When Congress passed the Affordable Care Act (ACA) in 2010, it included a mandate requiring that all individuals have health coverage that meets minimum standards. To ensure compliance with the mandate, the ACA imposed an individual responsibility penalty on anyone who failed to enroll in health coverage. Subsequently, 26 states sued to have the ACA repealed, in part based on their claim that the penalty was unconstitutional. In 2012, the Supreme Court upheld the major provisions of the ACA and ruled that the penalty was a tax within Congress’s taxing powers, and therefore constitutional.
Last year’s Tax Cut & Job Acts repealed the penalty starting in 2019. This year, 20 states sued to have the ACA declared unconstitutional on the claim that the individual mandate could not exist with the penalty repealed. The lawsuit argues, among other issues, that the states will be forced to incur significant costs to stabilize the individual marketplace. On June 8, the Department of Justice issued notice that, with White House support, it will not defend the individual mandate, guaranteed issue, or community rating provisions of the ACA.
The intent of the individual mandate and penalty was to ensure that all individuals purchased health coverage to avoid adverse selection, given the ACA’s removal of medical underwriting and pre-existing condition limitations. Without these ACA protections, insurance companies could once again decline to cover individuals or pre-existing conditions based on health status, at least in the individual marketplace.
The mandate is one of the backbones of the ACA, but rates in the individual market have risen dramatically based on the influx of high-cost claimants. As a result, many insurance carriers are experiencing large financial losses and have pulled out or have threatened to do so, resulting in an unstable individual market. Without the mandate, the market is expected to deteriorate even further. The current administration has not proposed alternatives to preserve coverage or protections or how to stabilize the federal or state-based marketplaces.
While employer group health premiums have stabilized under the ACA, cost-shifting due to uninsured populations in any market will ultimately result in higher premiums to employers. We will keep you updated on the status of this lawsuit and how it could affect the employer-based group health insurance protections and costs. Please note that the removal of the individual mandate would not eliminate the employer mandate to offer affordable coverage, which applies to employers with at least 50 employees.