Is the individual mandate overrated?

As America waits for the Supreme Court’s health care decision on Thursday, there’s growing talk that the law’s mandate for all consumers to buy health insurance may not be the biggest issue in the ruling.

In fact, there is evidence the individual mandate could be a red herring–a diversion from key issues implied and stated in the Affordable Care Act.

If you are a fan of Alfred Hitchcock, he often used a gimmick to divert attention from the movie’s real plot. The red herring seemed vitally important to everyone but it wasn’t a big deal  by the time the final credits rolled. In the case of Florida v. Department of Health and Human Services, the mandate is the red herring–and the real story is in the expansion of Medicaid.

In late March 2012, the mainstream press and Supreme Court watchers made the individual mandate the core issue of the health reform case before the Supreme Court.

In particular, Chief Justice John Roberts and Associate Justice Anthony Kennedy seemed to voice public doubts about the mandate’s legality, and many in the press wrote off the Affordable Care Act.

Opponents of the law argue that the mandate violates the Constitution’s Commerce Clause by forcing consumers to buy a product from a private industry.

Is the mandate overrated?

Two reasons the mandate might be overrated are that insurance companies can deal with the immediate premium hikes in a system without a mandate, and the mandate doesn’t affect a gigantic portion of the current insurance pool.

For example, one estimate puts health insurance premiums rising just 2.4 percent if the mandate is killed, which is well below the current health insurance inflation rate. Also, about 5 percent of the total insurance pool is affected by the mandate.

The theory  in late March was that the individual mandate was dead and the Supreme Court was also likely to kill the guaranteed issue and community rating sections of the law.

But by June, more reports surfaced that the insurance industry was ready to just raise rates and move on if the individual mandate was killed by the Court and the rest of the Affordable Care Act survived.

One study from the RAND Corporation put the projected rise of health insurance premiums, if only the mandate is rejected by the Supreme Court, at just 2.4 percent.

RAND used its own forecast model, but it also ran a projection using the Congressional Budget Office’s model and came up with 9.3 percent jump in premiums. (The CBO claims premiums would rise between 15 percent and 20 percent.)

Factcheck.org said that in 2010-2011, health insurance premiums jumped about 9 percent in the open market, mostly because of rising health care costs, and not because of the first steps enacted in the ACA. Factcheck.org cited survey data from the Kaiser Family Foundation.

The RAND study also showed the decision to cut the individual mandate would affect 12.5 million people seeking health insurance. (The CBO puts the number at 16 million people.)

In all, RAND puts 252 million people in the insurance market with the mandate and 240 million without it. So the individual mandate roughly affected just 5 percent of the insurance market.

Medicaid as the biggest issue

Ironically, the biggest issue with the Supreme Court’s decision might go back to the item in 2010 that forced attorneys general from 26 states to sue the federal government: the expansion of Medicaid programs at the state level.

The ACA greatly expanded Medicaid, a joint federal-state program that provides health care to low-income individuals.

The CBO said 16 million additional people will qualify for Medicaid under Title 2 of the act. Initially, the federal government will fund all the costs of the expansion.

However,  all states will need to pay some costs for new users starting in 2017. Or, they can opt to decline all Medicaid funding if they don’t want to participate.

Many governors are already facing large budget deficits, and were looking to cut Medicaid costs, not expand them.

So a Supreme Court ruling that kills the individual mandate and leaves Medicaid expansion intact is a Pyrrhic victory for the 26 states–a win on the surface that could inflict a devastating economic blow in the long run.

An analysis from the Kaiser News Service points out another possible scenario: a Supreme Court ruling that upholds the individual mandate and finds the Medicaid expansion unconstitutional.

“Depending on how sweeping and broadly written the decision is, it could be the entire Medicaid program has been unconstitutional since 1965, but we didn’t know it,” said Sara Rosenbaum, a professor at George Washington University, told Kaiser.

Such a ruling would allow states to tighten Medicaid requirements, cutting benefits to participants and fees to doctors. About 60 million people are currently in the Medicaid program, with states kicking in 43 percent of the funding.

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