“A federal judge struck down the heart of the Obama administration’s health reform law Monday, ruling that the individual mandate to buy health insurance is unconstitutional.”-Politico
“A U.S. judge in Virginia Monday declared a key part of President Barack Obama’s landmark healthcare law unconstitutional in the first major setback on an issue that will likely end up at the Supreme Court.”-Reuters via The Insurance Journal
“The Obama administration’s health- care overhaul unconstitutionally requires Americans to maintain a minimum level of health insurance, a federal judge ruled, striking down the linchpin of the plan.”-Bloomberg
The second critical fact defines the impact of the first; just how important is the mandate to the law? The answer is at once disturbing and liberating. The individual mandate is a purely political crutch that only serves to weaken the Affordable Care Act. The clause was encouraged by insurance lobbyists as a hedge against the bill’s passage, but it was really in the bill as an enticement for conservative democrats (and potential GOP moderates). All of the restrictions in the bill, the argument went, were bad for business. If all Americans were forced into the market, the costs of the restrictions could be spread among the new customers, and all would live happily ever after.
The individual mandate is another one of those clauses that business operators laugh about when they read it in the political pages. The point of all of the restrictions in the Act (besides expanding access to care), was to force the insurance industry into a different marketing model. The insurance business is nothing more than legal gambling; think of it as Vegas without the fancy magic and good food. You are betting that you will take in more in premiums than you will pay out. Over the years, the health insurance industry had become very good about paying out less and less of what it took in via premiums; going from payout rates in the mid 90% range in the 80’s to rates in the low 80% range now. The market was operating in the premium segment (think Ferrari), and our nation’s economy needed it to operate more like Hyundai.
Bans on preexisting conditions, minimum reimbursement floors, and bans on rescission all serve to lower the base margin that these firms would realize from operations. But industries and individual businesses don’t stay static; business adapts in order to realize the same or better profits in the future. In the case of the insurance industry, the only way for them to earn the same or greater returns, would be to dramatically expand their customer base. How does an industry expand its customer base? It competes aggressively for new customers on the basis of cost and service. You are free to make up your own mind, but I like an insurance industry motivated to get and keep my business through cost and service competition. The individual mandate is a free ride for insurance companies, and its death should trouble no one.
The final point not being discussed in all of those shows and articles relates directly to those costs we were hoping the industry would try and lower. The words debt, deficit, and bankruptcy have dominated our news cycles for three years now, but precious few reports ever capture the central reason for all of the pain. The single greatest threat to financial solvency, in both state and federal governments, and within private business, are medical costs. The Affordable Care Act has a chance to blunt those costs over the long term, and a better chance to do the same without an individual mandate. With all of the hatred and hoopla generated by this insurance industry treat, it seems that there is a bipartisan opportunity to go in and cut it out of the law. It is only important to the law if you believe folks like Max Baucus, Joe Lieberman, and Ben Nelson. I for one, do not.
The Rational Middle is listening…