Health Insurers Prepare For Post-Supreme Court Doom Scenario

Last week’s Supreme Court oral arguments over the constitutionality of “Obamacare” raised a terrifying specter for the health insurance industry: What if a 5-4 conservative majority rules the individual mandate unconstitutional and severs it, while the rest of the law stands?

If that happens, then by 2014 insurers would be forced to sell insurance to all consumers, and not hike premiums based on peoples’ pre-existing medical conditions — but without a requirement that everybody enter the risk pool. That, experts believe, would create an inherently unstable system: Older, sicker people would buy insurance, healthy people wouldn’t, premiums would rise, more healthy people would drop their coverage and so on until the market collapsed altogether.

America’s Health Insurance Plans (AHIP) filed an amicus brief with the court asking the justices to also strike the coverage-guarantee provisions, if they determine that the mandate is unconstitutional. But according to an industry source, insurers are also readying themselves for the doom scenario.“Of course we’re preparing for any potential ruling,” the source said. “Nothing happened this week where it was a game-changer and we’re now changing our strategy.” But their options aren’t great.

“What is the likelihood that Republicans are going to work with Democrats to replace the mandate?” the source said. “I don’t think anyone thinks that’s going to happen. That’s just a very frank, real reality that we’re facing.”

There’s also little chance a bipartisan majority will vote to repeal a provision that bans insurers from discriminating against people with pre-existing medical conditions.

“If the court strikes the mandate and leaves everything else, it’s not true that it’ll be just, OK, we can fix this, we know it,” the source said. “We’re laying the groundwork now, making sure people know it’ll be a real problem.”

One possibility is that states — particularly blue states like Connecticut and California — will step up and institute their own insurance requirements. But that would still leave millions of people uncovered.

The Obama administration has also asked the court to strike the coverage-guarantee provisions if they toss the mandate. And, of course, it could uphold the whole law. But the 6th U.S. Circuit Court of Appeals struck the mandate alone, and there’s a real possibility that the Supreme Court will follow suit.