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Wednesday, September 14, 2011

How critical is the Individual Mandate really for the implementation of health care reform?

by Torsten Bernewitz

Yesterday, a District Judge in Harrisburg ruled that Congress exceeded its constitutional powers when it included in the Affordable Care Act the provision commonly known as “individual mandate”, which will require that by 2014 nearly all persons not covered by Medicaid, Medicare, or other health insurance programs purchase an approved insurance policy.

Now, this is only one decision, on a lower level. But even if it becomes a trend - will it jeopardize the health care reform in the US with all its effects on the various stakeholders: patients, providers, payers and manufacturers of drugs and medical devices?

This may be important as we are working on various strategies to address the challenges and opportunities of health care reform. If there is a good opportunity that the reform will be toppled, then perhaps "wait and see" is a good approach. So how likely is it?

Some thoughts:

While outlawing denial of health coverage on the grounds of pre-existing conditions aims to give coverage access to individuals who want to purchase insurance but cannot obtain it, the individual mandate is designed to expand the insurance pool by bringing in individuals who have been disinclined to purchase a health policy - generally assumed to be the young and healthy, i.e. the “better risks”. This measure is deemed necessary to offset the incremental coverage costs arising from the law’s guaranteed issue provisions and limits on premium variations.

The individual mandate is only one provision in the new law - but this is the one that is the anchor point for the constitutional challenge. And a constitutional challenge is (currently) the only realistic way to stop the law's implementation.

A number of states have joined litigation in federal challenging the constitutionality of the provision. So far several court rulings have disagreed about whether the mandate is constitutional, and it is expected that the ultimate decision will be taken by the Supreme Court.

But even if the individual mandate were ruled unconstitutional, this may not make such a difference to the rest of the Affordable Care Act. The reason is that it isn't really a strong mandate, because the penalties for violating the law are fairly mild.

The fixed dollar penalty is set at $95 per person per year in 2014, $325 in 2015, $695 in 2016, and indexed to inflation thereafter. The amount is halved for under-18-year-olds, and capped for a family at 3 times the individual amount or 2.5% of household income of household income, whichever is greater. To compare, in 2009 the average annual premium was $2,985 for a single person and $6,328 for a family, and has likely since increased.

So as it stands today, the individual mandate may actually not be very effective anyway (and therefore many calculations by the government may be wrong, but that's another story), and if it falls, this is probably not the undoing of the Affordable Care Act.

Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at
ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.


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