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WH Response to Individual Mandate Court Ruling: We Have to Have the Mandate, or Else!

Stephanie Cutter put out the official response for the White House on today’s striking down of the individual mandate by a federal district court judge in Virginia. Cutter makes the point that two other judges who considered the law on the merits reached different conclusions about the mandate, that 12 others have thrown out the challenges entirely, and that the Administration feels confident that the law is constitutional “under the Commerce Clause, the Necessary and Proper Clause, and the General Welfare Clause.”

That may well be the case, and further rulings will decide the question. But I’m interested in what Cutter says at the end, which really gives an insight into the White House’s thinking on this:

The Affordable Care Act also bans insurance companies from discriminating against people with preexisting conditions. However, unless every American is required to have insurance, it would be cost prohibitive to cover people with preexisting conditions. Here’s why: If insurance companies can no longer deny coverage to anyone who applies for insurance – especially those who have health problems and are potentially more expensive to cover – then there is nothing stopping someone from waiting until they’re sick or injured to apply for coverage since insurance companies can’t say no. That would lead to double digit premiums increases – up to 20% – for everyone with insurance, and would significantly increase the cost health care spending nationwide. We don’t let people wait until after they’ve been in a car accident to apply for auto insurance and get reimbursed, and we don’t want to do that with healthcare. If we’re going to outlaw discrimination based on pre-existing conditions, the only way to keep people from gaming the system and raising costs on everyone else is to ensure that everyone takes responsibility for their own health insurance.

As Jon Walker points out today, several states have guaranteed issue clauses that mandate insurance companies to take all comers, without a companion individual mandate. While I don’t think you can say that any area of the US health care system is working smoothly, this has generally not led to dramatically worse outcomes for those states. Somehow, insurers deal with guaranteed issue, and provide health insurance that customers manage to pay.

Walker also notes that there are multiple other ways to design a universal system without an individual mandate, which would also insure that nobody gets left behind from coverage because they have a chronic illness or malady. He names a couple in his post. There are other ideas, like what Paul Starr proposed last year, giving people a right to opt out of the mandate and subsequently forego a potential benefit, like eligibility for future exchange subsidies for a period of time. While I find this punishment a bit excessive, the point is there are several other ways to accomplish basically the same universal or near-universal system.

But the White House appears locked into this idea that you cannot ban pre-existing condition exclusion without a mandate. That’s AHIP’s view of the situation. It’s certainly not the legal view of the matter; Judge Hudson had the ability to strike down guaranteed issue or anything else in his ruling because of the lack of a severability clause. But he did not, saying only that Section 1501 – the individual mandate – would be ruled unconstitutional. Hudson does not think that the mandate has any other material bearing on the functioning of the law. As Walker writes:

Because the cost of insurance in the current law is so much greater than the cost of the mandate, making the decision to not buy insurance is still viable–the price of the penalty would still not make buying insurance a smart economic decision. Therefore, the mandate was unlikely to convince many additional people to buy insurance, and likely wouldn’t have that much impact on the number of people in the risk pools.

There is no reason the health care bill can’t stand as-is without the mandate. The fact that insurance companies have already been complying with things like guaranteed issue at the state level for years without a mandate means the law can stay in effect without one.

Even if you believe that some patch or change to the system would have to come if the mandate gets struck down, you’d have to agree that Cutter’s rigid stance here doesn’t even allow for that possibility.

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David Dayen

David Dayen