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Tuesday, June 26, 2012

It’s Not Just the Mandate

Avik Roy
Why ObamaCare even without the individual mandate is a time bomb.

Much of the press coverage surrounding the looming Supreme Court decision on Obamacare has implied that there will be a binary outcome: Either the entire law is upheld, or the entire law is overturned. But it’s just as probable that the Court will take a middle route, overturning parts of the Affordable Care Act but keeping others. What legal scholars call “severability” will have dramatic — and unexpected — repercussions for the nation’s health-care system.

On the third day of last March’s oral argument in HHS v. Florida, the Supreme Court justices explored the question: If Obamacare’s individual mandate is unconstitutional, how much of the rest of the law must go down with it?

The widely cited precedent comes from a 1987 case called Alaska Airlines v. Brock, in which the Supreme Court ruled that “unless it is evident that Congress would not have enacted those provisions which are within its power independently of that which is not, the invalid part may be dropped if what is left is fully operative as law.” In other words, the Court must consider whether Congress’s intent, as to whether the remainder of the law would have passed on its own, and also whether the rump law is workable.

The Obama administration has long held that if the individual mandate goes down, two related provisions in the law should go down with it: “guaranteed issue,” which requires insurers to accept those with preexisting conditions, and “community rating,” which forces younger people to pay more for insurance so as to subsidize the middle-aged. They rightly worry that those aspects of the law, without an individual mandate, would destroy the private insurance market.

The critical principle is what insurance experts call “adverse selection.” If we force healthier and younger people to pay more for insurance, so as to subsidize sicker and older people, the former group is likely to conclude that insurance is a bad deal for them and opt out of the market. That, in turn, makes insurance too costly for the latter group. In states such as New York, New Jersey, and Washington, the individual insurance market has all but collapsed because of this dynamic.

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