Congress Eyes Health Law Alternatives

Congress will need a Plan B if the Supreme Court strikes down the individual mandate.

In his State of the Union address President Obama expressed a willingness to work with Congress to make changes in the health reform law.

But any changes he signs off on are likely to be minor, such as repealing a 1099 reporting requirement for businesses that has been universally assailed and has nothing to do with health care. The law passed last March is the signature accomplishment of his first term and he has no intention of giving in to Republican lawmakers who want to repeal it or chip away at some of its major provisions.

There is only one thing that would change his mind, and the minds of those in Congress who support the sweeping law: The Supreme Court. If, a year or two down the road, the court rules that requiring Americans to have health insurance is unconstitutional, there would be intense pressure on Congress and the White House to replace the individual mandate with some other means of inducing people to carry health insurance.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Even before a federal judge in Florida struck down the law Monday, the case was headed to the high court. And even before the decision was issued by U.S. District Judge Roger Vinson, an appointee of former President Ronald Reagan, some lawmakers on both sides of the aisle were looking into alternatives to the individual mandate.

The law requires that, starting in 2014, people either have health insurance or pay fines that start at $95 to $285, based on income, and increase sharply in subsequent years.

Republicans are fierce foes of the mandate, but even a few Democrats are having second thoughts. For example, Democratic Sens. Ben Nelson of Nebraska and Claire McCaskill of Missouri have expressed reservations and say they could support a “viable alternative.” Part of their antipathy may stem from their approaching reelection campaigns. Both are moderates who are targeted by Republicans, and they are aware that the mandate is hugely unpopular. In some recent polls, opposition to required coverage has approached the two-thirds mark.

Nelson says he would prefer a more incentive-based approach to buying health insurance and may introduce legislation later this year.

One alternative mirrors the Medicare program. Although Parts B and D of Medicare are voluntary, the longer people wait to sign up once they become eligible, the higher their premiums. For the uninsured, there could be an extra 3%-5% added to premiums if they don’t sign up when offered coverage. The idea is that a surcharge would make the uninsured think twice about rejecting coverage.

Without the mandate, or some alternative, health insurance premiums would likely skyrocket. Insurance company costs would soar, too, since underwriters would have to accept all applicants regardless of preexisting conditions and since, presumably, many younger and healthier Americans would opt out of coverage.

It’s a vicious cycle, of course, because as costs move higher, fewer people will sign up for insurance. One study estimates the average individual insurance premium would increase about 40% without the mandate. And the Congressional Budget Office suggests the number of people with insurance coverage would be cut in half without the individual mandate, from 32 million if the court keeps the mandate on the books, to about 16 million under a voluntary system.

That’s a huge group to have outside the system. Any alternative to the mandate would have to address how to deal with them.

Martha Lynn Craver
Associate Editor, The Kiplinger Letter