For insurance companies nervously watching the legal fight over the constitutionality of the President’s health-care law, it would be the unthinkable: The U.S. Supreme Court strikes down the law’s so-called individual mandate, which requires millions of young, healthy people to buy coverage—but leaves intact rules compelling insurers to cover sick people, who are likely to cost far more in benefits than they pay in premiums. Congress is then left to fix the problem.
The scenario is a real possibility. In a challenge to the health-care law brought by 26 states, a federal appeals court took exactly that approach, declaring in August that the mandate is unconstitutional while saying the rest of the law could stand. The Supreme Court is expected to take up the question of the statute’s constitutionality next year. If the justices agree with the lower court and strip out the mandate, “that would be the worst of all worlds for insurers,” says Paul Heldman, a health policy analyst with Potomac Research Group in Washington. “You’ve got to have some way to ensure that healthy people are going to sign up for coverage to offset the cost of sicker people.”
The Obama Administration says if the mandate is struck down, much of the law—including Medicaid provisions and requirements that employers offer insurance—could still function and should remain intact. But Administration officials, along with insurance companies, insist that removing the mandate would undermine other provisions, including a requirement that insurers issue a policy to anyone who applies and a ban on higher premiums for people with preexisting conditions. Without the premiums of healthy people, insurers would raise their prices as more high-cost patients enrolled, driving away low-cost policyholders. “Decoupling the mandate from those other requirements would destabilize the insurance market throughout the nation,” the industry’s trade group argues in court papers. The Administration says the mandate can’t be severed from the other insurance provisions: If one falls, the others must, too. The appeals court saw things differently, ruling that the insurance reforms and other provisions in the law do enough to increase coverage without the mandate.
The appeals court pointed to Supreme Court rulings that call on judges to excise an unconstitutional provision whenever possible. “Generally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,” Justice Sandra Day O’Connor wrote in a 2006 abortion ruling. That sort of minimalist approach has been the court’s tendency under Chief Justice John Roberts. In 2010, Roberts quoted O’Connor’s language as the court left intact an auditing industry oversight board while voiding a provision that insulated its members from being fired. With health care, the court’s dilemma may be figuring out which leaves the smaller footprint: striking only the mandate or deferring to the Administration’s contention that the provisions are inseparable. Bradley Joondeph, a constitutional law professor at Santa Clara Law in California, says the Administration’s all-or-nothing argument “ratchets up the pressure a little on the court,” demanding that if it rejects the mandate it also “has to strike down the most popular parts of the legislation.”
A ruling affecting only the mandate would spark an immediate effort to find something to replace it before the law takes full effect in 2014. Congress could use other methods to encourage people to buy insurance at a young age, including tax incentives and reduced premiums during open enrollment periods. “There are viable alternatives to an individual mandate that would make this construct stick together,” says Dan Mendelson, chief executive officer of Avalere Health, a Washington consulting firm. It’s not clear whether they would be as effective as the mandate at inducing millions of people to buy insurance. And given the acrimony over the issue, it won’t be easy for Congress to reach agreement on any such fixes—especially since Republicans plainly say they want to get rid of the law altogether. Administration officials aren’t saying whether they are preparing for the possibility of once again doing battle over health care. Says Adora Andy, a Justice Dept. spokeswoman: “We are confident that the law is constitutional.”