Last week marked the second anniversary of the most important piece of social policy legislation of the past 50 years: the Affordable Care Act (ACA). Yet even as the second anniversary passes, the fight over this legislation continues, whether in Congress, in public opinion, or in the Supreme Court, which will decide this week on the constitutionality of one of the centerpieces of the ACA: the individual requirement to purchase insurance or “mandate.” Much of this debate has been driven by both the complicated nature of the ACA and the deliberate misinformation from opponents of the legislation. To make this issue clearer to the general public, I have written a graphic novel that describes what is wrong with our U.S. health-care system and how the ACA will address those problems. I hope that this format “illustrates” these important issues in a way that makes them compelling to those interested in understanding the ACA—in particular in terms of critical issues like the individual mandate.
Most Americans get their health insurance from their employer or the government, through its Medicare and Medicaid plans. For those Americans, insurance works reasonably well: premiums are rising faster than we would like, but otherwise individuals are generally well insured against any medical catastrophe that might befall them. Not so for those individuals who have to rely on insurance purchased on their own in the “non-group” market. These individuals face a market where coverage is expensive and unreliable–which can lead to medical bankruptcy if individuals get an expensive illness. While it is fortunate that most Americans don’t have to face this market, it also results in a lack of appreciation for the important law that will fix these problems: the Affordable Care Act (ACA).
In my book I introduce the fictional character, Carlos, who has non-group insurance—and has a heart attack. Carlos is in real trouble. He will typically pay a very large share of his medical bill—or the whole thing if this heart attack reflects a pre-existing condition. His insurer may pay these bills, but it is likely to simply drop Carlos before he gets sick again. It turns out that individuals like Carlos don’t have insurance in any meaningful sense.
And it is not just individuals like Carlos who face this ugly market: anyone who might lose their job, or have an employer that stops offering insurance, can find themselves facing this nightmare. I show this happening to Anthony, who has good employer-provided insurance but loses that coverage and has to face the awful non-group insurance market as a result. This is a real threat to many with employer-provided insurance: the share of employees covered by employer-sponsored insurance has declined by more than 10% over the past decade.
How can we fix this problem? A number of well-meaning states tried to do so in the mid-1990s. They passed regulations that outlawed discriminatory practices by insurers, like pre-existing conditions exclusions and charging sicker individuals higher prices. The result was a disaster. Insurers were afraid that if they had to charge everyone the same price, but that individuals could wait until they were sick to buy insurance, that this would become a money-losing business. So some insurers exited the markets, while the ones that stayed charged very high prices to offset this “adverse selection.” Non-group insurance markets in these states were not saved, but rather largely destroyed. For example, in my home state of Massachusetts, by 2006 a non-group policy for a single individual cost $8,000 per year, twice the cost of an employer policy for an individual.
Into this chasm stepped the hero of our story, Governor Mitt Romney, and his plan for health-care reform in Massachusetts. He realized that the solution to this problem was to ensure broad participation insurance markets by both the healthy and the sick. So he imposed an individual mandate, a requirement on Massachusetts residents to purchase insurance coverage. But he also realized that it would be both inhumane and impolitic to mandate that individuals purchase insurance they could not afford. For this reason he also provided for subsidies for individuals living below three times the federal poverty line to make insurance affordable. This “three-legged stool”—banning discrimination in insurance markets, mandating that individuals purchase insurance, and providing low-income subsidies for insurance purchase—became the basis for both our reform in Massachusetts and for the Affordable Care Act (ACA).
The enormous success of health-care reform in the almost six years since its passage in Massachusetts can make us more confident that this three-legged stool will work for the nation as a whole. We have covered about two-thirds of uninsured Massachusetts residents, and have lowered the premiums in the non-group market by half relative to national premium trends. And we have done so with broad public support. Moreover, this reform succeeded without interfering with the employer-sponsored insurance market that works for most of our residents: employer-sponsored insurance coverage has actually risen in Massachusetts, while falling sharply nationally, and the premiums for employer-sponsored insurance rose no faster in Massachusetts than they did nationally.
This was all possible because the individual mandate ended the “death spiral” of trying to obtain fairly priced insurance by just forcing insurers to charge everyone the same price. The bottom line is that we can’t have fairly priced insurance for the healthy and sick alike without the broad participation that is guaranteed by the mandate. The mandate is the spinach we have to eat to get the dessert that is fairly priced insurance coverage.
There have been a variety of complaints about the individual mandate, but they are unfounded. It is important to remember that the vast majority of Americans will be unaffected by the mandate because they are already covered; indeed, when individuals are informed of this fact, public support for the mandate almost doubles. Moreover, no one will be forced to buy insurance that they cannot afford; the mandate includes an “affordability exemption” that excludes any individual who cannot find insurance for less than 8% of their income. In Massachusetts we have a similar exemption and we have had no public outcry about the mandate and only a very small number of appeals of mandate penalties.
Finally, some claim that the mandate is unconstitutional. While this will ultimately be decided by the Supreme Court, the vast majority of legal scholars who have weighed in on this topic, both liberal and conservative, have said that this is a laughable argument. Former Reagan Solicitor General Charles Fried went so far as to state that he would “eat his [kangaroo skin] hat” if the mandate is found unconstitutional. All individuals will require health care at some point in their lives, and that health care will most often be unaffordable for the typical family. Even if families can’t pay for their health care, however, hospitals are required by law to deliver it, and those costs (amounting to more than $40 billion per year) are passed on in the form of higher insurance premiums. Moreover, by choosing to be uninsured until they are sick, healthy uninsured individuals impose higher costs on all those who buy insurance. Therefore, the decision to remain uninsured clearly impacts interstate commerce and can be regulated under the Constitution’s commerce clause.
If the individual mandate is struck down by the Supreme Court or otherwise undermined by politicians, then the ACA becomes a much less effective law, covering only half as many uninsured, according to the Congressional Budget Office (CBO), and leading to premiums that are 20% higher. But it doesn’t become a much cheaper law; the CBO estimates that it will still cost three quarters as much even though it only does half the lifting. Moreover, alternatives to the individual mandate aren’t effective, nor are they any more politically feasible.
The bottom line is that the individual mandate is necessary for ending discrimination in health-insurance markets, the key accomplishment of health-care reform. It won’t apply to the vast majority of Americans, who already have health insurance, and it will not force anyone to buy insurance that they cannot afford. And with no realistic alternative, removing the mandate will result in a health-care reform that is less effective but without much government savings.