Critical Condition

What Happens if the Mandate Disappears: Premiums and Uninsured Both Increase

Judge Henry Hudson’s ruling that the individual mandate to require the purchase of health insurance is unconstitutional will make the unpopular new health law even more unpopular by making its impact worse than originally anticipated. If Judge Hudson’s narrow ruling is upheld by the Supreme Court and nothing happens to change the current law — always a safe assumption given our sclerotic system — the mandate will go away, leaving the rest of the problematic legislation behind, with potentially disastrous effects.

Last June, the Congressional Budget Office prepared an analysis of the impact of the removal of just the individual mandate. According to the CBO, the elimination of the mandate would increase the number of uninsured compared to current expectations. Many people fail to realize this, but the new law, for all its spending and bureaucratic machinations, would not eliminate the problem of the uninsured even with the mandate. Per CBO, there are likely to be 23 million uninsured residents in 2019 under the new law. If the mandate were to go away, this number of uninsured would increase even further, to 39 million in 2019. The 16 million additional uninsured people would come from a mix of fewer people getting Medicaid, coverage in the individual mandate, or exchange coverage.

In addition, the loss of the mandate coupled with the new regulatory burdens that the law imposes on insurance companies, would lead to significant health insurance premium increases. This is because of adverse selection — healthier uninsured people who are not forced to purchase or procure insurance will not do so, while less healthy people will take advantage of the government subsidies and new requirements that insurers take all comers and purchase insurance. Insurers will as a result have to cover a less healthy pool of individuals, which will lead to increased premiums. As CBO puts it, “This adverse selection would increase premiums for new non-group policies (purchased either in the exchanges or directly from insurers in the non-group market) by an estimated 15 to 20 percent relative to current law.”

These changes would also reduce the cost of the new law. According to CBO, the mandate-less version of the Obama health law would shrink the deficit by $252 billion over the period from 2011-2020, largely because fewer people would take up government subsidized health offerings, be they from the expansion of Medicaid or the new exchanges. But the law would still be hugely expensive, and would not have that much of an impact on the number of uninsured, which was after all its primary selling point. It certainly would not “bend the cost curve down,” an old selling point that has largely disappeared from Democratic rhetoric.

In a nutshell, the result would be some decrease in the cost to government, fewer people covered than projected, and increased premium costs to individuals. The lower cost will not be felt directly, but the increased premiums and higher number of uninsured will. The judge’s ruling makes the already unsustainable legislation even less sustainable, from both an economic and a political perspective.


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