Straight talk on health care reform: Reform's individual mandate at heart of legal challenges
By Bob Semro
The "individual mandate" is a fundamental part of last year's national health care reform law.
Under the Affordable Care Act, in 2014, Americans who do not have health insurance will be required, or mandated, to purchase coverage or pay a tax penalty. Exemptions will be granted for financial hardship, religious reasons or if the price of the lowest-cost plan exceeds 8 percent of annual income.
After the act was signed into law by President Obama, the individual mandate was challenged in a number of federal courts. In perhaps the most important case, twenty-six state attorneys general (including John Suthers of Colorado) challenged the constitutionality of this provision. Oral arguments in this case, State of Florida vs. the Department of Health and Human Services, will be heard in the 11th Circuit Court of Appeals on Wednesday in Atlanta. Regardless of this court's ruling, the mandate seems destined for the U.S. Supreme Court.
The legal arguments around the mandate are complex, but the basic reasoning behind the mandate is simple: To make health care coverage affordable, all Americans must share in the cost by buying insurance. The mandate prevents "free riders" from seeking expensive medical treatment in emergency rooms and then passing on costs to the rest of us.
Why is the mandate being challenged?
The individual mandate would represent the first time that the federal government would require citizens to purchase a product from a private company. Opponents consider this an unwarranted federal intrusion upon individual liberty.
They argue: If a person chooses not to purchase health insurance and accepts the financial liability for his or her own health care bills, what's wrong with that? The argument works in principle, but in reality, a huge part of the cost of health care is attributed to uncompensated care – medical treatment for the uninsured that is not paid for and is ultimately passed on to those employers and individuals with health coverage.
Under the Emergency Medical Treatment and Active Labor Act of 1986, hospitals cannot turn away patients based upon their ability to pay. The act requires hospitals to provide emergency health care services regardless of citizenship, legal status or ability to pay, but it does not provide any provisions for reimbursement.
If a person chooses not to purchase coverage and cannot afford to pay for his medical treatment, those costs will be passed on to other people who can pay. So, in a very real sense, those who take financial responsibility for their own coverage could end up paying for those who don't.
The real reason for individual mandate is the Affordable Care Act's reliance on the private insurance market. In a government-run health care system, the mandate would be irrelevant, but the mandate is a critical source of private funding for many of the reforms that Americans support the most. Those reforms include the elimination of exclusions for pre-existing conditions, preventing individuals from losing their coverage based upon health status and the elimination of annual or lifetime caps on benefits.
Private insurance companies can't afford to do all of those things without finding a way to pay for them. If these popular reforms were implemented without a funding source like the individual mandate, insurers would either go out of business or be forced to substantially increase premiums.
As a result, insurance carriers supported the individual mandate as a reasonable private market solution. In fact, Karen Ignagni, president of America's Health Insurance Plans, made the insurance industry's initial support of the Affordable Care Act dependent upon the inclusion of an individual mandate to cover the cost of implementing those reforms.
If the mandate were overturned, it would eliminate reforms popular with Americans and it would increase costs for the insured, mostly because of cost-shifting from paying for care of the uninsured. According to the analysis of the non-partisan Congressional Budget Office, elimination of the mandate would:
- Increase the number of uninsured by about 16 million people, resulting in an estimated 39 million uninsured Americans by 2019.(1)
- Increase premiums for new non-group policies by 15 to 20 percent relative to the current law.(2)
- Reduce the number of Americans with employer sponsored insurance coverage by 4 million to 5 million.(3)
- Reduce the number of Americans with individual coverage by 5 million.(4)
- Reduce the number of people on Medicaid and the Children's Health Insurance Program by 6 million to 7 million people.(5)
- Create higher health spending, on average, for Medicaid enrollees than under the current law.(6)
The demise of the individual mandate would not mean the end of the Affordable Care Act. There are alternatives, such as modifying open-enrollment periods and imposing late-enrollment penalties, imposing a tax to pay for uncompensated care, or conditioning the receipt of certain government services upon proof of health insurance coverage. However, they are less effective and problematic in their own right.
The arguments over the individual mandate will certainly continue. Is it big government at its worst, or is it a practical option that supports the private market and makes popular and meaningful reforms possible? The ultimate decision will likely come from the nine justices of the U.S. Supreme Court.
1) Congressional Budget Office, Effects of Eliminating the Individual Mandate to Obtain Health Insurance, July 16, 2010.
4) Julian Pecquet, The Hill, Repeal of health care law's individual mandate highlighted as a deficit-cutter, Dec. 14, 2010.
6) Congressional Budget Office, Effects of Eliminating the Individual Mandate to Obtain Health Insurance, July 16, 2010.