Killing Obamacare in pieces

Opponents of the Affordable Care Act have started calling for drastic revision of the Act, rather than outright repeal. A prime example is an August report published by the conservative-leaning Manhattan Institute for Policy Research. The report, entitled "Transcending Obamacare: A Patient-Centered Plan for Near-Universal Coverage and Permanent Fiscal Solvency, " proposes a new approach called the Universal Exchange Plan. (To read the full report, click here.)

The plan calls for the elimination of "costly federal regulation of Exchanges" and, more importantly, the removal of the mandate that every individual must maintain health insurance or pay a penalty. (Background information on the individual mandate is available here.) It would also eliminate the mandate that employers offer insurance to their employees.

At its core, The Affordable Care Act was designed to insure as many people as possible and to guarantee that health insurance policies cover federally defined minimum benefits.  In order to meet this goal, the Act established three main mechanisms:  guaranteed issue (which requires that insurers offer policies to everyone regardless of health status), the individual mandate, and Health Insurance Exchanges through which individuals can purchase coverage.  By calling for the removal of the individual mandate, the Report would remove what is arguably the most central tenant of the three.

Eliminating the individual mandate would lead to what economists call as adverse selection - greater enrollment by those with the most expensive health care needs.  When only expensive-to-insure individuals purchase coverage, premiums increase and healthier individuals become even less likely to purchase coverage. This can produce a "death spiral" for the insurance market that would be compounded by the Report's call for retaining guaranteed issue of policies to individuals who have pre-existing conditions.

Concern over the possibility of adverse selection in the insurance market led the conservative Heritage Foundation to support the idea of an individual mandate 25 years ago.  It was also a key component of the 2006 Massachusetts health reform plan commonly referred to as Romneycare.  The fact that a conservative think tank supported the individual mandate in the past makes it even more surprising that the Manhattan Institute's Universal Exchange Plan calls for its elimination.

Currently, federal regulations ensure that plans sold on the Exchanges are relatively standardized in terms of both benefits and cost.  They also ensure that older individuals are not charged more than three times the price of younger individuals.

However, the Manhattan Institute plan would allow insurance companies to charge older individuals up to six times more than younger people. This could make insurance unaffordable for many older Americans - the very population the Act was designed to help. Presumably, this is intended to offset the increased cost to insurers that would result from removing the individual mandate, but it is not clear that it would succeed in doing so.

This plan, therefore, knocks out two of the three core tenants of the Affordable Care Act. This would leave the Act crippled - a three legged stool trying to balance on one leg.  Removing the individual mandate and federal regulation of the Health Insurance Exchanges would severely harm the insurance market. Overall costs to insurers would increase, and they would almost certainly pass the increases along policy holders.

While the Report does not call for outright repeal of the Act, removing its main components would leave it the "Affordable Care Act" in name only.

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Matthew Maughan is a third year student at the Thomas R. Kline School of Law at Drexel University concentrating in health law.

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