Maine’s example is worst case for health-care decision, insurers say

WASHINGTON — The worst-case scenario for insurers in the Supreme Court review of the U.S. health-care law — eliminating the mandate that everyone have insurance while other changes remain intact — has been tested in Maine, New York and Vermont.

It failed, insurers say.

The three states were among nine in the 1990s that tried to force insurers to sell policies to anyone who asked, regardless of health, without also mandating that other residents maintain coverage. As a result, as many as 90 percent of those under age 30 dropped their plans, knowing they could always pick them back up if they got sick. Premiums in some cases doubled.

By last year, six of the nine states had repealed the laws, according to Blue Cross & Blue Shield Association, a federation of insurers in Washington.

“The market reforms and the mandate are inextricably linked,” said Karen Ignagni, chief executive officer of America’s Health Insurance Plans, the industry lobbying group in Washington that represents Aetna Inc., Kaiser Permanente and more than a hundred other health plans. “What is most important for the justices is that they understand those linkages.”

Several results could come from the Supreme Court hearings ended last week. The justices can approve the law entirely, or knock it down. They can also slice it up, severing one or both of the provisions challenged as unconstitutional by 26 states.

The two provisions include the mandate, designed to pay for other parts of the law that raise insurer costs, and a broadening of eligibility for Medicaid, the government health plan for the poor and disabled.

During three days of arguments, Justice Anthony Kennedy, considered the swing vote between justices who may oppose the law and those supporting it, said the insurance requirement “changes the relationship of the federal government to the individual in a very fundamental way,” signaling he may not be in support of it.

At the same time, a series of questions and comments by the justices on the last day of hearings suggested the court would be reluctant to sever the provision from the rest of the law, given its potential effects on consumers and the health insurance industry, according to analysts.

Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, said decoupling the mandate from the insurers’ obligations to cover everyone may be the least likely scenario. Jason Gurda, an analyst at investment bank Leerink Swann & Co. in New York, went a step further and predicted the mandate would survive.

“The most likely scenario of the law, post-Court scrutiny, is the bad stuff goes and the good stuff stays,” Gupte said in a note to clients. “The stocks should see a continued upward trajectory into the year.”

If the court throws out the entire law, earnings potential for insurers might be increased, she said. The industry doesn’t prefer that outcome because of uncertainty about what Congress might do next, she said.

The least likely outcome — striking the mandate while leaving intact requirements that insurers cover all applicants — would shave about 10 percent from future earnings for top insurers including UnitedHealth Group and WellPoint, a result that “would still be manageable,” Gupte said.

Consumers also have a financial stake in the decision, said Ron Pollack, executive director of Families USA, a health consumer advocacy group in Washington. Knocking out the mandate may push them into a situation where they would be dealing with a “crazy quilt” of state-by-state health plans that differ on costs, coverage and scale, he said.

In New York and New Jersey, which didn’t repeal their guaranteed-issue laws, insurance premiums have risen faster than the national average, according to a Bloomberg Government study published March 16. In New York’s Bronx County, the least expensive family plan in March cost $3,150 a month, according to the state’s Financial Services Department.

Vermont also hasn’t repealed its law. There, just two carriers actively sell policies to individuals in the state, said David Mannis, a spokesman for the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

The number of people with individual policies declined to 9,400 in 2005, from about 33,000 in 1994, before rebounding to 17,500 after the state created a subsidized program, he said.

“It certainly suggests the importance of the mandate, which we support up here,” Mannis said by phone.

A group of state legislators who support the health law have discussed what they could do to replace the insurance mandate, if the court strikes it down, said Karen Keiser, a Democratic state senator in Washington who chairs the group.

Possibilities for replacing a federal mandate include the “politically difficult” route of passing state versions of the mandate, or replacing private insurers with government-run coverage in some states, Keiser said.

“It’s much more likely that states would step in and take it on because it seems the Congress is really at impasse,” she said by phone. In states that choose not to act, she said, “a large number of Americans would be left out and left behind.”