Politics & Policy

It’s Not Just the Mandate

Why Obamacare even without the individual mandate is a time bomb.

Much of the press coverage surrounding the looming Supreme Court decision on Obamacare has implied that there will be a binary outcome: Either the entire law is upheld, or the entire law is overturned. But it’s just as probable that the Court will take a middle route, overturning parts of the Affordable Care Act but keeping others. What legal scholars call “severability” will have dramatic — and unexpected — repercussions for the nation’s health-care system.

On the third day of last March’s oral argument in HHS v. Florida, the Supreme Court justices explored the question: If Obamacare’s individual mandate is unconstitutional, how much of the rest of the law must go down with it?

The widely cited precedent comes from a 1987 case called Alaska Airlines v. Brock, in which the Supreme Court ruled that “unless it is evident that Congress would not have enacted those provisions which are within its power independently of that which is not, the invalid part may be dropped if what is left is fully operative as law.” In other words, the Court must consider whether Congress’s intent, as to whether the remainder of the law would have passed on its own, and also whether the rump law is workable.

The Obama administration has long held that if the individual mandate goes down, two related provisions in the law should go down with it: “guaranteed issue,” which requires insurers to accept those with preexisting conditions, and “community rating,” which forces younger people to pay more for insurance so as to subsidize the middle-aged. They rightly worry that those aspects of the law, without an individual mandate, would destroy the private insurance market.

The critical principle is what insurance experts call “adverse selection.” If we force healthier and younger people to pay more for insurance, so as to subsidize sicker and older people, the former group is likely to conclude that insurance is a bad deal for them and opt out of the market. That, in turn, makes insurance too costly for the latter group. In states such as New York, New Jersey, and Washington, the individual insurance market has all but collapsed because of this dynamic.

The problem, however, is that guaranteed issue and community rating are but two of the dozens of provisions in Obamacare that will increase costs and exacerbate adverse selection. A Court decision that strips out only those two provisions will still end up causing severe damage to the private insurance market.

For example, the law requires that all plans sold in its subsidized exchanges have a generous “minimum actuarial value,” which will force many people to pay for costlier insurance than they can afford. The law forces such plans to provide what the government deems “essential health benefits,” many of which will be above and beyond what younger and healthier Americans need. In addition, the federal subsidies for these plans will themselves drive premiums upward, by encouraging many individuals to purchase more generous coverage than they otherwise would require.

You don’t have to take my word for it. MIT economist Jonathan Gruber, who played a primary role in designing Obamacare’s exchanges, has written that these provisions will increase premiums by as much as 30 percent in some states, further discouraging healthy people from buying insurance.

Hence, if the Court concludes that the individual mandate is unconstitutional, it ought also to throw out the entirety of Title I of the Affordable Care Act. Title I contains the vast majority of Obamacare’s provisions, including the ones I’ve listed above, that will worsen the adverse-selection problem.

But then, we get to the issue of Congress’s intent. If Title I goes down, we’re left with the remaining eight titles of the law, which effectively cut Medicare by $500 billion in order to expand Medicaid by 17 to 25 million people. Despite the plausible merits of doing so, it is inconceivable that Congress would pass such a law as a stand-alone measure. For one thing, such a law would dramatically expand the deficit. And seniors are famously active at the ballot box, whereas the poor are less so.

It’s unfortunate that Obamacare has forced the Court’s nine justices — and their  clerks — to make life-or-death decisions for the private insurance market. “You really expect the Court to do that?” exclaimed Antonin Scalia at oral argument. “Or do you expect us to give this function to our law clerks? Is this not totally unrealistic, that we are going to go through this enormous bill item by item and decide each one?”

America desperately needs true health reform. There are too many Americans without health insurance, and too few taxpayer dollars to sustain our existing system. But Obamacare’s byzantine complexity leaves the Court little choice. It must overturn the entirety of the law, and ask Congress to try again.

Avik Roy is a senior fellow at the Manhattan Institute and the author of The Apothecary, the Forbes blog on health-care and entitlement reform. He is a member of Mitt Romney’s Health Care Policy Advisory Group. You can follow him on Twitter at @aviksaroy.

Avik RoyMr. Roy, the president of the Foundation for Research on Equal Opportunity, is a former policy adviser to Mitt Romney, Rick Perry, and Marco Rubio.


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