Coverage penalty too low to ensure viable risk pools

December 1, 2010

When Republicans talk about repealing the Patient Protection and Affordable Care Act, they really mean that they want to eliminate the individual coverage mandate

When Republicans talk about repealing the Patient Protection and Affordable Care Act (PPACA), they really mean that they want to eliminate the individual coverage mandate. Conservatives consider the coverage requirement a violation of constitutional rights.

Many employers agree, claiming that the mandate and fines will discourage new job creation.

"There's no way in the world we can achieve pre-existing-condition reform and guaranteed issue without some kind of mandate," stated former Congressman Jim Slattery (D-Kan.), at a seminar last month on the election's impact on healthcare.

Instead of revoking the individual mandate, some insurers and health analysts want to strengthen it. As currently constructed, the penalties are so low on both employers and individuals who forgo coverage that many parties are likely to just pay the fine. When the no-coverage penalty is less than the cost of the premium, consumer decisions are based on whether they're healthy or not, according to Coventry Health Care President David Reynolds.

Leslie Norwalk, former acting administrator for the Centers for Medicare and Medicaid Services during the Bush administration, agrees. Without the mandate, "we will have a lot of free riders going forward."

Yet because the individual mandate is so unpopular politically, she and others are looking for ways to soften it, yet still achieve broad coverage. One model for preventing adverse selection is the Medicare late enrollment penalty; seniors who do not sign up for Medicare Part B and the Part D drug benefit when they become eligible face significant increases in future premiums.

Policy makers also talk of providing more tax credits to encourage small businesses and individuals to purchase coverage; auto-enrollment programs also can help people who are eligible for subsidies.

STATES CHALLENGE MANDATE

Although Congress is not likely to repeal the individual mandate in the near future, the courts may do the job by finding the coverage requirement unconstitutional. A case filed in Virginia challenges the individual mandate and penalties for refusing to purchase insurance, while a group of 20 states have filed a case in Florida that opposes the federal government expansion of Medicaid, as well as insurance market reforms. The federal judges hearing these cases recently decided that the suits have merit and should go forward.

However, another federal judge dismissed a similar case in Michigan, ruling that requiring individuals to obtain health coverage does affect interstate commerce and thus is constitutional. The issue most likely will end up before the Supreme Court in another year or two-but before the individual mandate is scheduled to go into effect in 2014. If the high court kills the mandate, Congress will have to devise a new strategy for achieving broader coverage and insurance market reform.

Jill Wechsler, a veteran reporter, has beencovering Capitol Hillsince 1994.

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