What happens if the Supreme Court strikes down the individual mandate?

Any ruling by the Supreme Court on the constitutionality of the Affordable Care Act’s controversial individual mandate isn’t likely for at least another several months, but it’s worth thinking about what might happen after the case is decided. The first scenario is easy: If the Court upholds the mandate, the ACA goes forward as planned to the continued objections of many conservative Americans and politicians. The second scenario is less clear: If the Court finds the mandate unconstitutional, do they find it severable from the rest of the law? If not, they’ll strike the whole ACA down. This seems like the least likely outcome. If, on the other hand, they do invoke severability, the ball is back in the White House’s court. The decision at that point would be whether or not health reform can be successful without the individual mandate.

The concern here is the death spiral first described by Nobel Prize-winning economist Joseph Stiglitz. In essence, if we don’t require everyone to buy insurance, then insurance will be disproportionately purchased by the sick, making it more expensive and leading many to discontinue coverage in a continuous cycle that drives the price higher and higher until no one can afford insurance any more and the system collapses. By contrast, getting everyone into the pool is seen as the only way to keep costs down and maintain the insurance system. So the question is: What happens if the Supreme Court strikes down the individual mandate? Does the Obama adminsitration wash its hands of health reform, proclaiming that it can’t be done without the individual mandate because costs will rise too rapidly and the insurance system will collapse, or does it forge onward and see what happens?

Option one is the safe bet if you believe that a bad status quo is better than a potentially worse change, but it’s absolutely terrible politics. It would be admitting defeat on one of the defining aspects of the Obama presidency. Moreover, it would have tremendous negative implications for the future of health reform initiatives generally. Option two looks good politically for all of the opposite reasons, but it could destroy the health insurance market and hurt Americans in the process. That’s bad leadership. While such action might lead to the type of catastrophic collapse necessary to precipitate true change, it would be incredibly painful.

New evidence suggests, however, that the pain might not be as great as many–myself included–fear. John Sheils and Randall Haught of the Lewin Group ran a simulation model to see what might happen to coverage and costs if reform went forward as planned with the exception of the individual mandate. Remember, the concern is that fewer people would be covered and health insurance premiums would increase. What they found is that, yes, compared to estimates under health reform with an individual mandate, health reform without the individual mandate would mean fewer people would be covered and insurance premiums would increase, but things would still be better than if we did nothing at all.

How much better? Well, without reform, they estimate that 51.6 million Americans would be uninsured. With reform, that number drops to 20.7 million. With reform, but without the mandate, their estimate stands at 28.5 million. Not too shabby. As for premiums, the authors estimate that eliminating the individual mandate will mean a 12.6% increase. Not a welcome increase, but not necessarily the kiss of the death spiral.

That said, other estimates by the Congressional Budget Office and MIT health economist Jonathan Gruber have not been as optimistic. The CBO expects that axing the individual mandate will mean 16 million fewer insured persons and a premium increase between 15 and 20%. Gruber puts the figures at 24 million fewer insured and premium increases on the order of 27%. Because of the sheer volume of people involved and the uncertainty of their decision making processes, it’s really hard to know who’s calculations are the most reasonable.

What you can count on is this: If the Court finds the individual mandate unconstitutional, the White House will have more actuaries and health economists crunching numbers than you can imagine. These latest results from Lewin suggest that even if the Court says no to the individual mandate, it shouldn’t necessarily mean the Obama adminsitration should give up on health reform.

Brad Wright is a health policy postdoctoral fellow  who blogs at Wright on Health.

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