On Monday, when the Supreme Court hears arguments about whether the Affordable Care Act is constitutional, the justices will also contemplate a policy issue: Is it possible to reform the private insurance market, making affordable coverage available to all, without an individual mandate?
Under former Gov. Jim Florio, New Jersey attempted to reform its insurance markets without imposing a mandate (Photo by Diana Walker/Getty Images).
The Obama administration has told the court that if it invalidates the mandate it should also invalidate two key insurance reforms that would prevent discrimination because of preexisting conditions. On this, the administration has a somewhat unusual ally: The insurance industry. Although insurers have fought many parts of the health law, they have long favored the establishment of a mandate, which requires almost everyone who can afford it to buy health insurance or pay a fee, saying the reformed market cannot function without it. (Critics point out that a mandate would also help insurers generate more business.)
[Senior Editor Mary Mosquera reports: Experts are betting SCOTUS will uphold or punt on ACA.]
Legally, the administration's argument is as potent as it is risky. The Constitution says that the federal government may do whatever is "necessary and proper" to carry out its other functions. The Supreme Court historically has interpreted that power broadly. If insurance market reform really is more prone to failure without a mandate, that fact alone could, in the eyes of the justices, make the law constitutional.
But is the administration's claim correct? For some clues, the justices could examine what happened in New Jersey, a state that tried to reform its insurance markets without a mandate -- and failed pretty miserably.
Deconstructing The New Jersey Experience
The New Jersey effort began in the late 1980s, when rising health care costs were getting the attention of business and political leaders across the country. And a big worry then, as now, was what to do about people who couldn't get insurance from a large employer. When those people tried to get coverage in the individual or small-group market, they underwent scrutiny from insurers, who were wary of taking on big medical risks. "Insurance companies make their money not by being efficient, or managing care, but by weeding out the sick and insuring only the healthy," a frustrated Jim Florio, then governor of New Jersey, said in 1992.
The exception was Blue Cross and Blue Shield of New Jersey, which was an "insurer of last resort." By law, and in exchange for its tax-exempt status, Blue Cross could not turn away applicants because of pre-existing conditions. Because that arrangement saddled Blue Cross with sicker and more costly beneficiaries, the state effectively decreed that hospitals charge the insurer less. But that approach was financially straining the state's hospitals, particularly as the number of people without insurance and seeking charity care rose. Blue Cross, meanwhile, maintained that it was struggling even with the extra subsidies -- and kept asking state regulators for permission to impose impressive premium increases.
Eventually the state's stakeholders sat down with lawmakers and, in a negotiation that seems quaintly non-partisan by today's standards, hashed out a deal as part of a broader package of health care initiatives. Blue Cross would no longer be the lone insurer of last resort. Instead, the state would create something called the "Individual Health Coverage Program." Insurers wishing to sell coverage to individual customers would have to do so through this program. And insurers could not deny coverage or charge higher premiums to the sick. In other words, they had to practice what policy wonks call "guaranteed issue" and "community rating." The new law applied similar, although not identical, rules to insurers that sold to small businesses.
