Published March 27, 2012
While all eyes in Washington are glued to the Supreme Court, no group is watching the legal soap opera more closely than the health-insurance sector.
The nation’s highest court heard arguments debating the constitutionality of the Affordable Care Act’s individual mandate on Tuesday, a requirement that would alter the very core of the insurance industry.
A provision in the two-year-old law requires consumers to buy health insurance by 2014, with the exception of low-income Americans. Consumers who don’t get coverage will be fined $695 a year, or 2.5% of their income, whichever is higher.
The mandate is considered the lynchpin of the 2,700-page law, and while lawyers work to convince the nine justices that Congress does or does not have the constitutional power to require Americans to buy coverage, the insurance industry is focusing on its economical consequences.
The law also requires insurers cover anyone with a pre-existing condition starting in 2014. Providers have been working to become compliant with the law since it was signed by President Obama in 2010, but the worst-case scenario for them is if the justices strike down the mandate, but deem it severable from the rest of the reform.
If the court throws the mandate out but upholds the rest of the legislation, insurance companies say it could lead to higher premiums and force them to pull out of the individual market.
Without the mandate, insurers would look to increase enrollment of prime customers to offset the costs of high-risk customers, but Robert Zirkelbach, spokesperson of America's Health Insurance Plans, a trade association representing for-profit health insurers, says there is no substitute for a mandate.
“We are preparing for all the different scenarios of rulings, but the reform with no mandate would bring higher premiums, no reduction of the number of people insured and fewer choices.”
It’s basic economics: Private insurance companies make more money when healthy consumers outnumber their sick. If insurers are forced to take on more consumers with medical issues, they need to make up the lost revenue with young people not filing as many claims. “The hardest thing is to get young, healthy people who don’t use and might not find value in the cost associated with care,” says Justine Handelman, vice president of legislative and regulatory policy at the Blue Cross and Blue Shield Association, which represents 38 individually-owned and operated businesses. Insurers worry the fine isn’t enough to make individuals get coverage until they actually need it -- like in the back of an ambulance.
“One premature baby will need approximately 200 no-claim people to offset the costs associated with that one baby,” Handelman says.
She cites New York’s restricted health-care plan that includes a pre-existing exclusion plan of 12 months. “If you are diagnosed with diabetes and then decide that you need insurance, you aren’t able to get coverage for a year. There is that protection of just getting coverage when you need it.”
While studies show that more than 32 million customers needing to find care will be up for grab, if insurers feel that they will take too much of a financial hit they will leave the individual marketplace.
“There is nothing in the law that requires insurance companies to continue to stay in the individual market, which is a relatively small market for them,” says Alwyn Cassil, spokesperson for The Center for Studying Health System Change. “The challenge for insurers will be if they can provide attractive and affordable products that [consumers] will think are worth the money.”