The Supreme Court Cases and the Potential Impact on Health Insurers

By Jonathan Block - March 20, 2012

A big event takes place later this week when the Affordable Care Act marks its two year anniversary on March 23 since it was signed into law. Since then, many changes have taken place (with many more to come) that have impacted the health insurance industry dramatically. But don’t expect President Obama to be celebrating on Friday.

And why not? The law faces its biggest test next week when the Supreme Court will hear arguments on two cases regarding it. The one that has been getting the most attention is over the individual mandate. But the second one, over the constitutionality of the law’s large expansion of Medicaid, is what may end up having an even bigger impact on insurers.

Many insurers, particularly those focused on the Medicaid market such as Molina Healthcare and Centene, have been expecting a huge influx of Medicaid members as a result of both the law and many states’ desire to contract their Medicaid programs out to managed care companies. And just how much could insurers gain? The Congressional Budget Office has said the Medicaid expansion in 2014 will mean $627 billion in federal spending over 10 years. If the high court rules against the Obama administration in this case, a lot of future Medicaid business for those companies goes down with it.

In the mandate case, there are several possible outcomes. The court could uphold all of the law, find the mandate unconstitutional but find the rest of the law OK, or strike down the mandate and find some parts of the law valid and invalidate others. It’s hard to tell which result would be best for insurers, but to me, the second situation would be the worst for individuals and the third the best for insurers. In the second situation, not requiring everyone to purchase insurance could lead to an insurance pool with many more sick patients, thus driving up costs for insurers that would be passed on to consumers in the form of higher premiums. In the third possibility, say the court invalidates the mandate, allowing insurers to still deny coverage for people with pre-existing conditions, yet keeps other elements of the law intact. That would likely keep costs in check for insurers, but it would lead to the denial of coverage for many.

The decision, expected by late June, will be one of the most anticipated in recent memory. So, how do you think the Supreme Court will rule, and what will be the impact on the health insurance industry?