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Judging from the skeptical questions posed by justices last month, there’s a real chance that the Supreme Court will strike down the central provision of the Affordable Care Act: the mandate that individuals carry health insurance. Without it, the Obama administration says, some healthy people will forgo coverage, which will force insurers to raise premiums on everyone else, thus prompting even more people to drop out of the insurance pool until only the sickest and costliest remain—a spiral to the death for so-called Obamacare.
Getting everyone or nearly everyone to pay in is essential for financing the key protections of Obamacare: the requirement that insurers cover all comers, and that they do so without charging extra for costly preexisting conditions. Yet work being done by economists, health policy experts, and lobbyists suggests there may be alternatives to the individual mandate that would rope healthy people into buying insurance in ways that don’t attract legal challenges.
In theory, a mandate is a good way to get more people into the insurance pool. The Affordable Care Act imposes a mild penalty for noncompliance: $695 annually, or 2.5 percent of household income, whichever is higher. The law also says nonpayers “shall not be subject to any criminal prosecution or penalty.” Even with generous government subsidies, a basic health insurance policy would cost over $2,000 for an individual earning $30,000 a year. A healthy person might prefer to opt out and pay the fine, says Helen Darling, president of the National Business Group on Health, which represents American Express (AXP), Boeing (BA), FedEx (FDX), IBM (IBM), and other large companies.
The Congressional Budget Office estimates that even with the mandate, about 26 million Americans, down from about 56 million now, would be uninsured in 2016—mostly undocumented immigrants, people exempted because of low income, and those who simply prefer to pay the penalty.
Because the penalties for noncoverage are so weak, it doesn’t take a lot to come up with alternatives that would accomplish much of what it’s supposed to achieve. Some people even think those options could work better. “It’s quite possible,” says Paul Ginsburg, president of the nonpartisan Center for Studying Health System Change, “that some of these partial approaches might be more effective than the mandate they would replace.”
Illustration by 731; Photograph by Joshua Roberts/Reuters
The alternative that comes closest to preserving the mandate would be to give tax credits to everyone who carries health insurance. That’s functionally the same as fining those who don’t have coverage, and less subject to constitutional challenge. It’s essentially the approach being advocated by House Budget Committee Chairman Paul Ryan (R-Wis.), who would provide refundable tax credits, usable solely for buying health insurance, of $2,300 for individuals and $5,700 for families.
Converting the insurance requirement to a tax credit is “both a really smart idea and shows you the fallacy of the argument against the mandate, if you can solve the constitutional problem with such a simple thing as relabeling it,” says Peter Gosselin, a senior health policy analyst for Bloomberg Government. One hurdle is that handing out tax credits would worsen the federal budget deficit unless the move were offset by spending cuts elsewhere or—gasp—a tax increase. (Ryan would cut spending.)
If the credits don’t fly, another way to maneuver people into buying insurance without a mandate is to warn them that their premiums will go up if they put off getting covered. Medicare has late enrollment penalties for both Part B (doctors’ and outpatient coverage) and Part D (prescription drugs). The Part D penalty is 1 percent of the premium for each month after age 65 that someone enrolls. A related idea, used in most company health plans, is to give people just one opportunity per year to sign up. That way they can’t game the system by waiting until they’re sick or hurt to rush to buy a policy.
Deciding how tough to make the conditions for enrollment would be tricky. The strongest inducement would be to warn people they have just one shot to apply for coverage under the Obamacare protections. If they miss the deadline, they have to buy coverage at whatever price the market will bear—which could be prohibitively high for the seriously ill. That might be more punitive an idea than America can stomach. When misfortune befalls the uninsured, “are we really prepared to turn them away?” asks Larry Levitt, a senior vice president at the Kaiser Family Foundation, a nonpartisan health policy think tank.
The likelihood that Congress would pass any of these proposals is tough to gauge. Many Republicans are committed to overturning Obamacare in its entirety; their mantra is “repeal and replace.” They value the idea of near-universal coverage far less than Democrats. The GOP’s priority is lowering the cost of health care through measures such as limiting medical malpractice suits, which Republicans say would enable more people to afford insurance. Yet Republicans understand they’ll need to get healthy people into the insurance pool somehow if they want to preserve Obamacare’s popular prohibitions on denial of insurance and higher premiums for preexisting conditions. “We’d have to get that balance right,” Representative Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee, told the New York Times on April 4.
Whether the mandate lives or dies, old-fashioned marketing would be an easy way to sign people up. In Massachusetts, which has an individual mandate, players from the Boston Red Sox urged people to get covered. More than 98 percent of state residents have health insurance. Behavioral economists would suggest enrolling people in a health plan automatically and giving them an option to drop it if they truly object. Companies that automatically enroll employees in 401(k) plans have found that contribution rates have risen as much as 30 percentage points, according to the Employee Benefit Research Institute.
Alternatives to the mandate would undoubtedly leave many people uncovered. But supporters of the health-care law’s protections are hopeful that they will be enough, if the mandate falls, to keep Obamacare from falling into the dreaded “death spiral.”
The bottom line: The $695 annual penalty for failure to buy health insurance might be too small to force people to get covered.