Part 2 – What if…We Have no Mandate?

June 22, 2012

Authored by: benefitsbclp

This is our second of three “What if” posts discussing the likely outcomes of the Supreme Court hearings on the health care reform law.  Our first post is available here.

In our prior post, we discussed what would be left to do if the Supreme Court left the health reform law alone.  Recall, however, that one issue the Court has to grapple with is whether the mandate is fully or partially severable from the statute.  What if the Court takes a more Solomonic view and excises the mandate alone or the mandate plus the community rating and guarantee issue provisions (we’ll call that the “mandate plus” option)?

Well, first of all, almost everything we said in Part 1 is still true.  We say “almost” because it is unclear whether the elimination of the guarantee issue provisions would include both individual and group plans.  It likely would and, if it does, that means there would be no more elimination of pre-existing condition exclusions.  However, due to HIPAA portability and creditable coverage rules, most group health plans have already eliminated, or substantially eliminated, preexisting condition exclusions, so it is unlikely that this will have much practical effect.

However, the elimination of the mandate alone, or the mandate plus option, has implications for employers who are considering eliminating coverage and allowing their employees to purchase coverage on the exchange.  Even though a recent widely-reported study said that most employers plan to keep coverage, for some employers, paying the penalties rather than paying for coverage makes economic sense.  But the analysis is different if there is no mandate.  Without the mandate, insurance companies have argued that the individual market will become prohibitively expensive because healthy individuals will have no incentive to buy insurance.  If they can receive the insurance on a guarantee issue, community-rated basis at any time, and not pay a penalty for not having coverage, they can take a wait and see approach.  This could create prohibitively expensive insurance that is not a viable alternative to employment-based group insurance.

If the Court takes the mandate plus option, some of these concerns are mitigated.  Without the guarantee issue and community rating provisions, healthy individuals will have a harder time taking a wait and see approach because insurance companies would be able to impose preexisting condition exclusions and medical underwriting requirements.  However, if that all sounds strangely familiar that’s because it is essentially a system we have without health care reform and under that system, individual insurance is largely not a viable alternative to employment-based group insurance.

Therefore, if the Court takes either the “mandate only” or “mandate plus” options, there will be some short-term concerns about the viability of the exchanges and the individual insurance market may not be a viable alternative to employment-based coverage.  However, it would not be surprising to see Congress try to refashion the mandate to make it Constitutional to rectify these problems.

How do YOU think the Supreme Court will rule?  Tell us!