The Death Of The Mandate

This bandwagon picked up passengers quickly:

“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 whole of what I like to call the conservative mainstream media has decided that the ruling by Federal Judge Henry Hudson is a blow to what they call the “linchpin” of the Affordable Care Act. Even the dreaded “sources within the Obama Administration” are concerned because the mandate is the key to the ban on preexisting conditions. The secret of this story friends, is that they are all missing the real point.
There are several facts that most news programs and columns have buried when covering this ruling, the first being that Judge Hudson is the only judge, among 15, to have ruled against any part of the Affordable Care Act. This will likely lead to an interesting hearing before the Supreme Court, where the activist conservatives who dominate that body will have the final say. This ruling, taken with the others, serves to show the boundaries of what will be ruled on; the Act will not be thrown out in its entirety as only the individual mandate is open to question.

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…

2 thoughts on “The Death Of The Mandate

  1. I agree – i would feel no grief for the loss of the mandate demanded by the insurance industry. I disagreed with it from the get go.

    There are two parts of this bill, however, that go hand in hand that i believe will ultimately cause SCOTUS to rule in favor of the mandate. And both were GOP wants.

    The GOP wanted, demanded, and got in the bill the ability of the insurance industry to sell across state lines – undoubtedly the health insurance industry was also behind that as well.

    And those folks are no dummies.

    Many states in the union require the purchase of auto insurance. The current GOP spiel is that there’s a difference between requiring auto insurance – as not everyone is required to own a car. What they are leaving out of these statements is that – true, not everyone is required to own a car but those that do own one – thereby participate in the pool – are those who are required to buy.

    No one comes into our out of this life with incurring or participating in receiving some type of health care. We are all members of this pool.

    Now back to selling across state lines. The argument is that the federal government has no right to mandate claiming [in VA’s lawsuit], “The federal government’s argument is contrary to the meaning of the words of the Commerce Clause as understood by the Founders.”

    Now I’m no lawyer, but once the selling of health care insurance across state lines goes begins (which is what the state’s insurance commissioners are already working on), this becomes an interstate commerce issue. And the mandate is not effective until that work is planned to be done. The time line is set up so they will coincide.

    And once it is an interstate commerce issue, then the Constitution (regardless of VA’s interpretation of it) clearly states interstate commerce falls under the purview of the feds. So good luck getting rid of the mandate at that point.

    Like I said, the industry isn’t run by dummies. The irony is that it was the GOP that demanded these amendments in the bill to begin with – Grassley supported the mandate back when they were dealing with the Clinton bill. The Heritage Foundation was an early supporter of this, too, as I recall. And while they’re backing away from it now, the vast majority of the health care reform bill was Bob Dole’s bill that was the counter to the Clinton bill.

    And now they’ve filed suit against it because of the very things their party wanted in the bill to begin with.

    So, if was enacted by the GOP, I guess it would have been okay, but since it got passed by the Dems, it’s not. Hypocrites!

    But for all their grandstanding to play to their base, it’s unlikely SCOTUS will deny the feds the mandate — but then the Robert’s court plays politics, too. So we shall see.

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