What If The Supreme Court Strikes Down the Individual Mandate?

Any ruling by the Supreme Court on the constitutionality of the Affordable Care Act’s controversial individual mandate isn’t likely for at least another several months, but it’s worth thinking about what might happen after the case is decided. The first scenario is easy: If the Court upholds the mandate, the ACA goes forward as planned to the continued objections of many conservative Americans and politicians. The second scenario is less clear: If the Court finds the mandate unconstitutional, do they find it severable from the rest of the law? If not, they’ll strike the whole ACA down. This seems like the least likely outcome. If, on the other hand, they do invoke severability, the ball is back in the White House’s court. The decision at that point would be whether or not health reform can be successful without the individual mandate.

The concern here is the death spiral first described by Nobel Prize-winning economist Joseph Stiglitz. In essence, if we don’t require everyone to buy insurance, then insurance will be disproportionately purchased by the sick, making it more expensive and leading many to discontinue coverage in a continuous cycle that drives the price higher and higher until no one can afford insurance any more and the system collapses. By contrast, getting everyone into the pool is seen as the only way to keep costs down and maintain the insurance system. So the question is: What happens if the Supreme Court strikes down the individual mandate? Does the Obama adminsitration wash its hands of health reform, proclaiming that it can’t be done without the individual mandate because costs will rise too rapidly and the insurance system will collapse, or does it forge onward and see what happens?

Option one is the safe bet if you believe that a bad status quo is better than a potentially worse change, but it’s absolutely terrible politics. It would be admitting defeat on one of the defining aspects of the Obama presidency. Moreover, it would have tremendous negative implications for the future of health reform initiatives generally. Option two looks good politically for all of the opposite reasons, but it could destroy the health insurance market and hurt Americans in the process. That’s bad leadership. While such action might lead to the type of catastrophic collapse necessary to precipitate true change, it would be incredibly painful.

New evidence suggests, however, that the pain might not be as great as many–myself included–fear. John Sheils and Randall Haught of the Lewin Group ran a simulation model to see what might happen to coverage and costs if reform went forward as planned with the exception of the individual mandate. Remember, the concern is that fewer people would be covered and health insurance premiums would increase. What they found is that, yes, compared to estimates under health reform with an individual mandate, health reform without the individual mandate would mean fewer people would be covered and insurance premiums would increase, but things would still be better than if we did nothing at all.

How much better? Well, without reform, they estimate that 51.6 million Americans would be uninsured. With reform, that number drops to 20.7 million. With reform, but without the mandate, their estimate stands at 28.5 million. Not too shabby. As for premiums, the authors estimate that eliminating the individual mandate will mean a 12.6% increase. Not a welcome increase, but not necessarily the kiss of the death spiral.
That said, other estimates by the Congressional Budget Office and MIT health economist Jonathan Gruber have not been as optimistic. The CBO expects that axing the individual mandate will mean 16 million fewer insured persons and a premium increase between 15 and 20%. Gruber puts the figures at 24 million fewer insured and premium increases on the order of 27%. Because of the sheer volume of people involved and the uncertainty of their decision making processes, it’s really hard to know who’s calculations are the most reasonable.

What you can count on is this: If the Court finds the individual mandate unconstitutional, the White House will have more actuaries and health economists crunching numbers than you can imagine. These latest results from Lewin suggest that even if the Court says no to the individual mandate, it shouldn’t necessarily mean the Obama adminsitration should give up on health reform.

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How Many Uninsured Will Medicaid Cover After Health Reform?

One of the major components of the Affordable Care Act is the extension of Medicaid eligibility to all citizens and legal residents who earn below 133% of the federal poverty level. As of 2011, that is approximately not a lot of money. Prior to the ACA, Medicaid eligibility was contingent on satisfying both income eligibility and categorical eligibility criteria, the former meaning you had to be poor and the latter meaning you had to be the “right” type of person to qualify. For example, poor pregnant women qualified, poor childless adults did not. Prior to the ACA, people who thought Medicaid was a program for poor people were only partially right. Fortunately for these people, without having to change their thinking, the implementation of the ACA will make them right. Medicaid will now be for everyone who is low-income. It’s much simpler and makes more sense, but the big question is: How will it work?

We already know that there are a number of people eligible for Medicaid coverage currently who are not enrolled in the program. It stands to reason, then, that when more people become eligible, some fraction of them will not enroll. How many do enroll will be important for many reasons: covering these folks was a major goal of health reform, newly insured individuals will need more doctors to care for them, and all of this will have an effect on health care costs. It would be helpful if we could anticipate–if not predict–the future, which is exactly what the Congressional Budget Office and the Centers for Medicare and Medicaid Services have tried to do. The problem is that they appear to be using two different crystal balls.

The CBO says that 16 million will gain coverage, while CMS says 18 million. Somebody’s wrong. My hunch is that it’s CMS, because they assume that 97% of newly eligible people will enroll in Medicaid. That seems awfully high to me. It also seems high to some health economists at Harvard who have the next best thing to a crystal ball: a simulation model. Benjamin Sommers, Katherine Swartz, and Arnold Epstein have a paper coming out in Health Affairs that considers all of the major factors that will determine how many people will be eligible and how many will enroll and calculates these estimates under a variety of assumptions that range from conservative to bold. According to their model, about 13.4 million people will newly enroll in Medicaid because of the ACA. However, using different assumptions, they come up with a 95% confidence interval that ranges from 8.5 million to 22.4 million people. That, folks, is a pretty large amount of uncertainty. The good news is that more people will be covered. The bad news is that we really won’t know how many until happens, which means we won’t be able to do too much planning ahead.

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An Early Victory for Health Reform

When the Affordable Care Act was enacted, there was immediate and enormous uncertainty about how the law would be implemented, whether or not it would be successful, and how its success or failure would be recognized. Proponents pointed to economic theory and Romneycare in Massachusetts, suggesting that we’d see a decrease in the number of uninsured initially, followed–hopefully–by a reduction in the rate of health care spending growth. Opponents, meanwhile, shook their collective heads and began filing lawsuits over the constitutionality of the individual mandate, and those cases are still winding their way through the courts.

While the ACA is still in its infancy, with numerous provisions of the law yet to be implemented, there is now evidence that health reform is doing its job. To be sure, a tremendous amount of uncertainty remains, but the latest data from the U.S. Census Bureau shows that the number of uninsured Americans remains unchanged between 2009 and 2010. Though health reform critics might like to jump on that statistic and proclaim that the ACA has failed to cover more Americans, history proves otherwise.

The U.S. economy–while supposedly no longer in a recession–is far from robust. Historically, economic downturns coincide with increases in the number of uninsured, as people lose their jobs and, thanks to the design of our health care system, their insurance coverage. So, the unchanged number of uninsured masks what actually happened: Roughly 810,000 middle-aged adults, those ages 45 to 64, were likely let go from their jobs, didn’t yet qualify for Medicare, and ended up uninsured. Meanwhile, some 494,000 young adults, those ages 18 to 25, gained coverage, which seems to point to the ACA provision allowing children to stay on their parents’ plans until age 26 that went into effect in the fall of 2010. Of course, there may be other explanations, but the simplest explanation is likely the right one.

Assuming that the ACA continues to reduce the number of uninsured, the bigger question is what happens to costs after it is fully implemented. A large part of this will hinge on consumer behavior, and the news here is mixed. There is emerging evidence that uninsured patients don’t dramatically alter their care-seeking after gaining coverage. In some cases, this is a good thing. For example, in Massachusetts, the uninsured being served by community health centers continued to seek care there even after they were insured. That’s good news for the health centers, which would otherwise be left with an even heavier burden of uncompensated care than they currently face, and it’s good news for the health care system, because health centers are widely recognized as high quality, cost effective primary care providers. Expanding that model could help to bend the cost curve.

At the same, however, there is evidence from the University of Pennsylvania’s Dan Polsky and colleagues that the uninsured who become Medicare eligible don’t change their behavior either. In particular, they continue to have lower rates of physician office-visits and higher rates of emergency room and hospital outpatient department use. That’s bad news, because those sources of care are notoriously more expensive and present an obstacle to continuity of care.

Consequently, the future is uncertain. The promise of the ACA to reduce the number of uninsured remains intact, but what happens to health care costs will be determined largely by the actions of tens of millions of newly insured persons. If ever there was a time to help patients make informed decisions regarding their use of the health care system, that time is now.

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Simulating the Effects of Health Reform on the Uninsured

With all of the back-and-forth over health reform, it sure would be nice if we knew just how things would turn out as a result of the new law. After all, if we could demonstrate with some certainty that it would actually do a lot of good for a lot of people, some of its detractors might be silenced. At the same time, if it looked like things weren’t going to pan out, then perhaps the law ought to be repealed. Unfortunately, predicting the future is a difficult thing to do, but that doesn’t stop us from trying.

Enter Mark Hall, a professor from Wake Forest University, and Matthew Buettgens, an analyst at the Urban Institute. Using the Urban Institute’s Health Insurance Policy Simulation Model, Hall and Buettgens attempt to predict the future of the uninsured under health reform. Such simulations rely heavily on assumptions, and some of the assumptions are stronger than others. HHS is still writing regulations, for example, so what exactly those may contain is still a pretty open-ended question. But there is evidence to support some of the assumptions. For example, we can look at the experience of states, like Massachusetts, that have passed a similar law to see what has happened there, and we can base our assumptions on a body of prior research and theory that can help predict how people will respond to a variety of incentives.

Of course, this is where the mutual fund disclaimer enters: Evidence of past performance is not a guarantee of future returns. That’s certainly a valid caution, but when it comes to predicting the future, the past is often the best information we have. In fact, it’s the only thing we know with certainty. Anyone who makes claims about what will happen that aren’t based at least in part on what has happened before, may as well be blindly throwing darts.

Now, I’m not going to delve into the details of Hall and Buettgens’ work, for fear of losing some of you along the way, but you can read their report here. The take-home message is simple: Health reform will cover most, but not all, of the currently uninsured. Among those who remain uninsured, a little more than one-in-five would be undocumented immigrants who are exempt from the individual mandate and ineligible for federal assistance. Another two-in-five would be Medicaid eligible, but not yet enrolled, underscoring the importance of outreach and eligibility assistance efforts. Of the remainder, some would be exempt from the mandate for a variety of reasons, while others would be subject to the penalty for not having coverage, even though many of them would be eligible for a federal subsidy of their premiums.

Overall, health reform will lead to a reduction in the number of uninsured, but the full effect will take time as people will have to be educated about their options, purchase coverage, or be enrolled in Medicaid. It would be interesting to look at a multi-year projection, to see how reductions in the uninsured change over time as implementation rolls out. It’s pretty safe to assume–based on the experience in Massachusetts–that even a decade after full-implementation, we still won’t have reached everyone, for a myriad of reasons. But that’s to be expected, and shouldn’t dissuade the effort. After all, in two states I care about, Georgia and North Carolina, Hall and Buettgens project that the proportion of the population that is uninsured will fall by 12.6% and 10.4%, respectively. But percentages are a statistic. Numbers are people. And combined, nearly 2 million Georgians and North Carolinians will gain insurance coverage in the first year after health reform is implemented. With results like that, I personally cannot imagine repealing health reform.

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