What Happens to Health Care if the Court's Conservative Activists Just Strike Down the Mandate?

On the third day of hearings on the new federal health reform law, the U.S. Supreme Court took up the legal question of "severability," or whether the entire law or key parts—such as its requirement that all Americans have insurance—can remain or be struck down.

The court focused on three scenarios about the coverage mandate: eliminate it entirely; strike it and related requirements that insurers must sell policies to people with pre-existing conditions and limit costs associated with those policies; or invalidate the entire law. The justices faced a fourth choice, leaving the entire law intact.

There did not appear to be any consensus, even among the conservative justices, to throw out the entire law; they literally laughed at the prospect of taking a red pen to its 2,700 pages and crossing out lines page by page. Instead, they and lawyers on both sides put forth arguments about the consequences of all these scenarios. The conservative justices clearly suggested that they would like to see the mandate go, but were hesitant about undermining the entire law and did not trust that Congress could fix it.

The session, and another one on Wednesday afternoon looking at whether the reform was coercing states to expand their Medicare programs for low-income people against states’ wills, raise the question of what would remain of the landmark reform if the court takes out what the government says is its heart—the mandate that all Americans have health care.

The answer—if the court does not throw out the entire law—is that quite a bit would remain. A dozen new major policy initiatives would still be on the books in federal and state law. But a more fundamental question would then arise: who would pay for all these steps to cover the uninsured and create new and more affordable options for the middle class?

The new Urban Institute study found that only 6 percent of the U.S. population would be subject to the mandate and penalties for not buying insurance under the law. The reform’s opponents and the government have argued the mandate is the heart of the law. But it is the "heart" of the law not because it is extending care to tens of millions of Americans, but because it is siphoning the money needed to pay for all the envisioned reforms.

There is an alternative progressive viewpoint concerning the so-called centerpiece of the health reform—or paying for it. The government could raise taxes and not rely on market forces. However, the deal that the Obama administration, Congress and insurers cut and put into law opted to pay for the massive restructuring through premiums.

What Could Remain on the Books

The law still has a dozen major sections that, if funded, would significantly expand health coverage to many sectors of society. Although most of its provisions are to take effect in 2014, already more than 2.5 million young adults have been given coverage by increasing the age that they can remain on their parents' policies. The law also has re-jiggered payment rates for Medicare, the government’s health program for seniors, which have also gone into effect, offsetting the costs of prescription drugs.

The law does many sweeping things. It expands government health programs to cover the poor, low-income people and the uninsured. It expands private insurance options for the middle-class as well as employers, particularly small businesses. It also alters tax law to subsidize premiums for people and businesses in many income brackets, and the federal government pays the up to 90 percent or more of the costs of new state programs.

Polling has shown that most Americans do not know what is in the law, precisely because most of it has yet to take effect. When asked about the overall law, they are skeptical. But when asked about specific initiatives in it, they are far more supportive.

The law significantly expands government-subsidized coverage for low-income people, who, once enrolled in state-run Medicaid programs, would see most of their healthcare costs covered by the government. People whose incomes were up to 133 percent of the federal poverty line ($25,000 for a family of three) would become eligible for Medicaid. The federal government was planning to cover 100 percent of expanding that coverage in 2014 and to lower that figure to 90 percent by 2020. States pick up the balance.

The middle class would begin to see more heathcare options because the law requires states to create insurance exchanges offering four different coverage options. People making up to four times the federal poverty level would be eligible for tax credits to offset buying insurance offered in these new healthcare exchanges and benefit pools. Businesses with 50 or more employees would be required to offer insurance to their employees but get a range of tax credits for doing so. Meanwhile, small businesses would have new options for price breaks on plans and could also receive tax credits.

The state and federal government would also be directed under the law to study where healthcare spending was wasteful and could be more efficiently managed. Similarly, insurers would be prevented from rejecting people who have prior medical issues or barred from overcharging these people for newly offered coverage.

In essence, the Affordable Care Act of 2010 takes a market-driven approach to change the way that healthcare is offered and paid for. The key to collecting the dollars to do all this is having most of the 50 million uninsured Americans buy health insurance. That is why the government’s lawyers described the coverage mandate as the heart of the law. That’s also why the opponents’ lawyers, representing 26 states and carrying the insurance industry flag, said that if the mandate fell they also want to see the justices strike the provision requiring them to cover anyone with a preexisting condition and to lift the cost controls associated with that.

Rolling Back The Healthcare Clock

The Kaiser Family Foundation, a respected health policy funder, held a briefing earlier this month examining what the law’s provisions would look like if the coverage mandate were struck. In short, there would be many innovative but unfunded federal and state initiatives on the books (until new revenue was found), while the insurance industry would revert to making money from policyholders as it had before the Affordable Care Act passed.

“So you would keep the Medicaid expansion, insurance companies would be required to accept all comers, there would be tax credits to low- and middle-income people to make insurance more affordable and health insurance exchanges. ... but no mandate,” began Larry Levitt, a senior analyst with the Kaiser Family Foundation.

“No one really knows exactly what happens if you did nothing and let all these other pieces go into effect,” he said. “I’d say the consensus that the direction of the change would be fewer people covered and premiums going higher. And the Congressional Budget Office has middle-ground estimates where they estimate that about 16 million more people would be uninsured without a mandate than with a mandate.”

But one thing seemed clear, Levitt said, and that is how individual policy costs would change, not for lower-income people targeted by expanded government programs, but for most other people buying individual coverage. “Premiums in the non-group individual market would go up by 15 to 20 percent, but there’s a lot of uncertainty around these numbers.”

That increase is based on the premise the insurers would return to their previous business model—inflating the cost of covering people who buy insurance to cover the losses from people who do not but are still treated at hospitals. The Obama administration has said that the status quo increases the premium costs for a typical family by $1,000 a year.

It was hard to predict what insurers would do with the policies to be offered in those new state-based pools, Levitt said. If the Supreme Court invalidated the requirement that insurers take people with preexisting conditions, and also threw out the price controls for those individuals, that would “loosen up” the law’s consumer protections.

If that happened, Levitt said he would expect insurers to create new products for new customers—but those people would have to jump through more hoops and would likely pay new fees. They might “impose limited surcharges on people if they have health conditions, so it would essentially discourage people from waiting until they’re sick before getting insured,” he said.

“You could also expand high-risk pools, much like is done in auto insurance today,” said Levitt. “So essentially segregate people who are sick and high cost from the rest of the insurance market, keep the rest of the insurance market stable. Of course, you’d have to pay for those high-risk people somehow through assessments on employers and insurers, through taxes, etc., which of course is difficult but theoretically possible.”

“You could also essentially take away the protections for people if they don’t buy insurance promptly,” he continued. “So for example, if someone loses employer coverage, they go off Medicaid, you could say if you don’t enroll then you could be charged higher premiums later, you might be ineligible for tax credits for some period of time. So again, the idea is to try and encourage people to enroll promptly into insurance.”

Meanwhile, at the Court

These market-driven alternatives are “messy” but not impossible, Levitt said, but they also are more complicated than allowing the coverage mandate to stand. That realization of just how complex the problem of expanding coverage and paying for healthcare was not lost on the Supreme Court Wednesday.

No matter how much the conservative justices tried to separate one part of the law from another, it appeared clear that they could make matters worse by tinkering in any detail—driving up healthcare premium costs while restricting access to government programs. The justices also said they did not think they could send the problem back to the Congress, because politically, there was “inertia” there (a polite word for gridlock). Nor did they want to take a red pen to the law, or let their clerks do so.

As the third and final day of hearings unfolded, one of the most seasoned court reporters, Lyle Denniston of SCOTUSblog, predicted that the court would let the mandate and most of the law remain, precisely because it was just too complicated to do anything else, including trust Congress to fix its shortcomings.

“The Supreme Court spent 91 minutes Wednesday operating on the assumption that it would strike down the key feature of the new healthcare law, but may have convinced itself in the end not to do that because of just how hard it would be to decide what to do after that,” he wrote.

But after the day's final arguments, on whether Congress was coercing states to expand Medicaid coverage or forfeit all of its federal Medicaid subsidies, Denniston had another observation: he thought the conservative majority was getting very close to rejecting the law's expansion of Medicaid. 

"It probably would require the Court to be really bold, to strike down a program passed by Congress under its spending power, and to do so for the first time in 76 years," he wrote, "But the temptation was very much in evidence in the final round of the Court’s hearings this week on the Affordable Care Act. If that happens, it probably would be done by a 5-4 vote."

That combined scenario is very, very chilling: wiping out the government's largest expansion of health care for low-income people in decades, while preserving an expanded private sector insurance marketplace. If Denniston's instincts are correct--and he has been covering the Supreme Court for 54 years--it is hard to fathom the political response, although it is bound to be explosive.