All is not lost if the individual mandate is struck down

The breaking news is that the 11th Circuit Court has ruled the individual mandate unconstitutional but that the rest of the ACA is not. This presents the possibility of an eventual ruling by the Supreme Court that jettisons the individual mandate while keeping in place all other provisions of the health reform law. Should that happen, what might it mean? What could be done?

Turns out, Kevin and I visited this issue in February. What we wrote then is still relevant today. So, here’s the key part of our piece:

States can also do their part to bring the remaining free riders into the system. Massachusetts has an individual state mandate in place, which appears to be working.  Some “blue states” can follow Massachusetts’s lead and pass a state-level individual mandate. Others, like Vermont, are exploring single-payer reforms. A natural experiment is unfolding, with additional encouragement from legislation recently introduced in the Senate by Sen. Ron Wyden, D-Ore., and Sen. Scott Brown, R-Mass., that would permit immediate flexibility for coverage expansion under the health law.

The Centers for Medicare and Medicaid Services also has some plausible regulatory options, even without new federal legislation. Under existing law, CMS can grant such waivers, but they become effective no earlier than 2017. The following suggestions could partially bridge the gap until waivers become possible or the Wyden-Brown bill is passed.

One idea is to follow the examples set by Medicare Part B, which covers outpatient physician services, and Medicare Part D, the prescription drug program. CMS could permit “qualified health plans” in the exchanges to impose Part B and D-style premium surchargeson customers who delay obtaining coverage. The mechanism would be through an exception to the anti-discrimination rules, and the law gives the secretary of Health and Human Services some flexibility to issue regulations to limit adverse selection.

Another possible regulatory adjustment is the definition of “qualified individual” in the law. The definition currently excludes undocumented aliens, and CMS also could try to exclude free riders unless they pay a surcharge to rejoin the system. While there is little direct textual support for this rule itself, the ACA grants significant rule-making authority to implement the law.

A complementary approach would be to amend the definition of a “qualified individual” under state law. The NAIC’s American Health Benefit Exchange Model Act defines “qualified individual.” The suggestion would be to exclude free riders from this definition, with the state law approved by CMS. Exceptions might be necessary for individuals who lacked the financial capacity to have previously purchased insurance, but as seen above, these people aren’t really free riders in the classic sense.

Others have suggested alternatives, like significant waiting periods after failing to enroll, or significantly higher copays or deductibles for late enrollees. These ideas would require federal statutory amendments to implement them properly.

The end result could be that losing the individual mandate primarily hurts “red state” individual insurance markets, while blue states would enjoy more coverage and stability. After a couple years of that transparent dynamic, red states (and their residents) might be willing to gradually follow suit. While the absence of an individual mandate will certainly slow coverage expansions, it does not spell the doom of health reform.

UPDATE: Add link to WSJ article that confirms the tweets I had seen.

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