Guaranteed-Issue Provision Backgrounder

Guaranteed-Issue Provision Background

When health insurance is issued on a guaranteed-issue basis, the insurer cannot deny applicants insurance based on their state of health. The guaranteed-issue provision in the Patient Protection and Affordable Care Act (“PPACA”) is Congress’ attempt to eliminate “discrimination based on health status” by the insurers. See Brief for Private Petitioners on Severability at 10–11. In effect, the Act’s guaranteed-issue provision mandates that insurers must provide health insurance to any person, regardless of medical history or current state of health. See id. at 11. Moreover, the health care premiums must be offered at an averaged rate that does not necessarily reflect the actuarial risk. See id. In addition to banning discrimination based on the current state of health of the individual, Congress also restricts the ability of the insurer to limit the scope of coverage. See id. For example, insurers must provide certain basic services, and cannot impose lifetime limits on coverage or unreasonably increase premium prices. See id.

The guaranteed-issue plans for an individual market vary state by state, with different states applying different restrictions. See Individual Market Guaranteed Issue. Federal law does not require that individuals who are self-employed be entitled to guaranteed-issue insurance. See id. However, all plans sold to small groups must be issued on a guaranteed-issue basis. See Small Group Guaranteed Issue. Small groups cannot be turned away by insurers based upon the current health status of their members. See id. Federal law defines “small groups” as employers with 2-50 employees. See id. In some states, insurers are also required to provide a sole proprietor with guaranteed-issue insurance. See id.

Costs of Guaranteed-Issue Provision

The purpose of guaranteed-issue coverage, combined with other provisions of the PPACA, is to end discrimination against those who need insurance the most—people determined to be at high risk by actuaries. See Brief for Petitioners Department of Health and Human Services at 18. However, the guaranteed-issue coverage imposes significant economic costs on the United States. See id. at 18–19. Guaranteed-issue provision, when required without any compensating provisions, often leads to increased premiums and reduced coverage. See id. at 18. Further, enacting such a provision in isolation often creates incentives for individuals to wait until they are seriously ill to obtain coverage. See id. For example, Washington state experienced a “death spiral” in 1993 when it enacted its version of a guaranteed-issue provision. See Brief of Respondents on Severability at 48. The market premiums for insurance coverage increased up to 78% within three years, and the number of people insured fell by 25%. See id. Washington also attracted seriously ill individuals from across the country, who had previously been unable to obtain affordable health care because of their medical histories. See id. After Kentucky enacted its guaranteed-issue provision, more than 40 insurers withdrew from the state. See id. at 49. Several other states have also adopted guaranteed-issue provisions, with the same result—insurance premiums rose, while enrollment decreased. See id. at 49–51 (discussing New Hampshire, Maine, and Massachusetts). Moreover, the United States Court of Appeals for the Eleventh Circuit has noted that guaranteed-issue provisions can result in a 27–30% increase for insurance costs in the individual market. See Brief for Private Petitioners on Severability at 11.

Guaranteed-Issue Provision and Severability

The guaranteed-issue provision serves as a focal point for the legal discussion. Although the constitutionality of the guaranteed-issue provision is not itself at issue, it is closely related to the question as to whether the minimum health coverage provision (also known as the “individual mandate”)—requiring that every individual in the United States have health insurance—is severable from the rest of the PPACA. See Brief for Private Petitioners on Severability at 29.

Petitioners contend that the individual mandate is crucial to an efficient insurance market, because it counteracts the rise in costs that is caused by the guaranteed-issue provision; therefore, they argue, the individual mandate is not severable from the guaranteed-issue provision, or from the rest of the PPACA. See id. at 40. Petitioners point out that the guaranteed-issue requires companies to extend minimum coverage to every individual regardless of risk. See id. at 42. Having every American purchase health care (enforced through the individual mandate) is what subsidizes the premiums, thereby making insurance affordable for everyone. See id. Ultimately, Petitioners argue that the individual mandate and other insurance regulations, such as the guaranteed-issue provision, are the fundamental strongholds of the Act. See id.

In response, the Department of Health and Human Services (“HHS”) claims that the individual mandate is severable from the rest of the PPACA, but is not severable from the guaranteed-issue provision. See Brief for Respondents on Severability at 13–14. Therefore, HHS argues that, if the individual mandate is unconstitutional, the guaranteed-issue provision is also unconstitutional and should be invalidated. See id. at 26. HHS points to other examples where a state has implemented a guaranteed-issue provision without requiring people to purchase insurance. See id. at 49–51. In those instances, the state almost always experienced a “death spiral”—individual enrollment for health insurance decreased, and insurers began to leave the state. See id. at 49–51.

Prepared by: Jenny Liu