In a few days, the U.S. Supreme Court will hear oral arguments on the constitutionality of the individual mandate that requires all individuals who can afford it to buy health insurance. Employers and brokers are awaiting the Court’s decision (late June 2012) on the individual mandate and how much of the law will survive if that provision is found unconstitutional. Here’s an outline of different outcome scenarios and how it affects employers and advisers alike.
Scenario 2: The individual mandate is found unconstitutional and the rest of the ACA is upheld
If the individual mandate is struck down but the rest of the Affordable Care Act remains, it could have disastrous effects on the health insurance marketplace. Some states, most notably New York and New Jersey, tried to implement these insurance market reforms without an individual mandate, and the insurance market went into a death spiral of ever increasing health insurance rates as the risk pool became sicker while the healthy wait to purchase insurance only when they get sick.
Other mechanisms could be substituted for the mandate like limited open enrollment periods, penalties, longer contracts and deadlines could be used to incentivize individuals to purchase insurance before they get sick. A late enrollment fee similar to the Medicare Part D Program that acts to encourage individuals to join when they can and not delay until they need it because they may not be able to get in for another year at that point.
However, Congress would have to find enough common ground to enact new legislation to counter the adverse selection threat. In an election year, that seems unlikely. If new federal legislation is not in the cards, the decision of how to increase insurance access would move to the states. California has plenty of legislative appetite for pushing health care reform and it seems certain that lawmakers here would quickly remedy Washington’e failure to act.
The structure of the exchanges and the fact that the subsidies are only available to individuals makes it advantageous from a financial perspective for employers to drop group coverage. “I’m off the hook.” will become a commonly heard refrain among many small business owners. Other employers who need to be competitive in hiring and retaining their workforce may find offering a comprehensive health care plan is required in that particular industry and workplace demographics and are not going to be able to walk away from coverage.
We believe that California brokers’ ability to thrive in the market depends on their involvement with the California Health Benefit Exchange. We are optimistic that brokers will play an integral role in the Exchange. There will be a model that works for brokers. And just like travel agents, some fade out over time, and new businesses will be born that work.