Could the Federal Health Law Survive Without the Individual Mandate?

By: - April 6, 2011 12:00 am

Of all the complaints that have been made about the new federal health care law, the angriest have been against the law’s “individual mandate,” which requires everyone who can afford health insurance to purchase it or pay a fine. Starting in 2014, people who fail to buy in will be charged a tax penalty that will start at a year and ratchet up to 1 percent of annual income for the more affluent. The fine will rise to at least , with a ceiling of 2.5 percent of income, by 2016. 

The mandate is a target not only of public resentment and political rancor but of myriad lawsuits and state legislation aimed at disabling it. Six states already have made it illegal to penalize a person for failing to get health coverage, and more are expected to follow suit; Republicans in Congress are trying to throw out the provision altogether.

But many believe that in the absence of a mandate, the entire law could unravel. The Obama administration fears that without requiring young and healthy people to join the program, it would cost too much to cover people who are already sick. Insurance companies would have trouble paying for the requirement that they offer coverage to anyone with a pre-existing condition. There would be nothing to stop people from waiting until they needed care to sign up. Without the boost in participation the mandate is expected to create, insurance and pharmaceutical companies would likely balk at new taxes designed to help pay for expanded coverage for the poor.

Even the law’s Republican opponents agree the mandate is a central part of the law, though most want to throw it out along with the rest of the package. Republicans generally argue that requiring people to purchase insurance is an assault on personal freedom. Supporters of the health law admit that imposing fines is an extreme measure. They simply say it’s necessary to make a serious dent in the nation’s uninsured population. 

The Massachusetts experience

As it happens, there’s one state where a mandate system has been in place for five years: Massachusetts. When it comes to covering the uninsured, the 2006 Massachusetts health law, implemented by what is known as the Commonwealth Connector, has been a resounding success. More than 75 percent of the previously uninsured now have health coverage — some 400,000 state residents.

The individual mandate has been critical to the success of the law, says Commonwealth Connector spokesman Richard Powers. But it didn’t work without a broad-based public outreach program.

One of the state’s most effective ad campaigns targeted young baseball fans. The Boston Red Sox sponsored an event at Fenway Park Called “Cover Your Bases — Connect to Health” Day. There was a pre-game video of personal stories from young people who had recently enrolled in the state insurance plan. A young construction worker who had just signed up threw out the first pitch before the game.

The Congressional Budget Office estimates that under the national health law, the individual mandate will drive some 32 million Americans — 60 percent of the current uninsured population in the United States — to sign up for coverage. But some health care advocates argue that a different approach is needed.

Ellen Andrews, director of the Connecticut Health Policy Project, says that as a consumer advocate she’s not a fan of the mandate. “When you tell people they have to do something, they object,” she says. Connecticut plans to enroll uninsured residents automatically in a state-run insurance program. They can opt out if they choose, but only after learning the risks involved.

“Any time a person touches state government — they’ll be asked whether they have insurance. If they don’t, we’ll enroll them,” says Andrews. Insurance coverage will be offered when they get a library card or a driver’s license, register to vote, enter a child in school, sign up for unemployment benefits, or start a new job with an employer who does not provide work-based insurance.

Another way to induce people to sign up for health coverage is to make enrollment voluntary but assess a fee for late sign-ups. Medicare has successfully used such late fees to encourage elders to enroll in its prescription drug program. Research shows that about half of those eligible for the program signed up in the first year and avoided the late fees. If they waited until the second year, a penalty equal to 10 percent of the premium was assessed, pushing most of the remaining eligibles to enroll. But unlike the Obama health law, Medicare offers the option of staying out of the prescription drug program permanently and paying no penalty, other than the high prices of the drugs themselves.

No back-up

A year after President Obama signed the federal plan, most people remain confused about how it will affect them. The nation is almost evenly divided in its support for the program, according to a March survey by the Kaiser Family Foundation. While a majority of respondents said they favored provisions such as guaranteed coverage for people with pre-existing conditions and financial subsidies for those who cannot afford insurance, the individual mandate was roundly opposed. Two-thirds said they would support its repeal.

With numerous states seeking to undo the mandate and federal courts split over its legality, some health law supporters are starting to think seriously about alternatives. Last year, U.S. Senator Ben Nelson, a Democrat from Nebraska, wrote the U.S. Government Accountability Office (GAO) expressing concern that the law was in peril with no back-up plan in case the mandate is eliminated.

Last week, the GAO delivered a report outlining alternatives to the mandate suggested by more than 40 health care and insurance industry experts. Recommendations include a broad public education program, penalties for late enrollment, conditioning certain government services upon proof of health insurance coverage, imposing a tax to pay for uncompensated care and requiring or encouraging credit agencies to use health insurance status as a factor in setting credit ratings.

Alternatives to the existing mandate make sense whether the provision stands or falls, says Chris Whatley, deputy director of the nonpartisan Council of State Governments. Many of the suggestions could be used in tandem with the mandate. “But if we ultimately end up having the individual mandate go away, and we’re seeking some way to salvage the Affordable Care Act,” Whatley says, the federal government is going to look to states for answers.

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Christine Vestal

Christine Vestal covers mental health and drug addiction for Stateline. Previously, she covered health care for McGraw-Hill and the Financial Times.