ACA Unfunded Mandates Impact Insurance Markets; U.S. Biotechnology Patent Lead Narrows

The U.S. Supreme Court recently heard oral arguments in Kennedy v. Braidwood Management, a case involving several Christian-owned businesses challenging the Affordable Care Act (ACA)'s preventive services coverage mandates, specifically the required coverage for pre-exposure prophylaxis (PrEP) and HIV screening.

While the constitutional questions are pivotal, this discussion focuses on the broader economic and insurance market implications of the ACA's unfunded mandates. Unfunded mandates are regulatory requirements imposed on entities without accompanying federal financial support, leading to increased costs borne by insurers and, invariably, plan premiums.

A cornerstone of the ACA was establishing a standardized health coverage framework via the Health Insurance Marketplace, requiring insurers to cover a minimum level of preventive care services, as recommended by the United States Preventive Services Task Force (USPSTF), with no additional cost-sharing. These mandates, updated periodically every five years by the USPSTF, have increased financial pressures on insurers, resulting in premiums that often rise by a minimum of 1.5 percent to cover these mandated services, irrespective of individual beneficiary usage or need. Prior to these requirements, insurers had greater autonomy in plan design, allowing competitive variation in coverage and premiums tailored to consumer preferences and risk profiles.

Another significant unfunded mandate under the ACA was the inclusion of essential health benefits (EHBs), which required all health insurance plans to provide a federally defined baseline of conventional medical services, including maternity care, substance use disorder treatment, and mental health services.

Before the ACA, a substantial portion of individual market plans excluded key coverages, such as maternity care and substance use treatment, which became mandatory under EHBs. The introduction of EHBs effectively outlawed many previously available plans, disproportionately affecting smaller insurers. These smaller market participants, being held to benchmarks designed for larger insurers, faced challenges maintaining competitiveness, leading to significant market consolidation. From 2013 to 2014, individual market competition decreased by nearly 30 percent, and by 2014, the top four insurers controlled 83 percent of the market—a level of concentration conducive to potential price increases and reduced service innovations.

Despite these trade-offs and ongoing debates on the balance between coverage mandates and market dynamics, successive U.S. administrations have maintained support for these ACA provisions. Anticipated Supreme Court rulings may uphold these mandates, signaling their persistence in the U.S. insurance landscape. In a related sector analysis, the National Security Commission on Emerging Biotechnology (NSCEB) issued a report this month highlighting China's rapid advancements in biotechnology, narrowing the U.S. lead in biotechnology patents and infrastructure. The U.S.'s historical biotechnology dominance has been ratified by its research foundation and control over intellectual property.

However, patent data reveal a shrinking gap: from a ninefold difference over China in 2013 to roughly double in 2022. This trend carries implications for economic and national security, given biotechnology's broad subfields, ranging from medicine production to agricultural and defense applications. Overall, ongoing regulatory mandates under the ACA continue to shape insurance market structures, insurer competition, and premiums, while innovations and global competition in biotechnology present future challenges and opportunities that intersect with U.S. economic and security policies.