Health Insurance Benefits – Can You Have It Your Way?

As the percentage of large employers that consider a shift to defined contribution and/or private exchange increases, the number of options – and flexibility in those options – must also increase. Consideration for those options rose last year from 14% to 18% among large employers (500+ employees). Further, those who are considering the move to a private exchange want to because of their desire to offer more and better plan options, as well as realize cost-savings. Shifting to the defined contribution framework allows employers to moderate their subsidies to employees, and employees to make better trade-offs among plan options. Additionally, by increasing choices, defined contribution makes it easier for employers to integrate their health incentive and wellness programs by layering them “on top” of the defined contribution.

With this economic opportunity in the market, it is imperative that health plans and enrollment become more tailored to individual and company needs, in addition to the one-size-fits-all solutions of the past and present.

Private health exchanges, according to bswift, like their new Springboard Marketplace, could be the platform to give consumers that greater choice and increase individual decision-making. Given that most large employers who are considering a defined contribution will remain self-insured, bswift is taking a calculated gamble that employers will continue to invest in cost management solutions such as incentives, wellness programs, consumerism as opposed to simply shifting costs to employees under the “fix it and forget it” cost sharing approach suggested by some competitors.

Customize Your Cart

The Springboard Marketplace that bswift has created has the online functionality healthcare.gov could only have dreamed of, and the choice construction of a grocery store.  In fact, the terminology the company uses alludes to “Stocking the Shelves” with your benefit choices and “Shopping” for your ideal group of benefits. This is all done through the interactive benefits advisor, Emma, who walks employees through an online step-by-step process to fill their cart with health care options.

For those aware of bswift’s background as a tech company it may not be a surprise that the software and services offered are aimed at streamlining a very sophisticated system, and making the user experience easy. And for those that know the company’s Executive Director of Exchange Solutions Brad Wolfsen, the shopping experience and ease of transition into a new set of consumer options will easily resonate. Mr. Wolfsen, before joining the team, built and led Safeway’s wellness and retail strategy programs, and was the President of Safeway Health.

According to Mr. Wolfsen, the real benefit he sees to bswift’s products are that they, “allow employers to focus on equity for employees and shift to a retail view on providing health benefits.”  Or, as the Society for Human Resource Management labels it, From Parenting To Partnering.

New Plans Equal New Decisions

With a growing demand for health benefit options that resemble a choose your own adventure book, but with a set amount of money to spend, the development of software must also be functional for employers and employees. The Springboard Marketplace has been constructed so that functionality can simply be turned on and off, so that choices are simplified. Additionally, since there is not a standard approach to benefit choices and many legacy systems that have to be revamped due to mergers, acquisitions and partnerships, greater automation for employers means less paperwork for HR departments. By making workflow, reporting and administrative work more efficient through automation, cost-savings increase even further.

“The best and brightest clients are currently driving what is in the bswift system now,” says Mr. Wolfsen. “As we move towards expanding the suite of benefit options and meeting compliance standards, we are also investing in the shoppers experience.”

He, along with his colleagues at bswift, believe that their tech company is nimble in ways that others are not, and that with the help of their platform and Emma, more and more employers will begin the migration to defined contribution and private exchanges. If true, that growing shift could redefine how health benefit decision-making is done by employees in the future.

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President Obama Fails To Explain Tech Glitches And Solutions In ACA Speech

Monday at 11:30am EST, President Obama spoke in the Rose Garden about the recent troubles with health insurance exchange enrollment and websites. With a team of young people standing behind him and Janice Baker at his side, the first person in the state of Delaware to successfully enroll in the exchange, President Obama said he was speaking to every American wanting to get affordable health insurance. He claimed that in the last three weeks, despite the horrific technological problems with the websites, that “half a million consumers across the country have submitted application through federal and state marketplaces.” He further touted that the “federal site alone has been visited 20,000,000 times” in the last three weeks. Unfortunately for those American’s who are really interested in signing up on the exchange sites, he glossed over the depth and breadth of the current troubles, giving a speech that sounded more like a State of the Union address with small-business examples and reading letters written to the White House.

President Obama also alleged that no one wants to see the exchange sites improve more than the federal government, noting that, “the website has been to slow, and people have been getting stuck during the process.” He also said that it is the mission of the administration to make them “more better,” with visible cringing from the audience, but claimed failures were due to response rates. He said the public response was “overwhelming, which has aggravated the underlying problems.”

However, he failed to go any further to explain what those other underlying problems were or when specifically they will be fixed. He did say that while HHS and contractors such as CGI Federal are working out the “kinks,” American’s should be patient. He claimed that “if the product is good, [American people] are willing to be patient,” suggesting that there will not be a delay for the individual mandate.

Nevertheless, he followed this by assuring the public that unlike Black Friday sales, the insurance plans will not run out like purchasing a new PlayStation – adding to the list of items the administration has compared exchange sites to, including iPhones and travel websites.

Despite his promises of improvements and putting the “best and brightest” on the job, CNN and other sites have insisted that the inherent technological and platform problems with Healthcare.gov will not be resolved anytime soon. This begs the question, that if the federal government is now searching for the best and brightest to correct the estimated 5,000-5,000,000+ lines of coding that need to be fixed on the federal site alone, who was working on the original platforms?

As he continued his speech, the President reminded the American public that although the websites for enrollment are not as, “quick, consistent or efficient as we want,” that the exchange sites are far more than “just a website.” He noted that many pieces of the Affordable Care Act (ACA) are already in place and being utilized by millions of Americans. He addressed pre-existing conditions, youth under the age of 26 and several other provisions that are already being rolled out by federal law, and the successes they have seen there.

He noted more examples of ACA triumph in Oregon, where he maintained that the exchange, “has cut the number of uninsured people by 10% in three week,” which is about “56,000 more Americans” with health insurance coverage.

During the speech, President Obama also tried to clarify the exchanges or marketplaces by describing them to the public as becoming part of a “big group plan… that bargains on your behalf for the best deal in health care.” He said that by doing so, insurance companies have created new products and options that strengthen market forces, leading to better deals.

He went on to say that without a doubt, “prices have come down,” further claiming that “when you add the next tax credits (those not yet implemented)… then the prices come down even further.”

The President rounded out his talk by noting the Republican party’s opposition to the ACA and how willing they were to “shut down the global economy” to fight against the ACA. A move, he claimed, that shows just how unwilling Republicans are to negotiate on legislation intended to, “free families from the pervasive fear that one illness one injury will cost you everything.”

While that may be the goal of the Affordable Care Act, the underlying technological and coding problems may prove to make that impossible.

 

What Will You Pay for Insurance Under ObamaCare?

Since it was first debated, one of the major criticisms of ObamaCare was that it was going to make the cost of health insurance skyrocket. And, in turn, many critics of the law who happen to own their own businesses, expressed concern that they would be forced to pass on these higher costs to their consumers. We were told that Papa John’s large pizzas would cost an additional 14 cents because of higher insurance premiums. Consequently, Papa John’s and Applebees—whose CEO is also an outspoken critic of ObamaCare—have seen the public’s opinion of them drop dramatically. Of course, the White House released numbers to dispute the notion that employers would be hiring fewer full-time employees to avoid paying for their health insurance. But the best news of all is that we can stop speculating about what will happen to insurance premiums under ObamaCare, and start looking at actual data.

This is precisely what the non-partisan Kaiser Family Foundation did in a recently released report on 2014 health insurance premiums in 17 states and the District of Columbia. What they found is that health insurance premiums aren’t that high. In fact, they are lower than the Congressional Budget Office projected that they would be. Of course, that doesn’t mean that rates won’t have increased from the year before, as Avik Roy points out in arguing things from the consumer perspective. But Roy also oversimplifies things, because he fails to take into account the net cost to the consumer in light of the fact that many–if not most–Americans, will receive federal subsidies to help them purchase coverage. On this point, Wonkblog’s Sarah Kliff does a terrific job of walking through different scenarios, based on an individual’s age, income level, and choice of insurance plan, to calculate actual monthly premiums in 2014 after the subsidies are taken into account. The news is generally quite good: A 40-year old woman in Seattle earning $28,725 a year will receive a $90 monthly subsidy, which means she can get a silver plan for $193 a month or a bronze plan for $123 a month. As insurance goes, that’s awfully inexpensive. And, Kliff points out, if the same individual was 60-years old, she’d effectively get an even bigger subsidy, worth $408 a month, so that she can get a silver plan for the same $193 a month, but would be able to get a bronze plan for just $44 per month. Folks, that’s $528 a year for health insurance with a 60% actuarial value.

These rates are low, and by October 1, we should have actual premium pricing for all 50 states, so more analyses like these can be done, and we can start outreach and enrollment efforts to educate people about their options and what various insurance products available in their state will cost them. What we won’t exactly know–a point Kliff makes in her own piece–is what people are willing to pay or what they consider “affordable” as the Affordable Care Act has implied care will be. This is more subjective, because it depends on how people prioritize their health, and thus their demand for health insurance, and how they budget the rest of their income. Overall, though, the early news seems positive, and suggests that for many people, affordable health insurance–and the health care it buys–is just a few months away.

 

What the Supreme Court’s ACA Ruling Means for You

As promised, I digested the Supreme Court’s opinions on the Affordable Care Act over the weekend. I also read the opinions of several health policy and health law scholars, watched cable news, and a bit of Jon Stewart and the Colbert Report. From all of this, the court’s ruling is quite clear (although CNN and Fox News both struggled with that initially): The Affordable Care Act is being almost entirely upheld. The one thing that didn’t get the okay from the Supremes was a provision related to the Medicaid expansion. More on that later this week. Today, I want to give you a summary of what the court’s ruling means for you as it relates to the individual mandate. After all, this has been the lightning rod element of the law, and the one that, in my interactions with others, is the least understood. My hope is that you’ll share this with everyone you know–especially if they seem to have their facts wrong.

As I (and many others) have said before, the individual elements of the Affordable Care Act are overwhelmingly popular. People like the idea that young adults can remain on their parents’ coverage until age 26. They like the idea that no one can be denied coverage because of a pre-existing condition. They like the reduction in their Medicare Part D costs for prescription drugs. The proof that they like these things is that even Mitt Romney–who is distancing himself from “Obamacare” despite having signed its precursor into law in Massachusetts–has simultaneously gone on record in support of these provisions. You can see the video here.

The catch is the individual mandate. That’s the one part where people’s feelings seem to turn sharply negative. These people will say that this is “socialized medicine” or a “government takeover” although they cannot even begin to accurately describe to you the differences between the Canadian, German and UK health care systems. What is happening, I believe, is that people are scared of the unknown, and are hearing that they are going to be required to spend money to buy something, at a time when our economy is struggling and people are hard pressed to pay the bills they already have. If one looks at this problem from the individual household level, rather than at a system level, it seems a legitimate–albeit still misguided–concern.

I have had people tell me that they had to buy a government insurance plan to avoid being taxed. In fact, quite the opposite is true. This plan was designed to encourage individuals to obtain insurance on the private market. It is, in that sense, the antithesis of socialized medicine. If you doubt this point, you should realize that this is why there was even a court case in the first place. As both sides made clear during oral arguments, if the government wanted to create a single-payer “Medicare for all” insurance program and require you to pay taxes to support it, there was no question that it would be lawful under the Constitution. At odds was the notion of whether the government can incentivize you to purchase a private product. The ruling was that, yes, they can. In fact, they already incentivize behavior to avoid certain purchases. For example, sin taxes on cigarettes and alcohol exist not only to raise revenue, but to discourage the use of these products which are harmful to individuals and the public’s health. However, people are still free to buy these products. Similarly, people are free to NOT buy health insurance. However, the government is encouraging them to do so by implementing a tax for individuals who do not purchase coverage. People don’t like taxes, generally, so it’s worth looking at that in more detail as well.

How much is the tax and who will have to pay it? The best, most concise overview of those details can be found here. Some of the basics are that the penalty will be phased-in beginning in 2014, when individuals who go without coverage will pay a nominal penalty of $95. I’m not sure if you’ve ever purchased insurance, but even in the most generous employer-sponsored plans, you’re likely to spend more than that in 2 months. So this is not a stiff penalty. That said, it does increase to $325 in 2015 and $695 in 2016. This is still cheaper than the cost of insurance in most cases. For families, the minimum penalty is three times the per person minimum, regardless of family size. So, that’s $2,085 per family in 2016. Still, much cheaper than a family insurance policy, which routinely costs more than $15,000 per year, of which the employee pays more than $4,000 according to the Kaiser Family Foundation.

The above amounts are minimums. For those who earn higher incomes, the amount of the tax they pay will be higher–up to 2.5% of their total annual income–although the amount of the tax can never exceed the average national cost of the lowest level of coverage (i.e., “bronze” plans). That means, that it will always be as much, or more expensive to buy insurance than to pay the tax, but with employers picking up the tab in most cases, the tax will be more expensive to individuals than their monthly premiums. Still, paying the tax doesn’t provide you with any tangible benefit in the way that having insurance coverage does, so it makes sense to get the coverage. I do think that if the penalty exceeded the total cost to buy insurance that would be coercive. Fortunately, that’s not the case.

Finally, there are several groups that are exempt from having to pay the tax. These include low-income individuals who do not file tax returns, those who are granted a hardship waiver by the Department of Health and Human Services, those without affordable coverage options (defined as coverage exceeding 8% of household income), and those with certain religious objections.

As a practical exercise, I think it’s worth considering several different groups of people and how they are likely to be affected by the individual mandate. First, there are those of us who already have employer-sponsored insurance. That’s about two-thirds of the U.S. population. For us, very little changes except that our employers will now have an incentive not to drop coverage, because doing so will subject them to a tax of their own. We have coverage, and therefore will not be subject to the penalty. There has been a focus on small employers who say the law will cause them not to hire additional staff, but I think those claims are mostly overblown. With an accountant and a lawyer, it is easy enough to get around the provisions that concern them by simply splitting their single business into two smaller businesses on paper.

For those who are enrolled in Medicaid or Medicare, nothing changes–except that drug coverage and preventive care in Medicare has become more affordable. Moreover, the Medicaid program will be expanding, which leads to the next group, the low-income uninsured. These individuals who are below 133% of the poverty level–many of whom are unlikely to be subject to the penalty anyway–will be able to obtain Medicaid coverage at no cost to them. So to recap, those with insurance through their employers, those who are elderly and/or disabled, and the low-income will keep the coverage they have or be able to newly obtain very affordable coverage.

That leaves those who are not offered insurance through their job and those who are otherwise uninsured. If these individuals aren’t quite poor enough to qualify for Medicaid, but aren’t quite wealthy enough to pay for all of their medical care with cash out of their own pocket, they will have the opportunity to purchase health insurance through the exhanges, which I like to think of as a Priceline.com for health insurance. Private insurance plans will compete with each other in a format that is more transparent and this is expected to rein in costs somewhat. These individuals will have their insurance purchase subsidized through tax credits. So, rather than the old way in which a person who bought individual coverage had to fork out the whole premium with after-tax dollars, they will only be responsible for paying a portion of the premium. It’s kind of like the government is playing the role of the employer in subsidizing the bulk of the cost for coverage for those whose employers can’t or won’t play that role themselves. For this group, it will become an unquestionably better deal for them to buy subsidized coverage than to pay the tax and get nothing in return. Right now, these are the people who are the most likely to decide that they can’t afford and don’t need insurance. They’re also the people who often turn out to be wrong and turn up at the emergency room seeking “free” care that the rest of us subsidize. So, it makes sense that they are the ones most averse to the penalty and most averse to the mandate.

Finally, there is the group of wealthy individuals who pay for their own care out of their pocket. Think Mitt Romney, who refused to enroll in Medicare on his 65th birthday. Why bother when you can just buy the hospital where you’ll be having your surgery if you happen to need it? I have little sympathy for this group, because whether they buy the insurance or just pay the tax, it’s not going to cost them much. Remember, there is a cap on the penalty not to exceed the national average for bronze plans. So Mitt pays an extra $15,000 in taxes each year. I don’t think he’ll go hungry.

So how many people does the individual mandate and the accompanying penalty really hang out to dry? Very few, I would argue. The low-income are exempt from the penalty and will be covered by Medicaid anyway. The very wealthy have it covered either way. The elderly and disabled have Medicare coverage and won’t have to worry about the penalty. The majority of us in the middle, who have insurance through our work won’t have to pay a penalty, and those of us who don’t have insurance through our work will find that, thanks to generous government subsidies, we will be able to buy insurance through the exchanges that is rather more affordable than it has been in the past.

Of course, if we don’t want to take advantage of that opportunity, it only seems fair that we should be penalized for our irresponsible decision-making. It just isn’t right for people to make a decision not to buy insurance knowing that there will be a safety net to catch them if they happen to need it. It’s called personal responsibility, and if that sounds like a Republican concept, it’s because it is. After all, they’re the ones who came up with the individual mandate in the first place. They just stopped liking it when the Democrats agreed with them. So you see, partisan politics have played to Americans’ emotions and have construed the individual mandate as something that it is not. It is not a burden on those who can least afford it to have to purchase yet one more thing. Rather, it is an incentive to motivate those who can afford it to stop acting irresponsibly.

 

The Supreme Court Ruling Is Finally Here

After many months of speculating on the outcome of the Supreme Court’s ruling on the Affordable Care Act, the decision was finally announced today. The ruling essentially upholds the entire Affordable Care Act as constitutional. While this is certainly the outcome that I had been hoping for, I am also convinced that it is the correct one. I haven’t read the dissenting opinions yet, but I’m anxious to see how they justified that. I, for one, am glad to have this piece of the puzzle put in place, because it helps us to move forward with the goal of improving our health care system. Call it the ACA or call it “Obamacare” it is the constitutional law of the land, and there is no appealing that, so perhaps it’s time to get used to it, and figure out how to make it work for you.

That said, while Supreme Court majority and dissenting opinions are not terribly complex, they do have to be read rather carefully to be well understood. Perhaps that explains why CNN made me nauseous with its incorrect headline proclaiming “Breaking News: Supreme Court Strikes Down Individual Mandate” for about 10 minutes before it got the story straight. I just printed out the opinions, all 193 pages of them. I’m not surprised that someone skimming got it wrong in their attempt to be first, but they should have sensed something when they saw Chief Justice Roberts aligning with Justice Ginsburg.

Rather than exercise a similar rush to judgment, I’m planning to spend the weekend reading through everything and formulating my thoughts, which I will post here on Monday. For now, I’m going to go bask in the glow that comes from a conservatively appointed chief justice putting the law before partisan politics. This has renewed my faith in America a little bit.

 

Will We Get to Watch the Supremes on TV?

The Supreme Court is a fancy place. They do things with a strong sense of tradition and that most definitely applies to how they hand down their opinions and what information is made available to the public. It is relatively recently that they began releasing time-delayed audio recordings of oral arguments. Television cameras remain a no-no. I suppose the idea is that they want to be able to hear cases and deliberate without feeling scrutinized. Introducing the real-time effect of television could produce some sort of Hawthorne Effect. If the Justices know that America’s watching, perhaps they’re worried that they’ll rule differently than they otherwise would.

I have mixed feelings about this. On the one hand, I believe in preserving traditional institutions, and I don’t think that anything and everything needs to be televised. On the other hand, the outcome of this case has the potential to affect many Americans who are unlikely to ever read a majority opinion from the Court, but would certainly catch snippets on the tube.

Perhaps that’s why so many groups are asking the Court to allow television cameras in the courtroom for the first time. There’s the Association of Health Care Journalists, C-SPAN, the Radio Television Digital News Association, the New York Times, and most interestingly, Iowa Republican Sen. Chuck Grassley. My hunch is that their requests will be denied, but I hope I’m wrong, because I’d watch this case around the clock like it was the Casey Anthony trial.

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Supremes to Hear Case on Affordable Care Act

The legal challenges to the Affordable Care Act commenced just as soon as the bill became law in 2010. There have already been a number of lower courts that have ruled on the constitutionality of the law’s individual mandate, and I have written fairly extensively about these cases here, here, here, here, here, here, here, and here. Those links are in chronological order, and I’d suggest reading them if you need to get up to speed quickly on the issue.

More recently, the Court of Appeals for the D.C. Circuit ruled in favor of the individual mandate, and the decision is notable in that a conservative judge and Reagan appointee broke with the precedent of conservative judges ruling against the law. In fact, he was the second judge to do so. Jonathan Cohn has more of the details over at The New Republic as does Timothy Jost at the Health Affairs blog.

This decision was the prelude to the Supreme Court’s decision to hear the Affordable Care Act case early next year. In fact, they’re not only going to hear it, they’ve set aside a record amount of time for oral arguments–5 1/2 hours to be exact. The New York Times’ Adam Liptak has more.

Meanwhile, voters in Ohio passed a meaningless referendum rejecting the individual mandate. Why is it meaningless? Because if the Supreme Court finds the individual mandate unconstitutional, the Ohio amendment won’t be necessary, and if the Court upholds the mandate, federal law trumps state law, rendering the amendment useless. Which will it be? We’ll have our answer just in time for the election in 2012.

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Mandate Realists

Last week, I wrote about what might happen if the Supreme Court struck down the individual mandate portion of the Affordable Care Act, leaving the rest of the law intact. It seems that others have been chiming in to, and if I interpreted the Lewin Group’s study in Health Affairs through a “glass half-full” lens, others aren’t convinced and certainly aren’t optimistic.

One of the cynics (realists?) is Mark Hall, who I know and admire. He has a well-written article critiquing the Health Affairs piece, where else but the Health Affairs blog. In his post, he does an excellent job of explaining why Lewin’s research is an outlier and why we should put more stock in the doomsday predictions of Jonathan Gruber and friends. He also puts forward a sort of Pascal’s Wager in support of the mandate: We don’t know how bad things will be without a mandate, but we do know that things won’t be bad with the mandate, so better to make the safe bet. I actually agree with all of this, with one exception: It ignores the case of the status quo, which I think is worse than all the other elements of health reform minus the individual mandate, which is itself worse than all of the elements of health reform including the individual mandate.

I’m all for the individual mandate, I’m just not ready to throw in the towel if that single piece of the law takes a hit. For more on how there’s “no ‘silver lining’ in repealing [the] insurance mandate” check out this excellent piece from Naomi Freundlich at Health Beat.

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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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The Necessity of the Individual Mandate

People are quite accepting of the idea that choices have consequences and that choices are often unavoidable and irreversible. That’s why so many people like to bandy about the saying “You can’t have your cake and eat it, too!” Yet, with health insurance, that’s exactly what people seem to be longing for. They don’t want the government telling them what to do (e.g., requiring everyone to buy health insurance), but they also want health insurance when they need it, lest they be unable to afford a trip to the doctor or hospital. Americans are being confronted with an inescapable “either/or” proposition, all the while clamoring for a “both/and” solution that simply doesn’t exist. Let me put it into the starkest of terms. Forget politics and the courts for a minute and just join me in a simple thought experiment.

Congress passes, and the President signs, a law that forbids health insurers from denying people coverage on the basis of pre-existing conditions. As a result, people with pre-existing conditions are happy, because they can now purchase health insurance, which they couldn’t previously do in many cases without taking out a home equity loan. At the same time, people without pre-existing conditions are happy, because they no longer have to purchase health insurance while they are healthy. Why waste the money? Instead, they can simply wait until they get sick and buy insurance then, when they need it. After all, the insurance company is powerless to prevent such behavior, thanks to the new law.

Pretend for a moment, that you are the CEO of a major health insurance company. Suddenly you find yourself insuring only sick people. All the healthy ones don’t need your product, and there is no incentive for them to purchase it until they fall ill. Ordinarily, you combated this problem by denying coverage to sick people–or by charging them much higher premiums. Congress won’t let you deny coverage any more. What do you do? Your options are simple: Keep premiums low and pay out enormous claims, or raise premiums dramatically in hopes of generating a net profit after paying out enormous claims. It’s not rocket science. Under this scenario, health insurance costs would skyrocket, quickly becoming unaffordable for all but the wealthiest Americans.

If only there was some way to ensure that people didn’t wait until they got sick to purchase insurance. Enter the individual mandate. By requiring everyone to purchase insurance coverage, the insurance companies no longer face a scenario where all their beneficiaries are sick and costly. In fact, the number of healthy insured persons will go up, and that should actually steer things in the opposite direction, helping to spread risk and bring premium costs down on average.

In the end, we are left with three options:

1. Return to the status quo. Under this approach, most of the sick who truly need it will be unable to afford health insurance. Our system will remain fragmented and costs will continue to rise. 
2. Ban pre-existing condition exclusions without an individual mandate. Under this approach, people won’t buy health insurance until they get sick. As a result, health insurance costs will rise even faster than they have in the past, the number of uninsured persons would grow dramatically, and the health insurance system as we know it would face significant contraction if not collapse.
3. Ban pre-existing condition exclusions with an individual mandate. Under this approach, everyone would be covered and health insurance costs would not increase at such alarming rates. In fact, they might even decrease.

Maybe it’s just me, but door number 3 seems like a pretty clear winner. It’s only when politics and the legal system get involved that such economic commonsense gets confused. As most of the courts thus far have ruled that the individual mandate is severable (meaning the mandate can be ruled unconstitutional while the rest of the law remains intact), door number 1 seems firmly closed. Fundamentally at issue is whether the decision not to buy health insurance is an economic decision affecting interstate commerce. Based on the different outcomes that can be expected depending on the presence or absence of a mandate, I don’t see how a judge worth their salt could determine that the decision not to purchase health insurance isn’t an economic decision. This much is certain: there will be a decision and it will have far-reaching consequences. To wish otherwise is to hope in vain. We must eat our cake, or save it for later. We simply cannot do both.

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