All eyes are focused on the many state challenges to health reform. Florida’s recent federal court decision held the entire health reform law unconstitutional, based on the unconstitutionality of the mandate requiring all U.S. citizens to maintain a minimum level of health insurance coverage beginning in 2014, or pay a penalty. Virginia’s earlier decision severed only the mandate and penalty, leaving the remainder of health reform standing.
Many believe the mandate is critical to ensure widespread participation in the state-run exchanges established by health reform, which in turn is key to affordable coverage. Others have said that the Obama Administration needs a “Plan B” in the event the mandate and penalties are eliminated from health reform. While ultimate judgment likely awaits a Supreme Court ruling, these court decisions raise important questions: Is the mandate really essential to health reform’s success? More important, is the mandate enough to accomplish the goals of health reform?
Let’s look at the numbers. According to the Kaiser/HRET Survey of Employer Sponsored Health Benefits, the price tag for family health coverage in 2010 was approximately $14,000 per year. While that figure could be mitigated by lowered selling costs associated with the exchanges, chances are it won’t decrease much – if at all – once health reform’s provisions for guaranteed issue and renewability, community rating and related activity take effect in 2014.
Compare that to the price of the mandate’s penalty. For an individual, the penalty for not buying “minimum essential” health insurance or having so-called “creditable coverage” in 2014 caps out at the greater of 1 percent of income or $95, finally taking full effect in 2016 at 2.5 percent of income, or $695.
Subsidies for purchasing health insurance follow a sliding scale, capping out at 400 percent of the poverty level – currently, that’s about $43,000 for an individual, $58,000 for a couple, and just under $90,000 for a family of four. So, for a family of four making $100,000 annually, health insurance will cost perhaps $14,000 per year, in contrast to the mandate’s penalty provision. That would impose a maximum penalty of 2.5 percent of income, or $2,500 for our hypothetical family. The penalty is hardly sufficient to offset the substantial cost of buying health insurance.
Compare that to employer-sponsored health insurance. Employers generally pick up a large portion of the cost (reduced in recent years, but still fairly substantial), and employees can pay the remaining premium with pre-tax dollars. As a result, the actual cost of health insurance is largely hidden from consumers when they purchase health insurance through employer plans. For employees wanting to extend their employer-sponsored coverage post-employment under COBRA, there is often sticker shock at the cost, with only the unhealthy or wealthy opting to continue coverage.
So, in 2014, consumers will be deciding whether to buy health insurance or, alternatively, pay the penalty and forego its purchase. For those who don’t qualify for the subsidies and who are relatively healthy, the economic balance is tipped widely in favor of opting out, whether or not there is a mandate and a penalty.
An Unsustainable Economic Equation
Ultimately, the mandate and penalty turn health reform into a pure economic equation. In this economic exercise, only people who anticipate high health care costs will find it cost-beneficial to buy health insurance. This is what’s known in the health insurance world as “adverse selection,” and if it happens, health insurers that participate in the exchanges will suffer devastating economic losses, or will simply opt out of the market to avoid them.
This has already occurred on a small scale in health reform with child-only health insurance policies, which largely disappeared overnight from the market once the prohibition on excluding children from health plans based on pre-existing conditions took effect last Fall.
Buying health insurance isn’t the kind of pure economic decision that mandates with penalties of the size and scope envisioned by health reform are designed to address. Rather, it involves a long-term economic analysis, like retirement planning or buying a house.
The Necessity Of Cultural Change
These kinds of long-term economic decisions tend to require cultural change, accomplished over time through massive public education and outreach campaigns that seek to alter the mind-set of Americans. Health reform has earmarked little funding for this kind of necessary, monumental outreach effort, relying primarily on the notion that “if you build it, they will come.” While there are some grants earmarked in health reform for so-called “navigators” and ombudsman, they are thinly funded and won’t go as far as needed.
If simply “building it” were sufficient, then there wouldn’t be millions of Americans who already qualify for government health insurance programs but aren’t signed up. During 2008, for example, 4.7 million of the nation’s 7.3 million uninsured children (65 percent) qualified for the Children’s Health Insurance Program (CHIP), but weren’t enrolled. Barriers to enrollment include the stigma of receiving public benefits, language limitations, lack of awareness of the programs and enrollment procedures/forms that are difficult, time-consuming and require complicated supporting documentation of eligibility, even for families already qualified under other public assistance programs.
Even health reform’s new pre-existing condition high-risk pools, which already are operational in most states haven’t experienced the levels of enrollment anticipated.
A 2009 Urban Institute/Robert Wood Johnson study found that the success of Massachusetts health reform can be traced largely to factors other than its individual mandate – including automatic enrollment when existing government data demonstrates eligibility, participation by health care providers and community organizations in helping consumers to complete applications, and a massive public education and outreach campaign, including use of public figures like sports stars.
Changing The Message To Include Healthy Americans
If the goal is to convince healthy Americans to sign up for health insurance, then the paradigm must shift, with or without the mandate. Today, all the personal interest stories supporting health reform are about sick people who can’t get health insurance now, but will be able to obtain it 2014 under health reform. But for reform to work, the messaging needs to shift to healthy people who buy health insurance for “peace of mind” for themselves and their families, not people who only try to buy health coverage when they are ill and closed out of the market.
The mandate, if ultimately upheld, no doubt will be helpful to the health insurance sign-up effort. But a greater benefit can likely be achieved by committing resources to the massive marketing effort it will take to convince millions of uninsured Americans to dig deep into their pockets to buy health insurance. The mandate then should not be viewed as the singular touchstone for the success of health reform. Health reform can remain alive and well, with or without the mandate, but its ultimate success will depend on whether healthy uninsured Americans can be persuaded to embrace it.