Much has been said about the potential of the Supreme Court’s decision to jeopardize the upcoming federal and state exchanges’ implementation plans.
ACA is a lengthy act but it has a few key pillars that if modified have the biggest potential of to re-define the insurance markets of the future.
These pillars are:
1. Individual Mandate – The federal directive that requires almost every resident of the country, to purchase health insurance or incur a tax penalty.
2. MLR restrictions – The regulation that mandates health insurance companies to spend 80% of individual revenue and 85% of group revenue on medical expenses and quality improvements which, in its current form, can dramatically impact how the brokers and agents are compensated today.
3. Guaranteed Issue – The mandate that necessitates health insurance companies to make health insurance accessible to all eligible residents in the state, irrespective of the market they operate in. This signals towards the elimination of “medical underwriting” as health insurance companies are currently allowed to charge different premium prices for the same product, only on the basis of age, smoking status and zip code.
4. Health Insurance Exchange – The statutory requirement for every US state to setup an online marketplace where its residents can buy health insurance at subsidized, affordable rates. This connects with the expansion of state Medicaid and related programs, to lower-income residents.
There are other important parts of the ACA (for instance, requirement for almost all employers with more than 50 employees to offer affordable health coverage to their employees or pay a fine and children’s ability to stay on their parent’s insurance policy till the age of 26), but by themselves, they do not have a significant impact on the insurance market.
Let us try to evaluate some possible scenarios that can impact the above 4 key pieces of ACA:
1. Supreme Court nullifies the individual mandate but lets the rest of the law stand: This would imply that MLR restrictions, guaranteed issue and health insurance exchanges are allowed to stay. A guaranteed issue without the individual mandate will lead to a pricing challenge. Any administration will have to quickly fix this (under pressure from public and health insurance companies).
An ACA-friendly (read democratic) administration might do this by either creating an annual enrollment period and/or creating tax subsidies for individuals (as opposed to a tax penalty). A less friendly administration might consider adopting more drastic measures such as trying to remove or weaken other parts of the law (like guaranteed issue). There might be an impasse for a while but given the criticality of the unsustainably high insurance prices, it is highly plausible that some solution will be worked out. In either case, it is likely that health insurance exchanges will still be created for each state.
2. Supreme Court nullifies the entire ACA: This will mean that health insurance exchanges will go away but so will the other portions of the law. Any state that has already started the process of setting up an exchange – by passing a law or via an executive decree (as of this writing, 14 states have and 23 more are somewhere in the process) – can still go through with it and chances are many still will. We count 8 to 9 states that are very likely to still set up some kind of marketplace in the very near future. If the model works, more states might follow them to create these marketplaces or join them in some capacity. In any case, it creates a healthy market for current vendors straightaway, with the likelihood of a bigger market in the future.
3. Supreme Court lets the entire ACA, including individual mandate stand: This, of course, creates a market for state exchanges. However, we must still address the pricing issue as the penalties under individual mandate are very small and might not materially impact the insurance market. In practice, this scenario might not be that different from scenario 1 (seems like we’ve come a full circle!).
In any case, regardless of SCOTUS’ decision, the face of the American health insurance market has irreversibly changed and an online marketplace is a product that many states will consider de rigueur.