Get ready for the "death spiral."
Harsh questioning by conservative Supreme Court justices Tuesday sparked concern that the health care reform law's individual mandate could be stricken. Without it, health insurance companies and the White House are worried the health care market could blow up come 2014.
"If the mandate goes, people can literally buy coverage on the way to the hospital and then drop it the next day," said Alissa Fox, a senior vice president at the Blue Cross and Blue Shield Association, a trade group made up of local Blue Cross and Blue Shield health insurance companies.
If the Supreme Court upholds the law, but knocks out the mandate requiring almost everyone to buy their products, the industry warns that health care reform will result in higher premiums and less access to coverage. In court and before the public, the Obama administration is making the same case.
Premiums for individuals who don't get insurance at work would be 2.4 percent to 40 percent higher and 12.5 million to 24 million fewer people would get coverage without the mandate, according to reports compiled by America's Health Insurance Plans, an industry trade group. The estimates vary largely based on guesses about whether the law's subsidies would encourage uninsured people to get coverage even without mandates.
The Supreme Court on Wednesday wrestled with this very question. On the third and final day of oral arguments in a case challenging the constitutionality of the individual mandate and other elements of the health care reform law, justices weighed whether invalidating the individual mandate would necessitate repealing the entire law. The court is expected to issue a decision before the end of June.
“What you would get if the court threw out the mandate and left the rest of the law in place is a really ugly health insurance market that doesn’t work very well and makes everybody upset,” said Robert Laszewski, president of Health Policy and Strategy Associates, a consulting firm.
Insurance companies with bigger medical expenses charge higher premiums. In the insurance industry, it is called the death spiral: when more and more healthy people stop buying plans and only the most expensive patients are left. People who get insurance at work would be mostly untouched because they are already in large pools that let them share the risk of their medical expenses. For individuals and families who buy insurance on their own and for small businesses, it's another story.
To the authors of health care reform, the individual mandate is critical. The plan is built on the theory that the best way to expand coverage and promote affordable plans is to get younger, healthier people to pay premiums into the system that can be used to cover the medical expenses of older, sicker people. Over time, those young, healthy people will age and develop ailments that will be paid for with premiums paid by the next generation.
The Obama administration would find itself in a strange position if only the mandate is voted down. "They wouldn’t have much of a choice but to try to help the insurers get over the hump,” said Joseph Antos, an economist at the conservative American Enterprise Institute. The administration hasn't conceived a plan to cope with a health care reform law that has no mandate.
States have attempted partial reforms of their insurance markets in the past and the results weren't pretty, said Jonathan Gruber, a Massachusetts Institute of Technology economist who helped design both his home state's and the national health care reform plans.
Before then-Gov. Mitt Romney (R) enacted a law that included an individual mandate in 2006, Massachusetts and other states put in place insurance regulations similar to Obama's law, Gruber said. “It basically destroyed the non-group markets, where basically you ended up with very high prices,” he said. “It’s not just idle conjecture that the mandate matters.”
Robert Zirkelbach, a spokesman for America's Health Insurance Plans, warned of "disastrous consequences" for consumers if the mandate goes away. “Companies are going to have to make some very difficult decisions and it’s going to be a very challenging environment," he said.
Among those choices could be to simply stop selling insurance plans to individuals and small businesses, and focus on employer health benefits and private plans in Medicare and Medicaid, Gruber said. This would make it harder to find insurance to buy.
The experiences in Massachusetts and other states won't necessarily be duplicated under a national health care reform program that lacks a mandate, however, said Karen Pollitz, a senior fellow at the Henry J. Kaiser Family Foundation and a former health official in the Obama administration.
The law would provide health insurance subsidies to people earning between 133 percent and 400 percent of the federal poverty level, Pollitz said. New federal insurance market regulations also make it harder for health insurance companies to skirt rules prohibiting discrimination as they did in states like Washington and Kentucky, she said.
“Is that necessarily fatal? I don’t think so,” Pollitz said. “I think most of the uninsured would rather have coverage. I mean, why wouldn’t you?”
Earlier on HuffPost: