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Obama White House: If Individual Mandate Goes, 'Community Rating' Must Go Too

Jeffrey H. Anderson

On the last full day of the Obama White House—a phrase conservatives have waited eight long years to utter—it’s worth recalling the Obama administration’s own arguments about the connection between Obamacare’s “community rating” mandate and runaway health costs.

“Community rating” effectively bans the core idea of insurance, namely that one must buy it before the thing that one is insuring against happens. If people could buy homeowners insurance after their house is already on fire, and pay no higher premiums as a result, premiums on the whole would skyrocket. Indeed, “community rating“—and not Obamacare’s long and intrusive list of “essential” things that insurance must cover—is the main reason why premiums have soared under Obamacare, going up 40 percent over the past two years alone. As long as “community rating” remains on the books, premiums will likely continue to rise, even after partial repeal.

No one knows for sure whether the Senate parliamentarian will rule that Republicans can use the budget reconciliation process to repeal “community rating.” That process—which requires only 51 votes, rather than a filibuster-proof 60—can only be used for legislative provisions that are budgetary in nature, and a provision’s budgetary effects cannot be “merely incidental” to that provision’s overall policy goals.

Perhaps the best argument to support the connection between “community rating” and higher premiums and spending was made by the Obama White House in the lead up to National Federation of Independent Business v. Sebelius. The administration argued that, if the Supreme Court found Obamacare’s unprecedented individual mandate to be unconstitutional, it should also strike down Obamacare’s “community rating” and “guaranteed issue” (insurers can’t turn anyone down) provisions. Why? Without the individual mandate, “community rating” (paired with “guaranteed issue”) would simply be too costly.

Stephanie Cutter laid out the administration’s argument on the White House blog:

"The Affordable Care Act…bans insurance companies from discriminating against people with pre-existing conditions. However, unless every American is required to have insurance, it would be cost prohibitive to cover people with pre-existing conditions.

"Here's why: If insurance companies can no longer deny coverage to anyone who applies for insurance—especially those who have health problems and are potentially more expensive to cover—then there is nothing stopping someone from waiting until they're sick or injured to apply for coverage since insurance companies can't say no. That would lead to double digit premiums increases—up to 20 percent—for everyone with insurance, and would significantly increase the cost [of] health care spending nationwide. We don't let people wait until after they've been in a car accident to apply for auto insurance and get reimbursed, and we don't want to do that with healthcare. If we're going to outlaw discrimination based on pre-existing conditions, the only way to keep people from gaming the system and raising costs on everyone else is to ensure that everyone takes responsibility for their own health insurance."

So, in Cutter’s own words—if the individual mandate were eliminated but the health-care equivalent of letting “people wait until after they’ve been in a car accident to apply for auto insurance” remained—Obamacare would be “cost prohibitive,” “would lead to double digit premiums increases,” and “would significantly increase the cost [of] health care spending nationwide.” This would lead directly to more federal spending, through higher Obamacare subsidies.

If the connection between “community rating” and rising health and budgetary costs is strong enough that it would have justified the Supreme Court’s striking down that provision through the exercise of judicial review, one could certainly argue that the connection is also strong enough to justify Congress’s repealing it through the budget reconciliation process. Does the Court really have wider latitude to strike down a fiscally costly provision through the exercise of judicial review than the Senate has to repeal a fiscally costly provision through the budget reconciliation process? Is it not easier to say that there is a more-than-incidental connection between “community rating” and the budget than it is to say that there is fundamental incongruity between “community rating” and the Constitution?

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