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Why insurance companies want the individual mandate

Women get their eyes checked during during a free health clinic at the Los Angeles Memorial Sports Arena on October 20, 2011 in Los Angeles, Calif.

Steve Chiotakis: Tomorrow, U.S. Supreme Court justices
will decide whether to hear legal challenges to President Obama's healthcare reform law.

And Marketplace's Gregory Warner is with us now from the Health Desk at WHYY in Philadelphia. Good morning Gregory.

Gregory Warner: Hey there, Steve.

Chiotakis: So now what's at issue here?

Warner: The individual mandate is a requirement that all Americans buy insurance if they don't have it already, and this would start in 2014. It's a huge deal. Thirty million people would be eligible off the bat and there would be big subsidies for those who can't afford it.

Chiotakis: So what's at stake then for health insurance companies if the courts get rid of the mandate?

Warner: Well, the poor insurance industry, right? We need some violin music here? But let's take their side for a second, because there's this thing that insurers dread. It's called adverse selection. It's a fancy name for selling policies to too many sick people, basically, and that's bad for profits because if they have more healthy people on their books, you know, they make money. Now, the health care reform law puts all kinds of new restrictions on insurance companies, so they no longer can deny you for pre-existing conditions -- that is, for being sick. They can't trick you with fine print that disqualifies you when you get sick. They have to let dependents under age 26 on your plan even if your kid is sick. All this gives you and I more leverage to buy insurance when we need it.

Randy Bovbjerg at the Urban Institute says the individual mandate gets rid of this leverage by forcing everyone to buy insurance even if they're healthy.

Randy Bovbjerg: If you leave in place most of the reform and you get rid of the mandate, you increase the incentive to go uninsured, because you know if you ever need it, you can just sign on the dotted line and get it.

And that's the nightmare that keeps CEOs of insurance companies up at night.

Chiotakis: So is it possible then that the Supreme Court could get rid of the individual mandate but keep in place the rest of the law?

Warner: It's very possible, and the states and the Small Business Association leading this lawsuit say that without the mandate, there's no law, that it would be like a de facto repeal. And the White House makes a pretty convincing argument that that's not entirely true. Yes, some pieces of the law like the restrictions on insurance companies that I mentioned, those would fall, but this is a big law. There's lots in it, whole sections on how doctors get paid and other things that would not being going away.

Chiotakis: All right, Marketplace's Gregory Warner. Thanks Gregory.

Warner: Thanks Steve.

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