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“Insuring” Health Reform’s Solvency – Are There Alternatives to the Individual Mandate?

The Supreme Court is primed to consider whether it will expedite its review of the many lawsuits challenging constitutionality of the Patient Protection and Affordable Care Act (PPACA). And with the court leaning conservative, many are betting that at least the individual mandate will be struck down.

If that happens, what’s next for health reform?

During the months leading up to passage of the PPACA, the insurance lobby argued successfully that any comprehensive overhaul had to include some form of individual mandate. If the mandate is struck down while other portions of the law such as guaranteed issue, are upheld insurers’ worst nightmare will come true.

The reason? The concept of adverse selection.

If only those individuals in need of insurance are aggressively applying for coverage while young, healthy people are sitting out, medical expenses will quickly overwhelm premiums–especially because traditional “rate up” medical underwriting will be illegal. The implications are huge for insurers’ solvency and the overall availability of insurance products in general.

While the legal challenges have had mixed results so far, the most likely outcome is that parts of the PPACA will survive without the individual mandate. This leads to the question: Are there alternatives that can truly put a dent in the rising levels of the uninsured in America?

Experts surveyed by the GAO seem to think there are, including the following:

1. Modify open enrollment periods and impose late enrollment penalties
2. Expand employers’ role in auto-enrolling and facilitating employees’ enrollment
3. Conduct a public education and outreach campaign
4. Provide broad access to personalized assistance for health coverage enrollment
5. Impose a tax to pay for uncompensated care
6. Allow greater variation in premium rates based on enrollee age
7. Condition the receipt of certain government services upon proof of health insurance coverage
8. Use health insurance agents and brokers differently
9. Require or encourage credit rating agencies to use health insurance status as a factor in determining credit ratings

The GAO report provides some interesting alternatives to the individual mandate, but we don’t see these as a comprehensive solution even if taken together.

Some have suggested using the Federal Employee Health Benefit (FEHB) program model, which offers a variety of coverage options to federal employees, retirees and their survivors. Still others have suggested a government-run plan that assumes risk for the provision of care to individuals, with administration handled by private entities. Neither of these offers a formidable replacement to the individual mandate because they do not require the healthy to enroll in the plan and help spread risk. Too, financially speaking, the subsidies required to provide coverage to an adverse population would be significant if the goal was affordability of premiums.

Others view Medicaid expansion as a major part of the solution. While this makes some sense, Medicaid is a 50-state patchwork system with poor quality and limited access. In many states there simply is not the political will to radically improve this system of care. There is also the question of who pays for the expansion (states or the federal government), especially during these lean economic times.

Expanding the SCHIP program may offer more hope to tackle the problem of millions of uninsured children. Premiums (and the cost of subsidies) are cheaper and adversity may be less of a factor with sufficient volume.

Voluntary exchanges might work to some degree, but ensuring reasonable selection and affordability is crucial. One hole in the existing PPACA approach is the requirement that those at 400 percent of the poverty level pay about 10 percent of their income for premiums and additional amounts for cost-sharing before subsidies kick in. That could amount to well over $10,000 for a middle-income family already struggling to pay the bills.

In the end, there are no simple solutions to solving the adverse selection issue in a post individual-mandate world. It will most likely require a combination of ideas and a clear focus on affordability to encourage broad participation in the insurance marketplace.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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