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Awaiting Health Law Ruling, and Preparing Plan B

State officials and insurance executives are devising possible alternatives to the coming federal requirement that most Americans buy health insurance, even as the Supreme Court hears arguments about the constitutionality of the mandate.

Cost of healthcare
Lilli Day | Photodisc | Getty Images
Cost of healthcare

The options being discussed include imposing state requirements that people get insurance, penalties for people who delay and automatic coverage enrollment. While it is unclear which way the court will rule, state officials and insurance executives say they have no choice but to prepare their options before the proposed mandate goes into effect in 2014. “We’re always working on Plan B — always,” said Senator Karen Keiser, a state lawmaker in Washington State who leads a group tackling the issue.

“It will be up to state legislators, that is where the power will move,” said Ms. Keiser, a Democrat. “We have a lot of options at the state level.”

Some Wall Street analysts predict that if the federal mandate is struck down and the rest of the law is upheld, the industry will quickly shift its focus to alternatives, particularly those that enable the states to bolster enrollment, so enough healthy people sign up and premiums do not skyrocket. “The states are obviously not wanting the health insurance market and exchanges to spiral out of control,” said Jason Gurda, who follows insurers for Leerink Swann.

In Georgia, where the legislature has not yet authorized the development of an exchange to buy and sell insurance as required by the law, the state’s insurance commissioner, Ralph T. Hudgens, says he knows he may have to come up with a marketplace, regardless of how the Supreme Court rules. He said he opposed the mandate, but he believed the exchange could make it easier for citizens to buy policies. “Whether the mandate is struck down or not, Georgia is under the edict to establish an exchange,” he said.

Although unlikely, given the political opposition and current unpopularity of the federal mandate, some states, following the example of Massachusetts, could authorize their own mandates requiring people to buy coverage or pay a penalty.

States could also make it difficult for people to enroll only when they needed care by setting limited periods when individuals could sign up or by imposing penalties on those who waited, although that could require a change to the federal law. Individuals could be also be automatically enrolled by their employer unless they opted out, although some groups are already challenging an existing provision in the law that requires employers to automatically enroll any new workers in a health plan as overly burdensome.

The law could also be modified to allow states to continue to use high-risk pools, where people with expensive medical conditions might go to get more heavily subsidized coverage. And while the current law requires insurers to cover anyone with a pre-existing condition, Congress could contemplate allowing insurers to exclude an existing medical condition if someone waited to enroll only when they needed care.

“There are alternatives to the mandate,” said Andrew Dreyfus, the chief executive of Blue Cross Blue Shield of Massachusetts, the state most closely watched as an indication of how the federal law may play out because of its adoption of a similar law, under then-Governor Mitt Romney, now running for the Republican nomination for president.

One way Massachusetts brought down the cost of coverage for individuals, for example, was to merge that insurance market with the one for small businesses, where the premiums were lower, which other states could also do, Mr. Dreyfus said. The state also started a marketing campaign, featuring the Boston Red Sox, to try to persuade young people to enroll.

“You could have a market, but it would be a more dysfunctional market,” Mr. Dreyfus said.

The sweeping federal health care billknown as the Patient Protection and Affordable Care Act was signed into law by President Obama in 2010 after a contentious legislative battle. It has an array of provisions — many of them controversial — that are intended to expand care and lower costs. Central to the law, proponents say, is the mandate. Coupled with generous subsidies for some moderate-income individuals and the creation of new state insurance exchanges, it is viewed as essential to the ability of insurers to offer coverage to everyone, regardless of their health, and avoid charging higher premiums to people who are sick. Without the mandate, they say, too few young and healthy people will enroll, driving up the cost of insurance drastically for those who do and potentially causing the market to collapse.

“If you knock off the third leg, does the stool fall down?” asked Chris Jennings, a Democratic policy analyst in Washington. “It’s certainly a huge wobble. It’s very risky.”

The addition of a tax penalty encouraged significantly more people who were younger and healthier to buy coverage, according to a 2011 analysis of the Massachusetts law in The New England Journal of Medicine. “What we know for sure is, the law will work with the mandate,” said Jonathan Gruber, a health economist who played a central role in developing both the federal and state laws and was one of the authors of the analysis. “Once you get rid of the mandate, you don’t really know.”

And some argue that Congress, for one, is likely to refuse to make changes to the law to develop alternatives to the mandate. “It isn’t going to get fixed,” said Robert Laszewski, who runs a consulting firm, Health Policy and Strategy Associates, in Alexandria, Va. “Republicans want to blow it up. They’re going to be happy that the Supreme Court threw a grenade in it.”

The Supreme Court is expected to issue a ruling in June on the constitutionality of the law’s requirement that people must make a purchase to avoid a penalty. If the court strikes down the mandate, it could also choose to strike down the entire law or its major provisions. The court could also delay making a decision until Americans are actually faced with paying a penalty on their 2015 taxes if they do not have insurance coverage.

Some of those who favor the mandate say, at least privately, that they do not believe it is quite the linchpin to the law’s success as the heated rhetoric and flurry of legal briefs might suggest. There is no consensus about how much higher premiums might be without a mandate. “Nobody has a crystal ball,” said Larry Levitt, an executive with the Kaiser Family Foundation, a nonprofit research group.

Even some people who favor the mandate say it is so modest that its absence will not be missed much. By 2016, the law imposes a maximum penalty on those who refuse to buy coverage of $695 or 2.5 percent of annual income, with some exceptions. As one insurance chief executive, Mark T. Bertolini of Aetna, told Reuters in an interview this year, “Even as it exists today, the individual mandate is weak and still presents problems because the penalty is so low. If you get rid of it, I don’t know that it makes all that much of a difference.”

As a result, many insurers and policy analysts say federal and state officials are likely to have to come up with additional ways of making it harder for people who wait until they get sick to sign up. In Massachusetts, for example, the state needed to limit the open-enrollment period to prevent people from starting and dropping coverage to suit their medical needs.

Making the law work, a spokeswoman for Aetna said, “will take additional measures if we are to make insurance truly affordable, especially in a world without a mandate.”

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