Actuarial principles at play in Supreme Court health care case

by Sara Teppema, SOA senior staff fellow, practice research

On Tuesday of this week, the U.S. Supreme Court wrapped up the second of four sets of arguments in the historic case involving the 2010 health reform law.  Tuesday’s arguments focused on the most politically charged feature of the law:  the constitutionality of the so-called “individual mandate”, or the requirement that almost all Americans have at least a minimum amount of health insurance coverage or pay a penalty.  According to Tuesday afternoon’s news reports, the lines of questioning indicated a division among the nine Justices, confirming the divided opinion of the American people, and that the individual mandate is not a slam-dunk decision either way.

On Wednesday the court will hear two final sets of arguments:  whether Congress can impose the law’s Medicaid expansion provisions to the states, and whether the rest of the health law is “severable” from the individual mandate.  To put the severability provision another way, if the individual mandate is deemed unconstitutional, the court will decide whether other provisions of the law, such as guaranteed issue and community rating of policies, can still stand.

Regardless of where we as actuaries might stand on the constitutionality of the individual mandate, we will almost all agree that certain other provisions of the health law cannot stand without the individual mandate.  Our actuarial minds will recognize that the imposition of guarantee issue of policies, and strict community rating with narrow allowance for variation of premiums by age only, without a requirement that everyone (healthy and unhealthy) participate, is an invitation for adverse selection, high premium rates, and potentially an unstable health insurance market.

Indeed, the American Academy of Actuaries successfully made this point to the court in its amicus brief, which was cited by the federal government’s filing to the court[1].

“In the Academy’s view, a decision invalidating the individual-mandate provision, while leaving in place the ‘guaranteed-issue’ and ‘community-rating’ provisions, would have adverse effects on the affordability and accessibility of health insurance in the United States[2].”

Being cited in the filing is no small feat.  This case has drawn a record number of amicus briefs – 136 in total, more than any other Supreme Court case in history, and amounting to about two feet of stacked paper!  Very few of the 136 briefs were cited in court filings, which indicates that the profession’s input is valued in this historic case.

You may not be as wrapped up in the drama of this week’s arguments as a health care geek like me, but hopefully you recognize the key actuarial principles at play, and the potential implications of this historic Supreme Court case.  Let us know what you think!

[2] Excerpted by the federal government’s filing from the Academy’s amicus brief,


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6 responses to "Actuarial principles at play in Supreme Court health care case"

  • Mayur R. Shah says:

    Did the SOA & Academy of Actuaries have a position on the “affordability and accessibility of health insurance” w/ the MLR set at 80-85% is, generally, cost-containing or cost-inflating?

  • Sara Teppema says:

    Hi Mayur —
    The SOA and Academy typically don’t take positions like that. I checked in with Cori Uccello, Senior Fellow at the Academy, who said that the Academy worked with and provided input to both NAIC and HHS regarding MLR regulations. Numerous comment letters are available at:
    Some of these comments provided input on how to minimize market disruption under the MLR rules.

  • Greg Sullivan says:

    Sara –

    Some of the articles I have read reflect proponents of the law arguing that “everyone uses the system”. But I’d argue that there are variations in utilization and cost that are a function of individual choice (dangerous avocations and diet, for example). In addition, as it stands stoday, it would seem that a small employer who buys wellness programs will see the financial benefit of the programs diluted, since their experience will flow into the exchange pool (and ironically benefit their competitors who may not be purchasing wellness programs). Has this topic come up at all? Thanks.

  • Paul Vinegrad says:

    Is the risk of uninsured Americans obtaining free ER care in the future in any way causing health insurance premiums to be increased today?

    During oral argument, Justice Kennedy suggested that this might be the case. Is his assumption correct?

    The answer to this question could be critical to the Supreme Court’s decision. And I have been unable, thus far, to find an answer.

  • Sara Teppema says:

    Greg — Some investment in wellness and prevention is built into the ACA, through the requirement that almost all plans cover preventive care at 100%, as well as a few other provision. As long as people are able to switch from one employer (or insurer) to another, it will always be an issue that the return on those investments can come long after the investment is made, and can come to another payer (such as another insurer, employer or public payer). A small employer might see other benefits in terms of improved employee productivity and reduced disability.

  • Sara Teppema says:

    Paul — Uncompensated hospital care is allocated into the cost borne by paying customers, which would include insured and self-paying uninsured people. Those projected additional costs would be built into insurance premiums, along with other projected increases in costs. It would be difficult to quantify exact amounts, however.

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