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What Is the Individual Mandate and What If It’s Declared Unconstitutional?

Photo by Chris Maddaloni/CQ Roll Call

Today the Supreme Court waded into the legal arguments about whether Congress acted within its constitutional authority when it adopted the Affordable Care Act’s “minimum coverage requirement” — the so-called individual mandate. Health policy analysts, however, have been looking at very different questions, ranging from who will actually be affected by the individual mandate when the law goes fully into effect, to what the implications would be if the Court does, in fact, rule that the mandate is unconstitutional.

Here’s a quick guide to the key questions that the experts in health policy are asking.

Who will be affected by the mandate when it goes into effect in 2014?

There are two ways to answer this question. One is to look at who the law says will have to have “minimum essential coverage,” as defined in the statute. According to the language of the Affordable Care Act, all U.S. residents will have to have such coverage unless they fall into one of eight categories. These include individuals who will be exempt for religious reasons — for example, Christian Scientists; incarcerated individuals; undocumented aliens; individuals who can’t afford coverage (i.e., their required contribution would exceed 8 percent of their household income); individuals who will be without coverage for less than three months; other individuals deemed to be in a “hardship situation,” as will be defined eventually by the Secretary of Health and Human Services; individuals with incomes below the federal tax-filing threshold; and members of Indian tribes.

Another way to answer the question, though, is to look at who would be affected by the mandate and potentially subject to the penalty because he or she won’t be likely to have “minimum essential coverage” for some reason. After all, everybody on Medicare will have “minimum essential coverage” and won’t be affected; everyone on Medicaid, or covered under the Veterans Health Administration, will be deemed to have the requisite coverage. In fact, of the roughly 320 million people now resident in the U.S., the vast majority — some 256 million — have health insurance coverage, and would undoubtedly not be subject to paying the penalty for lack of it.

Researchers from the Urban Institute took the calculations a step further, and asked how many Americans would probably be exempted from the mandate because they fell into one of the eight categories described above. They estimated that 87.4 million Americans below age 65 would be exempt — that is, 1 in 3 Americans below the age of 65. Of the remaining 181 million Americans who would be subject to the mandate, 86 percent would have health insurance anyway.

In the final analysis, the Urban Institute researchers concluded, 18.2 million Americans — 6 percent of the total population — will be required to newly purchase coverage or face a penalty. Of that number, 10.9 million will be eligible to receive federal subsidies to help pay for coverage. Just 7.3 million people — 2 percent of the total population — will have to newly buy coverage under the ACA and won’t receive any federal assistance to pay for it.

What effect will the individual mandate have on the reformed insurance market — and, by contrast, what would the effect be of declaring it unconstitutional?

Here again, health policy analysts are approaching this question in two ways — first, by focusing on the theory behind the mandate and the likely effects; then by focusing on implementation of all other aspects of the Affordable Care Act absent the mandate if it is ruled unconstitutional.

The rationale for the mandate is based on a key principle of health insurance: the risks of illness are fairly predictable across large numbers of people, so that if large groups of people are insured, actuaries can fairly well predict who will get sick and how often. Therefore the cost of insurance, or premiums, can be fairly level across the broad population because the costs of the relatively few sick people are spread across a bigger population of healthy people. If insurers aren’t allowed to exclude people because of pre-existing conditions, which will be the case under the Affordable Care Act as of 2014, it becomes very important to get all the healthy people into the pool, and not just the sick ones, so that the costs can be spread across that large population of primarily healthy people.

Along those lines, a mandate and a penalty would encourage younger, healthier people to get coverage. If they don’t get in, the insurance market will be subject to “adverse selection” — only the sick people will sign up. Insurance premiums will rise steeply, and eventually not even sick people will be able to afford the coverage. Insurance will go into a “death spiral” — companies will pay out more and more in claims because people are sick; more and more people will drop the coverage because it is unaffordable, and eventually the insurers will go bust.

So that’s the theory.

Now, what happens if the mandate is declared unconstitutional and other aspects of the health reforms go into effect?

In general, most policy analysts think the system would be under great strain, but would not collapse. Clearly, without a mandate, some portion of the population — maybe that 6 percent that the Urban Institute referenced — would not sign up for coverage. How many, of course, is uncertain. Also, since sicker people would be inclined to sign up and healthy people would stay out, premiums would generally be higher. That, in turn, would make insurance somewhat less affordable for people who would prefer to be covered but no longer could afford to pay for it.

Adding up all the possibilities, researchers have come up with a range of estimates of how many fewer people would be insured. At the high end, some researchers think about 23 million fewer people would be insured if the mandate were declared unconstitutional; at the low end, some researchers think the number is closer to 8 million. As for premiums, some researchers think they would be as much as 27 percent higher; others think the difference would be much lower — perhaps 9 percent.

So all in all, is the individual mandate really the “linchpin” to the Affordable Care Act? Probably not, in the sense that the insurance market reforms and coverage expansion completely fall apart if it’s declared unconstitutional. Clearly, the market — and many millions of people — would be worse off, but the degree of the effect is subject to disagreement.

There’s another factor that many health policy researchers are now considering, which is whether it would be possible to get the same effect of the mandate through other means. Other insurance schemes use different mechanisms to get people to sign up and, in effect, get into the insurance pool. For example, if people become newly eligible for Medicare and don’t sign up right away for Part B of the program at that time, they have to pay more for the program later. That’s the way Medicare gets relatively younger, healthier 65-year-olds into the program right away — again, to spread the costs of the fewer, sicker, older beneficiaries across the broadest possible pool of enrollees.

Lots of other alternatives to the individual mandate and penalty are now under consideration. Of course, it’s not at all clear that the Affordable Care Act could be amended; we’ll have to see what happens when the Court makes its ruling, how the public reacts, and what the results are of the national elections in November 2012. But with two-thirds of Americans saying they’re opposed to the mandate, a number of analysts think it’s a good time to start talking about alternatives.

Susan Dentzer is the current editor-in-chief of the journal Health Affairs and a regular analyst for the PBS NewsHour. She previously served as the program’s health correspondent. Watch her nightly analysis of this week’s hearings and read more about the mandate, the broader law and the Supreme Court case on our Health Page.

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