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The Chaos of a Narrow Ruling

By Rebecca Adams, CQ Staff

June 18, 2012 -- The health care case before the Supreme Court is as big as it can get in terms of the law: It's about the reach of government, congressional power and individual liberty.

Yet during oral arguments in the case, the justices showed that they were well aware that their ruling, however important in constitutional terms, would have serious real-world effects—on consumers, on the insurance industry and on the nation's health care system.

This is especially true if the justices decide to throw out only part of the law—the requirement that most Americans buy insurance, for example—and keep the rest. That requirement, known as the individual mandate, is central to the law because it guarantees the insurance companies a new pool of customers and therefore offsets lost revenue associated with consumer protections that would require them to cover higher-risk patients.

Justice Samuel A. Alito Jr. referred to economists' predictions of the effects of striking the requirement, asking, "What would happen to the insurance industry?" Justice Elena Kagan suggested that insurance markets would shrivel if the justices removed the mandate but upheld consumer protections in the law, saying "the whole system crashes and burns." Justice Sonia Sotomayor, similarly, asked about the "death spiral" such a scenario could cause through an escalating series of premium increases.

These are scenarios that might be better addressed by actuaries than judges, but the decision on whether to keep all or part of the law is nonetheless in the justices' hands, and the practical ramifications are enormous.

A limited decision would set in motion campaigns for Congress to change those parts of the law that remain. For consumers, some would face higher costs in new insurance markets, known as exchanges, than under current law. The new state-based exchanges would probably exist but in some scaled-back way. The long-term consequences of a partial ruling on the overall insurance markets are even harder to predict, insurance experts say.

If the court ruled against the individual mandate as well as the two associated consumer protections—one preventing insurers from charging sick people more and one prohibiting them from denying coverage to people with pre-existing conditions—consumers would face the same problems they have today in trying to find insurance. Some patients would not be able to buy insurance at any cost, and the law would have failed to protect people who need care the most.

The potentially more disruptive scenario occurs if the court strikes down the mandate but keeps the consumer protections. While it's unclear exactly what the industry would do in that case, experiences in states that have passed such protections without the mandate suggest that rates for everyone could climb, although none of the state laws is exactly like the federal statute.

Those who would be affected by such a narrow ruling—especially insurers—say a decision striking the mandate but upholding the rest of the law would be difficult to respond to in the year and a half that remains before the new markets are supposed to open.

"A partial decision would add considerably to the uncertainty and confusion," said Mike Tuffin, who worked for nine years, until this month, for the trade group America's Health Insurance Plans (AHIP).

Insurers Play Offense

Insurers—particularly those active in the small-group and individual markets, such as WellPoint Inc., Blue Cross and Blue Shield Association, and smaller plans—are already anticipating the possibility of a narrow ruling, making their view clear that the mandate is essential to the rest of the law.

They are representing their case through online inside-the-Beltway ads, Twitter feeds, a website devoted to showing "the link between the mandate and market reforms" that includes contact information for lawmakers, and a Facebook page complete with graphics on the effect of the mandate on premiums. AHIP, the industry trade group, organized the pre-emptive public relations moves.

The industry also appears to be trying to buy good will with the public in anticipation that the law will be struck down. On June 11, three major insurers—Aetna Inc., Humana Inc. and UnitedHealth Group Inc.—announced they would keep some, but not all, of the more popular provisions in the law, including those allowing young adults to stay on their parents' policies until age 26, banning insurers from rescinding coverage after customers get medical care, covering some preventive care without co-payments and providing easy-to-navigate appeals processes for policyholders protesting a claims decision. Some of those benefits could help insurers' balance sheets and were common practice even before the law passed. All poll well with the public.

But the insurers did not promise to accept the much more sensitive provisions at stake in the Supreme Court case. UnitedHealth officials said they would like to keep offering insurance at reasonable rates to people who have had medical problems but that they cannot afford to do so unless all their competitors also do so. The law requires insurers to cover pre-existing conditions for children up to age 19 starting in 2010. In 2014, the ban on denying coverage for pre-existing conditions is supposed to extend to adults.

"One company acting alone cannot take that step," UnitedHealth said in a statement.

World Without a Mandate

Policy analysts tend to agree that without a provision like the mandate in place to force healthier people into the insurance market, premiums would tick up at least a bit. The estimates of increases range from 2.4 percent per person to about 15 percent to 20 percent for an average rate. A 2010 study by MIT economist Jonathan Gruber projected that average premiums could rise by as much as 27 percent in 2019.

The Congressional Budget Office (CBO) estimated in a 2010 analysis that eliminating the mandate could drive up premiums for new non-group policies by about 15 percent to 20 percent.

CBO and the Urban Institute both projected that about 16 million more people could be uninsured if the mandate were struck. Under the law, about 23 million people would remain uninsured in 2019, by CBO's count. Taking away the individual requirement to buy coverage could leave about 39 million uninsured in 2019.

The potentially higher numbers of uninsured would pinch the profits of hospitals and other medical providers, who are already expecting significant cuts under the law.

But not everyone agrees that the problems would be that severe.

"I just don't believe the numbers," said Gail Wilensky, who ran the Medicare and Medicaid programs in the early 1990s under President George Bush. "Those models are based on what you assume will happen in a world which doesn't exist. To me, the very large reductions in the number of uninsured make no sense, given observations from employment-based insurance."

Wilensky said that the key to people's decisions about buying insurance is whether they can afford it, not whether they are required to buy it. Most healthy lower-income or middle-class people, she believes, would buy insurance because under the law they would be subsidized by the government.

And experts at the think tank Rand Corp. say that studies showing "average" rates can be misleading because they are higher than the actual increase that any one individual would personally face.

The main reason average premiums would increase is that different types of people would buy insurance under different situations. Rand found that average premiums would rise about 9.3 percent if the mandate were removed—but that this is because the age and health of the people who enrolled would be different without the mandate, not because insurers would charge each individual a lot more. Under the law, insurers can still charge older people more than they do younger people. The difference that any one person would face in premium costs would be much lower. If the mandate were removed, Rand analysts found, any given individual would see only a 2.4 percent rise in his or her premiums.

AHIP officials present the experiences in Washington state and Kentucky, among other states, as evidence of the startling premium increases that can occur in areas in which insurers are banned from charging sick people more or denying them coverage and there is nothing that compels people to buy insurance. In those states, the number of insurers dropped dramatically when the legislatures passed laws that effectively allowed people to wait until they got sick to buy coverage.

Several justices asked questions that suggested they might buy into the view that removing the mandate alone, as the 11th U.S. Circuit Court of Appeals chose to do in its ruling last year, could raise rates higher than they normally would be and jeopardize consumers' ability to buy insurance. Others were concerned about what kind of judicial test they could apply that would give them the authority to strike the mandate without eliminating other provisions.

Kagan recalled failed experiments in states that had enacted laws that prevented insurers from charging sick people more or refusing to offer them insurance.

But some policy analysts say that past experiences in states are not all that applicable to the federal law, in part because Congress added a half dozen or so provisions to try to entice healthy people to buy insurance.

In the 2010 law, people would get significant subsidies to buy coverage. For instance, lower-income people earning twice the federal poverty level (or $22,340 this year) would get an average subsidy that would cover 80 percent of their costs. Premium subsidies would be available for people earning up to four times the poverty level, or $44,680 for an individual this year. People who earn 2.5 times the poverty level or less would get extra help from the government in picking up their out-of-pocket costs, too.

"Most people who have access to group insurance—which people with subsidies will have in the exchange—do buy insurance, regardless of whether they are mandated to do it," said Wilensky.

The state experiences may also not be predictive of the federal one because in some of the states, the rate schedule was set so that younger and healthier people had to pay a lot more than they would under the federal law. In some states, younger people were even required to pay exactly the same rates as older, sicker people. Under the federal law, healthier people would still be subsidizing those with higher medical costs, but insurers would be able to offer younger people rates that are about one-third of those of older people.

Other minor details could also make a difference. For instance, the law authorizes limited-time enrollment periods that could prevent people from calling to get insurance on the way to the hospital. Another provision would, for the first three years, give insurers that have the highest-cost cases more money than companies that cover healthier people.

Comparisons between the state experiences and the potential federal framework are "just irrelevant and misleading," said Gary Claxton, vice president and director of the Health Care Marketplace Project at the nonprofit Kaiser Family Foundation.

No Mandate, No Protections

The Obama administration maintains that if the court strikes down the mandate, it must also take the protections with it. In that case, the market would face less change than if the protections were left in place, but there would still be a need to revisit the system. Without the protections, people with poor medical histories would face a hard time finding affordable insurance—or any insurance at all.

"That means that irrespective of what people can pay or are willing to pay, it won't make a difference, because insurers won't sell to you no matter the circumstances," said Ron Pollack, the founding executive director of the consumer advocacy group Families USA. "You would have a lot of people who need health care the most out in the cold."

That point has been somewhat overlooked in the discussions about the potential implications of different rulings, said Cori Uccello, senior health fellow of the American Academy of Actuaries and a commissioner on the Medicare Payment Advisory Commission. "I think people aren't thinking a lot about this," she said, saying the protections have been the most favorably received parts of the law.

And even if the exchanges are still there for the uninsured, their rates might not be affordable even if the government subsidies in the law are upheld by the court.

The law envisions the exchanges offering standardized plans with different levels of benefits: Gold plans would offer better benefits than silver plans, which would be a little more generous than basic bronze plans. The subsidies are supposed to be based on the costs of the second-least-expensive silver plan. The consumer protections in the law are designed to protect people from having to face wildly varying rates, and, without those protections, insurers probably would quote individualized rates.

In other words, one of the main goals of the law—covering the uninsured at affordable rates—would go unfulfilled if insurers could still decline to cover people or quote them rates based on their health status.

Then lawmakers would have to answer the more difficult political and philosophical question of whether taxpayer funds should be used to support a private insurance system that could deny coverage to some of the people whose taxes help pay for that system.

Because the pieces of the law are so intertwined—the exchanges and their rates are dependent on the subsidies and the consumer protections, and the protections are dependent on the mandate—keeping one part of the law in place while overturning another would have the effect of essentially creating a system different from the one envisioned.

It's a point that was not lost on the court's potential swing voter, Anthony M. Kennedy, who said that trying to assess the economic effects of slicing various provisions from the law could give the court more of an activist role than if it simply tossed the entire thing.

"If we lack the competence to even assess whether there is a risk" to insurers by striking some provisions, Kennedy said during the arguments, "then isn't this an awesome exercise of judicial power?"

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