It is one of the most contentious issues in U.S. politics today: the federal health-care law’s requirement that everybody have health insurance or pay a penalty.
Supporters of the mandate—which is the central issue in the case before the Supreme Court challenging the law—argue that it’s the key to making health care more affordable and accessible to everyone. By expanding the pool of insured, the thinking goes, the burden of paying for the sick is covered by all.
But those against the mandate say a law that forces people to buy anything, including health insurance, violates guarantees of personal freedom enshrined in the Constitution. Relying on the government to extend health care to everyone this way, opponents say, also makes care more costly and inefficient. And they point to polls that show the individual mandate is unpopular.
Congress approved the mandate in 2010 as part of the Patient Protection and Affordable Care Act, though the law doesn’t take full effect until 2014. Meantime, legal challenges and arguments over the mandate leave its implementation in question.
Yes: It’s the Key to Reform By Karen Davenport All Americans should be responsible for holding insurance coverage. It’s the key to making health care more available, more affordable and more reliable for everybody.
It’s instructive to remember where the idea for an individual mandate began. In the late 1980s and early 1990s, a group of conservative health-policy experts began looking for an alternative to the employer-mandate proposal that ultimately became a central pillar of Bill Clinton’s health-care reform effort. The conservatives landed on an approach that called for individual responsibility, maintained a significant role for the private health- insurance market, and dealt with the “free-rider” problem of individuals who choose not to purchase health insurance and so pass their health-care bills on to those who do.
Sound familiar?
Three Premises The Affordable Care Act is built on three premises: Health insurance must be more accessible, particularly to people with pre-existing conditions; more affordable, including for people with very low incomes; and always there, including for people with very high health-care costs.
To that end, the law makes important changes to the non-group insurance market, where most individuals and small businesses seek coverage. These changes include: requiring insurers to offer coverage to all applicants, regardless of health status; requiring insurers to renew coverage, regardless of the policyholder’s claims history; requiring insurers to price premiums without regard to health status; and prohibiting insurers from using exclusions for pre-existing condition and lifetime or annual limits to restrict coverage.
Like in a masonry arch, the keystone of the individual mandate enables all the other pieces of reform to lock into place. Without it, the arch crumbles.
Think about it. People could wait until they were seriously ill to buy coverage, knowing that insurance companies could not turn them down. Insurers, because they would be covering mostly sick people, would need to raise premiums to stay afloat.
Some opponents of the mandate argue that making coverage mandatory will drive up overall premiums, and that requiring some to pay for others’ health-care costs is unfair. Certainly, some individuals will pay higher premiums than they currently do—for example, someone who is young and healthy, or who has bare-bones coverage today, will likely pay more. But the young and healthy person will not stay young, and might not stay healthy, while the person with bare-bones coverage may end up needing far more care than the policy will cover. We therefore share risk through insurance—paying for sicker people’s health-care costs when we are healthy, with the promise that if we need expensive care, others will cover the costs.
It’s not the mandate that will drive up premiums. Quite the opposite. The mandate is meant to help keep a lid on premiums by ensuring that the risk pool includes enough healthy people to spread the costs. At the same time, payment and delivery system changes that reward high-quality, efficient care will produce systemwide savings that also reduce premiums. In a 2010 report by the Commonwealth Fund, a private foundation supporting health-care reform, experts predict that by 2019, these changes will save each family almost $2,000 a year in premiums.
Opponents tend to see the mandate as federal interference in a private decision of whether to buy insurance or accept the financial risks of being uninsured.
But let’s be clear. Uninsured individuals who need care, particularly catastrophically expensive care, generally receive these services anyway. A decision not to pay for insurance—to become a free rider—leads hospitals and other providers to charge other patients more to make up the difference. People shouldn’t have the freedom to shift the burden to everybody else.
And it’s a real burden. Yes, uncompensated care in 2008 as measured by the Urban Institute was a modest proportion of total health spending in the U.S. But when you’re talking about health care, “modest” is still a lot of money. In 2008, 2.2% of total spending equaled $56 billion.
A Lot of Care To put this amount in context, the Affordable Care Act is expected to spend $56 billion on expanding coverage to 15 million people via the Medicaid program in 2015. So you can buy a lot of health coverage and care for $56 billion. To be sure, reducing unnecessary care would realize even more significant savings—and the law promotes reforms to address that issue as well.
Opponents also charge that the individual mandate in Massachusetts has led to rationing. On the contrary, data show that access to care has improved on a variety of measures, including reduced levels of unmet health-care needs. In some cases, the critics suggest that payment changes under consideration in Massachusetts—aimed at reducing the growth in health-care costs—will, if implemented, lead to rationing. This charge ignores the fact that global payment approaches and other payment changes are designed to improve care for patients with chronic illnesses. Under these approaches, physicians and health-care systems would coordinate with each other and more carefully manage their patients to ensure that patients receive needed care and enjoy better health. They would likely provide less unnecessary care and generally reduce overtreatment—thereby reducing potential risks to patients and reclaiming some of the 30% of health-care spending currently dedicated to unnecessary care.
Ms. Davenport is a research project director at George Washington University’s department of health policy.
No: Premiums Will Rise By Michael F. Cannon
When Washington begins penalizing people for not purchasing health insurance in 2014, it will mark the first time in history the federal government has required nearly all Americans to buy a private product as a condition of lawful residence in the U.S. No part of the health-care law is less popular, or more essential to preventing it from crumbling like a house of cards, than this individual mandate.
Even if the mandate were popular and constitutional, it would still be a bad idea. It will increase premiums, cost shifting and government rationing, while promoting irresponsibility. Indeed, its entire purpose is to enable supporters to avoid responsibility for their decisions.
Let’s start with premiums. The mandate will increase premiums for households who currently do not purchase coverage, and tens of millions more (including at least half of employer-sponsored plans) who will have to purchase additional coverage to satisfy the mandate. A study issued by the left-leaning Commonwealth Fund estimates the law has already increased premiums 1.8% on average. That will rise as the mandate takes full effect. Some of the increase will reflect the cost of additional coverage—but if consumers valued that coverage, they would have bought it already.
Magnified Effects True, the law will force insurers to reduce premiums for the sick, and the mandate will magnify that effect. But those same government price controls will increase premiums for healthier customers—and the mandate will magnify that effect, too. (Economist Jonathan Gruber, one of the law’s biggest proponents, projects that for some who buy policies in the individual market, premiums will more than double.) At best, those two effects cancel each other out. But these provisions also create incentives for healthy people to drop coverage, driving average premiums higher still.
Then there’s how a mandate leads to government rationing. Like President Obama, ex-Massachusetts Gov. Mitt Romney tied a mandate to subsidies that help people buy the mandatory coverage. The higher-than-projected cost of those subsidies, plus the premium increases caused by the mandate, are leading desperate state officials to reduce those costs by rationing care.
Officials have imposed price controls on premiums, which force insurers to limit services. They are pushing price controls on providers, which could exacerbate Massachusetts’ already long waits for care. And they hope to impose Canadian-style “payment reforms” that would financially reward providers for limiting services. (An early experiment has delivered zero savings and in some cases increased spending, yet it may still be denying care to people.)
Though supporters claim the mandate will reduce cost shifting from uninsured free riders to the insured, the latter will see no savings. Researchers at the left-leaning Urban Institute estimate that in 2008, such cost shifting amounted to just $56 billion, or 2% of total health spending, and increased premiums by “at most 1.7 percent.” For comparison, the Dartmouth Institute for Health Policy and Clinical Practice estimates we waste more than 14 times that amount on unnecessary care. More important, the Commonwealth Fund study shows the federal law has already increased premiums by more than the mandate could reduce them by eliminating free riding.
The federal law actually promotes free riding and cost shifting. My colleague Victoria Payne and I calculated that individuals could save up to $3,000 a year—and families of four could save as much as $8,000—by dropping their health insurance, paying the penalty, and waiting until they are sick to purchase coverage. Massachusetts reported a nearly fivefold increase in such free riding after its mandate took effect. The federal law also offers $1 trillion in subsidies to tens of millions of Americans—shifting $1 trillion of the cost of their health care to taxpayers.
Personal Responsibility The mandate’s greatest pretense is the idea that it promotes personal responsibility. If that were the goal, Congress need only have enhanced the courts’ ability to collect medical debts. Supporters instead demanded a mandate precisely because it lets them avoid responsibility for their decisions.
Here’s how. The federal law promotes irresponsibility by allowing healthy people to wait until they get sick to buy coverage. It creates that free-rider problem, which has been known to make insurance markets collapse. Supporters of the law could have taken personal responsibility for this instability they introduced into the market—say, by volunteering to pay the free riders’ premiums. Instead, they imposed a mandate, which attempts to stabilize the market by depriving others of their money and freedom.
Forcing others to bear the costs of your decisions is the opposite of personal responsibility. It is selfishness, not altruism.
The mandate is not a conservative or free-market idea. Some Republicans who were for it are now against it, just as some Democrats once against it are now for it. A majority of conservatives and the overwhelming majority of libertarians always opposed it. It’s snake oil, no matter who prescribes it. Free markets—which no living American has seen in health care—would make health care better, more affordable, and more secure. The mandate makes such progress impossible.
If the public understood the rest of the health-care overhaul as well as it does the mandate, the law would already be history. Mr. Cannon is director of health policy studies at the libertarian Cato Institute and co-author of “Healthy Competition: What’s Holding Back Health Care and How to Free It.”
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