To finance a massive corporate tax cut, congressional Republicans appear poised to repeal the Affordable Care Act’s individual mandate — the requirement that Americans secure health insurance or pay a penalty.
If they succeed, the human toll could be immense: The Congressional Budget Office warns that premiums will surge as healthier people opt out of the system, leaving insurers to cover a relatively sicker group of people. An estimated 13 million people could lose coverage.
But all is not lost. In fact, the mandate’s demise could cement the rest of the health care law into place. That’s because animosity toward the mandate has been the engine driving the Republicans’ years-long campaign to repeal and replace Obamacare. Without the mandate, that campaign may finally sputter out — leaving intact the ACA’s subsidies, its prohibition on discriminating against the sick, and even the Medicaid expansion.
But won’t the entire Obamacare system collapse without the mandate? Not if the states step into the breach. They’ve got the power to patch the hole that repeal of the mandate would leave in the ACA. The most ambitious states could even take steps to strengthen the law.
Massachusetts had an individual mandate well before the US did
For starters, the states can adopt their own individual mandates to replace the one that Congress repeals. There’s nothing stopping them. Before the ACA existed, Massachusetts had a mandate; it’s still on the books. And, as Vox’s Sarah Kliff reported last week, a number of states — including California, Maryland, and Washington, as well as the District of Columbia— are toying with creating their own mandates.
Adopting mandates at the state level would help stabilize insurance markets, thereby keeping premiums in check and forestalling coverage losses. It would also provide a welcome source of revenue: Some people will still prefer to pay a penalty than buy insurance. Plus, the states don’t need to stick with the precise terms of the federal mandate, which has been reviled (from different quarters) both for heavy-handedness and its ineffectuality. Stiffer state-level penalties would still be unpopular, but at least they’d work better.
States with an income tax could enforce the mandate by way of a tax, as the feds now do. But states without an income tax have options, too. Their state health departments could impose the penalty as a standard-issue fine — something like a parking ticket — and enforce the fine through liens, civil penalties, and the like. Getting a driver’s license or renewing an occupational license could be made contingent on compliance with the mandate. (Alternatively, residents could demonstrate financial hardship.)
Again, there’s no legal bar to this solution. Even if the repeal goes through, Congress has no plans to forbid states to impose their own mandates. Indeed, such a rule would give the lie to Republicans’ oft-repeated claim that the states should be laboratories for health-care experimentation. Meanwhile, the ACA itself will preempt only those state laws that pose an obstacle to achieving its objectives. State-level mandates advance the ACA’s goals, so there’s no problem there.
Those states that can’t abide a mandate could experiment with other approaches to coaxing the healthy to buy insurance. States that run their own exchanges could automatically enroll the uninsured in a standard-issue plan. People could opt out, but many will stick with the default. (That’s a classic behavioral-science “nudge.”)
Alternatively, states might explore lock-out periods for those who go without insurance — an approach congressional Republicans once flirted with. Although insurers are required to sell coverage to all comers during open enrollment, the Secretary of HHS can waive the ACA rule requiring annual open enrollment periods. A state could then establish special enrollment periods available only to people who have maintained continuous coverage.
People whose coverage had lapsed would be allowed to enroll only after a prespecified, perhaps lengthy, period, providing an incentive to avoid going bare. A lock-out period might not work as well as a straightforward mandate, and some people who accidentally or irresponsibly allow their coverage to lapse will get screwed. But it’s something.
States can also restrict the skimpy “short term” plans that Trump wants to allow
Finding a substitute for the mandate is only the start. As insurance expert Robert Laszewski has observed, the mandate’s repeal will interact in vicious ways with the Trump administration’s plan to loosen restrictions on the sale of skimpy “short-term” plans — plans that don’t have to comply with ACA rules. Under President Barack Obama, short-term plans couldn’t last longer than three months. Trump wants to allow non-compliant plans to cover people year-round. Instead of a clear choice between buying comprehensive insurance and going without (and paying a penalty), there will now be an option to buy cheap plans that offer thinner coverage (and pay no penalty).
That option will appeal to a lot of healthy people, further driving premiums up for all the unhealthy people left behind in the standard marketplaces. But again, the states, can stanch the bleeding: Even under the ACA, they retain primary responsibility for regulating their insurance markets, meaning they can prohibit the sale of short-term plans or restore their duration maximum duration to three months, or restrict their sale only to those who earn too much to receive federal premium subsidies.
Yet the states should think bigger than damage control. Earlier this year, the Nevada legislature passed a bill that would have allowed people to use their ACA subsidies to buy into the state’s Medicaid program — a one-state version of the so-called “public option.” The bill was vetoed by the governor, but it offers a template for other states that want to help their residents.
Some states might reasonably worry that a public option could drive private insurers off the exchanges. One solution would be to make the buy-in option available only to those who purchase insurance without going through the exchange. States could also experiment with allowing employers to buy Medicaid coverage for their employees, which would allow employers to take advantage of Medicaid’s power to insist on low prices.
Even more ambitiously, the states could move to curtail the exorbitant market power that hospital systems and physician groups now enjoy. The might choose to curtail surprise billing, which can when a patient goes to an in-network hospital but is billed at excessive rates by out-of-network emergency room physicians, anesthesiologists, and other doctors. California and New York have already taken steps to outlaw that abusive practice.
State attorneys general don’t need to wait for the Federal Trade Commission to push back on anti-competitive mergers, either. The Massachusetts attorney general recently threatened to sue a dominant hospital system that moved to acquire several community hospitals. Others AGs could follow her lead.
Finally, states could consider attacking unfair prices directly. Back in the 1970s and 1980s, eight states, mainly in the Northeast, adopted rate-setting schemes that fixed the prices hospitals could charge for their services. Those approaches were largely abandoned as policymakers pinned their hopes for cost control on HMOs. But as private insurers struggle to keep prices down, the time may be ripe to reconsider price regulation.
States politicians have strong motivations to take up these causes
So the states have options. Will they take them?
Even in blue states, passing a replacement mandate won’t be easy. But it’s sensible policy that both the insurance and hospital industries should support. Politically, a state-level mandate could be framed as part of a broader effort to resist Republican efforts to dismantle President Obama’s legacy. That storyline won’t work in every state, but it should resonate in some.
The politics in red states will be more complex, but Republican policymakers may be more flexible than their scorched-earth rhetoric suggests. They’re about to discover that, in an unusual twist, the costs of repealing the individual mandate won’t fall on the poor. For one thing, the Medicaid expansion will remain in place for the lowest-income Americans (at least in the 31 states that expanded). What’s more, the ACA caps the amount that people making less than four times the poverty level have to pay to buy insurance on the exchanges.
Let’s make that last point more concrete. Under the ACA’s cap, a family of four making $80,000 per year — about three times the poverty level—will pay a maximum of 9.7 percent of its income, or about $646 per month, for a standard “silver” plan. That’s proportional cap holds whether the family lives in Michigan, where the unsubsidized price for family coverage is $827 per month, or in Arizona, where a similar plan costs a whopping $1,529 per month. The federal government picks up the bill for any amount over the cap.
Because of the premium caps, many middle-class people won’t even notice that the mandate is gone. The true price of coverage will rise but the amount they pay in premiums won’t budge.
The same isn’t true for the affluent. A family earning $100,000 per year is expected to pay full price for its coverage. That’s reasonable (barely) in some lower-cost states like Michigan, where the family will pay less than 10 percent of its income in premiums. But it’s an exceptional burden in high-cost states like Arizona, where the same family will shell out more than 18 percent of its income.
So the surge in premiums associated with repeal of the individual mandate will hit affluent people hard. And, as you may have noticed, affluent people tend to make themselves heard during policymaking. Even in red states, then, policymakers will come under pressure to do something to keep premiums in check.
Turning the page on repeal and replace
In sum, the reckless repeal of the individual mandate could mark the beginning of a new era in the tortured American politics of health reform. Yes, Republicans will continue to fulminate about the evils of Obamacare while Democrats keep extolling the wonders of single-payer. Quietly, however, the locus of power will shift from the federal government to the states, which will get on with the hard, dull work of fixing their insurance markets.
That shift isn’t costless, to be sure. More state power implies greater differences among states: Red states will lag blue states in coverage numbers.
But the basic structure of the ACA may be preserved from further Republican attacks. That’s some consolation for those who believe that, for all its imperfections, we’re better off with Obamacare than without it.
Nicholas Bagley is a professor at the University of Michigan Law School, and a contributor to The Incidental Economist. Find him on Twitter @nicholas_bagley.
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