a violation of liberty, the provisions enforcing it would still fail to get many people to participate.

    The more sensible approach would be to provide a five-year opt-out without penalties and, after a transitional period, to set stiffer annual fines for those who want to keep open the alternative of buying guaranteed coverage at any time.

    Personally, I would not recommend that anyone take the five-year opt-out. But I would also rather see people figure out for themselves that they are better off in the new insurance system than outside of it.

    By calling for tax penalties on individuals who remain uninsured, the legislation takes a punitive approach toward people it is aimed at helping and thus conveys the wrong message about reform. The mandate is not, as I see it, an unjustified limit on freedom; we have to pay taxes and fulfill many other obligations to maintain a decent society, and sharing in the cost of health care should be one of them.

    But many Americans do not see it that way, and their concerns about the mandate have undermined the popularity of reform, reduced its odds of passage and raised the prospect of a backlash if it does get enacted. A five-year opt-out could help put those concerns to rest. Let people say, as Sam Goldwyn reportedly once uttered, “Include me out.” It may be the best way of bringing them in.

    Paul Starr, a professor of sociology and public affairs at the Woodrow Wilson School of Public and International Affairs at Princeton, is the author of “The Social Transformation of American Medicine.”

  7. Richard A said

    Clarifying my previous post, the late enrollment penalty in the Medicare prescription plan is paid over time in the form of increased premiums.

    Dick

  8. Richard A said

    I recently enrolled in the Medicare prescription drug program and noticed that it also has an “individual mandate”. That is, if you don’t enroll within a certain time window you must pay a penalty when you do enroll. The only difference I can see between this mandate and the one in the ACA is that the ACA penalty is annual and the Medicare prescription penalty is one-shot. Is this difference what makes one approach constitutional and the other maybe not? Or is it possible that considering the response to the Massachusetts medical plan and the Medicare prescription drug plan as compared to the response to the ACA that “individual mandates” are ok when Republicans enact them but not when Democrats do?

    Snark aside, I do understand the politics but my real question is whether it’s possible that the Medicare prescription drug law might potentially be unconstitutional? If not would adjusting the penalty in the ACA to be a larger one-shot penalty rather than annual answer the constitutionality question.

    Dick

    • Larry said

      Hi Richard,
      I’m going to try to take a crack at your question (and Alan, please feel free to chime in if I’m wrong), but Medicare prescription drug plans are contracted directly with CMS and are paid by the Federal government in the neighborhood of $300 per month per person enrolled in their respective Part D plan(s). The plan premiums and co-pays are just how each carrier decides to implement cost sharing – thus cost containment (o.k., I’m probably overstating the obvious). The drug plan is essentially a government sub-contractor working on behalf of the Federal government. Because of this, I don’t think that the Part D mandate (called the Part D Late Enrollment Penalty) would be un-constitutional.

      As far as the Part D penalty goes (and maybe I’m misunderstanding what you wrote), the penalty you would assess applies for life and is not a one shot penalty.

  9. Ann H. said

    Please excuse my ignorance. Does President Obama have the power to substantially change PPACA like that without action from Congress? Even if he “administratively” sets aside the individual mandate in regs from HHS, it is still part of the law and subject to attack by lawsuits. It seems to me that the Republican governors and Attorneys General who filed suit wouldn’t simply withdraw their lawsuits because this administration isn’t enforcing the mandate, if the mandate is still legally enforceable as part of the PPACA law. Am I wrong? (Once again, I’m not a lawyer, so please excuse my ignorance.)

    An annual Open Enrollment Period is a much better idea. In fact, Alan, most of your ideas are much better. Thank-you, Alan, for continuing to share your wisdom with us. I enjoy reading your posts, and the comments that others attach to them. I am pleased to be in the company of such brilliant minds.

    • Alan said

      Ann: You’re absolutely right. To accomplish this change Congress would need to join with the White House and amend the PPACA. The motivation for the White House and Democrats in Congress would be to remove the risk that the Supreme Court might use the individual mandate to invalidate the entire health care reform law. Would this be enough to get Democrats to vote for a bill that reinstituted pre-existing conditions for some Americans? Doubtful.

      Would Republicans go along with this approach? On one hand it is much more in keeping with their approach to less government regulation and more private remedies. On the other hand, they would reduce the chance of the Supreme Court throwing out the entire bill. Might be tough for them to go to the public and say “We could have fixed this problem in the bill, but decided not to because it would help the President.” Not sure how that would fly politically. Instead they’d probably just demand load any legislation to make this change with items the Democrats couldn’t accept. Of course, the

      Democrats, however, could tie the replacement of the individual mandate to a malpractice reform bill. That would make it tougher for Republicans to oppose.

      But then the Republicans … well, you get the idea. It is unlikely to ever happen because of partisanship and campaign strategies.

  10. Private enforcement of the individual mandate is a plan that hadn’t occurred to me and I’m excited about this method. It gives people the guarantee of coverage that is so important, but gives some protection to the insurance industry against adverse-selection.
    Your proposal Alan and Bill’s additional ideas would go a long way towards solving the divisiveness of the PPACA.

    I have one concern with this idea though, that you may have an answer to that I haven’t thought of yet. Suppose a short-sighted individual skips buying health insurance and then racks up a huge medical bill.

    OK, the insurance industry won’t get stuck with it due to waiting periods and enrollment periods. But won’t hospitals and doctors simply raise their rates to make up for the money they can’t collect from these people? And won’t society in general get stuck with helping these people out (ie. taxpayer-funded public facilities)?

    I see how this strategy will help insurers with their balance sheets, but won’t taxpayers get left holding the bag for people like this?

    • Alan said

      Robert, you’ve identified why no one calls the PPACA “universal coverage.” While it is expected to bring over 30 million Amerians into the system by 2019, there will still be over 20 million residents who remain without coverage. And no doubt a significant number of these individuals will incur medical expenses. And since there are only four ways of covering medical costs: 1) taxes; 2) premiums; 3) patient payments; or 4) payments from others (family members, charity, etc.) someone is going to pay the bill. The PPACA greatly reduces the volume of uncompensated care hospitals will need to shift to their insured patients or send to collection agencies, but it doesn’t completely eliminate it. The idea of moving from goverment enforcement to private enforcement of individual responsibility won’t solve this problem. However, it won’t exacerbate it either.

  11. Alan – First, I want to clarify and validate that PPACA, as the final law was written DOES already include the ability of the Exchanges AND private market health plans to have an Annual Enrollment Period. (The details of this are yet to be more clearly defined in future regs from HHS – as to the timing each year)

    So this is already part of the PPACA law. I can also affirm that Joe Ario, HHS National Director for implmenetation of the Exchanges in all 50 states, HAS confirmd the inclusion of an AEP in PPACA law (in a meeting CAHU had with him in early January in Sacramento).

    Second, my additional solution is to have a 12 month Pre-Existing Condition Exclusion apply when a Late Enrollee does finally enroll during an AEP. This would mean an individual waiting to buy health insurance “until they needed it” would have to wait between 12 and 23 months before their “recent/new” medical conditions would be covered (depends on when the next AEP occurs).

    This would give insurers a one to two year protection against paying medical claims for pre-exisiting conditions for Late Enrollees.

    This approach will be thought of as relatively more “fair” than applying a Part D-like late Enrollee Penalty of 12% a year, compounded, for the rest of the Late Enrollee’s life until they egt to Medicare age.

    I think ti would work very well, along with the already existing AEP in PPACA.

Sorry, the comment form is closed at this time.

 
%d bloggers like this: