Do We Need a Mandate?
Imagine we dug a 15-foot hole in the ground and got in it. Our only means of escape is a rope ladder, hanging from above. But then a federal judge rules that the rope ladder is constitutionally impermissible. So I say, “This ruling is terrible. We are all doomed!” How would you respond?
If you are normal and rational, you would say: “Hold on, Goodman. Did anybody make you dig that hole? Did anyone force you to get into it? Your problems are not caused by a judge. They’re all your own making.”
Easy. Right? I know I’ve said many times that people’s IQs drop about 15 points when they start thinking about health care. The supporting evidence for that position has become so overwhelming I’m thinking about elevating it to the status of a social science law.
Anyway, that’s why it’s good to give non-health examples, just to get the first principles down. Let’s try something else that’s really close, but still not health care. Imagine that Congress required insurers to sell life insurance for the same premium, regardless of health status. So a terminally ill person only a few days away from death could pay the same premium as someone who is healthy and fit. Then, with insurance companies only a few months away from complete bankruptcy, imagine that Congress steps in to save the day by mandating that everyone buy life insurance.
Pretty stupid, right? Okay, now we’re ready for health care.
What Congress did for health care is the very thing I just described in my imaginary regulation of life insurance! Under the Affordable Care Act (ACA), someone in the intensive care ward can buy health insurance for the same premium as someone competing in the U.S. Open. So to keep the system from imploding in short order, all the health policy wonks — well, almost all of them — think we need a mandate, forcing the healthy to buy insurance long before they face any serious medical bills.
(By the way, lest you think this is unusual, almost everything we do in health policy is an attempt to prevent the bad effects of all the perverse incentives created by previous legislation.)
Now, at this point, you are probably thinking that Congress had no choice. The voters demanded the right to buy insurance after they get into the intensive care ward. Right? Wrong. Yes, the general public wants something done about pre-existing conditions. But at no time has there ever been the slightest indication of public pressure to allow people to shamelessly game the system. Consider that:
- Medicare enrollees who fail to enroll in Part B when they are eligible and not covered elsewhere are subject to a higher premium, equal to 10% a year for every year you fail to insure.
- Failure to enroll in Part D (drug coverage) will result in a higher premium, equal to 1% per month for every month you delay enrolling.
- If you fail to sign up for Medigap insurance when eligible, you can be denied coverage altogether if you later develop a serious medical condition.
- People who enroll in high-risk pools can pay as much as twice the premium other people pay.
These are common features of public health insurance, and there is little evidence of any public outcry. The one exception might be the high premiums for risk pool insurance. But although these costs are unfair to people who were continuously insured and lost coverage through no fault of their own, most people don’t object to the higher premium for people who have been willfully uninsured.
Bottom line: We do not have to have a health care system that allows people to remain uninsured (with little or no penalty) and then enroll after they get sick (paying the same premium as everyone else). The public isn’t demanding that and no one thinks that is just, fair or desirable, other than some health policy wonks who are way out of touch with ordinary Americans.
Another mistake that advocates of mandates make is the belief that mandates make a big difference in the uninsurance rate. We have pointed out before that the national uninsurance rate for auto liability insurance (mandated in all but three states) is only a couple of percentage points below the national health uninsurance rate.
The example of Massachusetts was misused by David Leonhardt the other day in The New York Times. As Mark Pauly has pointed out, the drop in the uninsurance rate in that state is almost completely explained by tax and spending subsidies, not by the Massachusetts mandate. Moreover, only 7.1% of the newly insured in Massachusetts are individuals buying unsubsidized insurance on their own.
A third mistake of the pro-mandate crowd is the failure to see that with a rational set of tax subsidies, mandates are largely irrelevant. I would guess that if you combined all the existing tax subsidies for health insurance with, say, half the new revenue raised by ObamaCare, you could afford to offer a refundable tax credit of $3,000 to every individual and $7,500 to every family to purchase health insurance. If so, it would be foolish for the family not to buy at least $7,500 of insurance (probably a catastrophic plan). But in case it did not, we could cashier the $7,500 in a fund to pay for uncompensated health care — should the need arise. (See the grand scheme here.)
A final point is that the federal government can save quite a bit of money with no mandate. The ACA without a mandate, according to the Congressional Budget Office, would:
- Increase the number of uninsured by 16 million.
- Save the federal government $252 billion over 10 years — primarily because of reduced Medicaid spending, lower health insurance subsidies and more taxable wages replacing untaxed employer-provided health insurance.
- Raise premiums by 15% to 20% in the individual (exchange) market because of adverse selection.
As noted, this last result can be ameliorated by imposing modest premium increases on people who delay enrollment and could be largely eliminated if we were willing to be even more aggressive.
John, an excellent post. As you’ve pointed out,requiring penalties to those that CHOOSE not to be insured is quite appopriate and effective to an extent. For this group of citizens health insurance will become UNAFFORDABLE, but by THEIR choosing.
One additional element that needs to be added would be for those that sign up when they become sick and then drop it when they are well…the costs for these folks need to be increased even more substantially if they ever attempt to sign up again.
And by the way, providers should not be REQUIRED to cover these folks in the event they show up at a hospital. These folks should be subject to liens and attachment to their wages until they have satisfied their obligations, if they are lucky enough to receive treatments from providers.Bankruptcy laws should not absolve them of their healthcare obligations.
Good post. A mandate is an invitation to special interests to bloat the required benefit package with their self serving provisions. Everythinig that needs to be accomplished in health reform can be done without a mandate.
It’s too true. Mandate = guaranteed market + guaranteed price. Our government is so generous with our money.
The answer to your question is “no”.
Mark Pauly tells me that the estimate that the Massachusetts mandate contributed little to reducing the number of uninsured in that state was not his personal estimate but an inference from a Kaiser briefing document here:
http://www.kff.org/uninsured/upload/7777-02.pdf.
I prefer Senator Tom Coburn’s idea of what he calls “auto-assignment” to insurance pools.
Initially people who do not buy insurance are auto-assigned to an insurer, but they have the freedom to apply to opt out of that insurance and go bare, if they wish. This idea is used by some 401K plans as well. It is a form of “nudging” or “libertarian paternalism.”
One should couple this freedom to opt out with the requirement that people choosing that route sign a paper stating that they clearly understand that they cannot get insurance from the community-rated pool through the exchange for the next N years. My Princeton colleague Paul Starr, who had proposed that idea, would make N = 5. I would make it 10.
Paul tells me that he was inspired by Germany’s approach to choice. People above a certain income threshold there can opt out of the Statutory Health Insurance system and buy private insurance. If they do, though, they cannot ever come back into the Statutory system (unless they are truly pauperized).
Had the Democrats followed Paul Starr’s advice, they would not be in the pickle in which they may find themselves on the mandate.
All that leaves unsolved, however, what to do with people who opted to go without insurance, then fall seriously ill or have an accident, and need very expensive health care for which they do not have their own means to pay. To they still have a right to health care? What would Judge Hudson have to say about it?
John admits that he wrote his blog post with only 85% of his IQ engaged. Perhaps the answer to my question is anchored in the other, slumbering 15% of his IQ. Switch it on, John, and write for us an answer to my question.
Uwe, I always thought you guys at Princeton were bleeding heart liberals. Never realized how hard-hearted your are.
My answer is no. Qualified by further stating that it will be the US Supreme Court which will decide the unconstitutionality of the mandate. It is my belief that the SC will uphold the unconstitutionality and from then on the Health Care bill will implode. It was cobbled together, it was not bipartisan and it was not a very smart thing to do in this time and age. IMHO
Is Uwe (10 years) in heavy competition with Starr (5)? Tomorrow will we see the bets raised to 20 years and 10 finally ending at infinity? Will they then work their way down the income level until the mandate converts into the free market?
The fundamental philosophical question in this arena is, and has been, “Does a society owe its members any level of medical care, and if so, how much, when (at what point), and how should it be funded?” If the answer is just plain “no,” then we do not need to worry about people who voluntarily choose to go without insurance and who then need expensive levels of care but who can not afford it. If providers are not willing to give the care on a truly charitable basis (i.e., one that is NOT subsidized by any tax benefit or other contribution from the society at large), then we allow the person to suffer and, perhaps, die, and we don’t give it another thought. If the answer is any kind of “yes,” however, then we tumble into an avalanche of further questions and qualifications regarding how to use “other people’s money” to pay for “some people’s” care, because at some stage, the person who chose not to buy insurance (which might be described as using “our money” to pay for “our care,” never mind the questions about what comprises a “fair” cost for insurance) when they could runs out of income and/or assets and society has to kick in. Even then, there is the question of whether it is “fair” (moral?) to allow such a person to receive care from the “best” providers at a resource cost to the members of society who played by the rules (so let’s give them care from the least capable providers?). There is never going to be a generally accepted agreement on how to structure this arrangement so everyone is happy. Hence, we must make hard decisions to achieve the most efficient system that we can under given boundary conditions. Ah, but setting those boundary conditions, there’s the rub…
HD Carroll: I agree with much of what you say. However, I do not believe that the Government owes me health insurance or that health insurance is a ‘right.’ I fully believe that the government mandating the purchase of any private product is unconstitutional, without question. I am not a Constitutional scholar, but in my reading of it I do not believe that ‘health care/insurance’ qualifies as a definition under ‘inalienable rights.’ (my spelling may be off there!).
I do believe it will be the SC which will settle the issue of the mandate and I believe that an expedited review will be requested after the Christmas Holidays. IMHO
John:
As often happens, you are even more correct than you thought. In my view the way the individual mandate is justified in the Obamacare bill sets a dangerous precedent more generally. To see why, see my recent Op-Ed at: http://www.washingtontimes.com/news/2010/oct/27/crowding-freedom-out-of-the-market/
This post brings to the mind three important points:
First, if one could create an incentive for the uninsured to want to buy insurance (and to carry it continuously) that does not create costs to the federal budget and that causes those who do not have the ability to buy insurance to self-identify, government could save large amounts of money over the Massachusetts approach and the PPACA approach because targeted cash transfers would be feasible and much smaller.
Second, it would be transformative if health insurance reforms existed that could place it on a cost-reducing, economically sound and actuarially fair basis.
But, I almost forgot: Third, points one and two ARE possible. So it’s the IQ thing that stands in the way?
To John Goodman:
No, John. We are becoming hard-asses up here, longing to get the tax ratios (receipt of federal funds/taxes sent to the feds) of the Sunbelt states down from their current lofty heights to at least 1. (TX and GA are already below 1, but not as low as NJ. I think we’re at .55 here. We’re running a national charity and are tired of it).
We are even more tired of folks who thunder against big government but have their paws deeply into the federal trough.
I hope you agree with me on that.
Perhaps a more…vivid analogy would be waiting to buy fire insurance on your home till your house actually caught fire…
It has struck me that the primary argument used to justify a mandate is that bringing a bunch of young, healthy people into the market via the mandate will somehow offset the extra expense entailed in covering that portion of the uninsured who suffer from pre-existing health conditions.
I don’t think the numbers add up, so if any of you policy experts can clarify my bemusement, I’d appreciate it.
As I understand it, “uninsuredness” is not a chronic condition for about half the folks in the uninsured pool. About half are uninsured for six months or less in any given year, due primarily to changes in their working status.
Only about a third of the chronically uninsured are “young invincibles,” many of whom are working, but choose not to purchase coverage because they find it unaffordable under their current circumstances. Over the course of their “uninsuredness,” some percentage of these folks develop health conditions which might currently render them uninsurable in the individual market.
Even if ALL these folks were forced into the system, it’s hard to see how the additional revenue generated from these premiums would come anywhere near offsetting the cost of the “burning houses.”
I think the argument is false on its face based solely on demographics. I don’t see the sense in couching an argument in ideology when the demographics ought to make the case for you.
I’m sure the policymakers in the Administration are aware of this, which makes it somewhat odd that the “spreading out the cost of the uninsurable” argument has been central to their insistence on a mandate. Unless, of course, they ARE aware that the argument is specious, but they, as well, are focused primarily on justifying their ideology…and hoping no one checks the numbers.
As to costs…I once had a chance to discuss the issue of a mandate (this time on employers) with The Lion Of The Senate, Ted Kennedy. Over the course of the conversation, I asked him, “If the Congress passed a law mandating that everyone in America purchase a Cadillac Sedan DeVille, what do you think would happen to the price of Cadillacs?”
The Senator’s staff responded that the Senator thought the cost of Cadillacs would go down, since there would be so many more of them.
I offered the thought that, most likely, the cost of Cadillacs would skyrocket, and the quality of the cars would go down, since it would no longer matter how much the Cadillacs cost, or how well they worked, since the federal government required everyone to own one.
There’s plenty of evidence to suggest that the existence of a mandate leads directly to an increase in prices, a proliferation of providers, and the obsolescence of quality control.
There would seem also to be pretty good evidence that the notion that we need a mandate to “get everybody into the pool” to offset the cost of pre-existing conditions is specious.
If I’m missing something, I’d sure appreciate being educated.
It seems that an annual enrollment period linked with a Part D type fine for delay of enrollment would go a long way to keep people from trying to game the system.
If you don’t sign up during the annual open enrollment you are locked out for the year and can’t sign up for insurance on the way to the doctor.
People would also want to get the best price possible so the potential fine would nudge those people to enroll.
And John, the answer to your initial question is:
I would dig footholds into the side of the hole and get myself out. Isn’t that what responsible people do?
Thanks. You sure make it easy to understand
Uwe, here is what you may not know about Texas. We have about 10% of the nation’s poverty population and we get about 5% of the federal Medicaid dollars.
Give us our fair share in a block grant and we won’t interfere at all with what New Jersey does with its money.
John: My understanding is that the cost sharing formula Medicaid is the same country wide. Why does Texas get so much less?
Good post, John. It shouldn’t be too long before policy wonks are giving serious consideration to alternatives to the individual mandate–despite the current state of denial from “official” Washington.
artk, long story short: Texas has an extensive system of free health care for the indigent. In fact local governments are required to have them under state law. But none of this money gets matched. Only money specifically spent on Medicaid is matched. Plus the state doesn’t spend much on Medicaid anyway.
By contrast, New York has about 6% of the nation’s poverty population and it gets about 12% of all federal Medicaid dollars.
Ah, the injustice of it all!
Dr. Goodman is quite right: No politician has ever credibly campaigned on making Medigap a guaranteed issue, community rated product. We tend to think that people want this “feature” in private insurance because pollsters ask whether insurers should be prevented from denying coverage for pre-existing conditions. About three quarters of respondents say “yes”. So, the media and the political class parrot this in their echo chamber.
However, if the pollsters asked whether people should be allowed to wait until they get sick or have an accident to buy health insurance, and then pay the same premium as those who buy a policy before they get sick or hurt, does anybody really think more than a small fraction of respondents would answer “yes”?
Also, if having qualifying health coverage “earned” you a tax credit as Dr. Goodman describes, the problem of uncompensated care would also be shown as mythological. Not because there are not people who do not pay for their own medical care, but because the entire group of uninsured would have enough forgone tax credits to pay for uncompensated care. (I addressed this a few years ago at http://tinyurl.com/27erpka.)
Mr. Polk is also right: The numbers don’t add up. If health insurance were people’s individual property, instead of the property of our employers, much of the problem of the uninsured would disappear. I wrote about this in my analysis of Sen. McCain’s and Sen. Obama’s health-reform proposals in the 2008 election (“Presidential Prescriptions,” published by the Pacific Research Institute).
COBRA and HIPAA are inadequate responses to overcoming our employers’ monopoly control of our health dollars because they suffer antiselection problems, artificially increasing premiums. The people who suffer the most are likely those who work at self-insured (ERISA-covered) employers that go bankrupt. There is no health plan for them to stay in after they lose their jobs, whether they can pay premiums or not!
HP Carroll suggests that society has some kind of duty to take care of the indigent. Most people surely agree, but what does that have to do with the government? One of the most appalling consequences of our current, government-run, system, is the wailing and knashing of teeth by non-profit hospitals about their “uncompensated care” caseload. These hospitals were founded by communities of faith (which explains why they have words like “St. Jude,” “Presbyterian,” “Methodist,” “Baptist,” “Jewish,” etc., in their names). When they were founded, providing “uncompensated care” was part of their mission!
Well, ALL the hospitals are crying about uncompensated care, not just the non-profits because it is a problem. Hospitals are NOT allowed to refuse care based on whether one has the means to pay or not. Therefore, because of this mandate, we have decided there is a base line amount of care that will be provided to individuals. Hospitals are NOT the best nor most cost effective method of providing health care but because of various problems with the provision of healthcare in this country, they are increasingly becoming the de facto providers for larger and larger numbers of patients and guess who covers this uncompensated care? We the tax-payers! So IF you believe insurance is the way to go for paying for healthcare, then ultimately i think you run back onto the need for a mandate. It’s a big hole, John, but i don’t think any one individual dug it for him/herself!
For John Graham – I will point out that I didn’t say what “my” answer was to the fundamental question I proposed. I merely attempted to unravel the consequences of answering “yes” instead of “no.” I am perfectly happy with suggesting that people who go without participating in some mechanism for financing their present and future medical expense costs (or run out of their own resources) be left outside the system to whither away and die. They made their choice. Of course, you can’t impose such a system instantaneously without a proper transition period to take care of the inevitable societal backlog, which is always the problem with changing social policy – what do you do with the people “caught in the middle” between one set of rules and then another? (E.g., privatizing social security poses the same type of issue.) Presumably, if people were taught and shown that there would be ultimate penalties for their choosing NOT to participate in insurance, for example, there might be fewer who choose to go bare back. From my perspective, it is unfortunate that our society doesn’t have the courage to let a few die on the streets to demonstrate the full consequences of their choices – they were warned. Of course, our society would be roundly criticized by the rest of the world as being terribly uncivilized, but sometimes the ends might just happen to justify the means, right? (Some tongue in cheek here with apologies to the likes of Jonathan Swift’s “A Modest Proposal.”) I certainly agree that government should not be the main instrument in the satisfaction of society’s perceived “needs” if the answer to my original question is “yes.” It might play a role in establishing the rules and the outline of the playing field, however.
@ uwe Reinhardt
You know after thinking about it some more, it does seem that New Jersey consistently votes for and sends to Washington politicians who want to tax and spend and, that being the case, I think it’s only fair that they get back 55 cents on the dollar. We shouldn’t reward the looting class.
The freedom-loving Swiss people are mandated to have health insurance. Here’s how the former Swiss Minister of Health answered the question: “How do you justify a mandate to be insured to the Swiss people?”
His reply: “That’s easy.We will not let people
suffer and die when they need health care. The Swiss believe that in return, individuals owe it to society to make provision ahead of time for their health
care when they fall seriously ill. At that point, they may not have enough money to pay for it. So we consider the health insurance mandate to be a form of socially responsible civic conduct. In Switzerland,
“individual freedom” does not mean that you should be free to live irresponsibly and freeload from others, as you would put it.”
This idea of “civic conduct” does not seem to be part of our culture. We are, after all, a people quite content to have our wars fought mainly by people recruited from the lower income strata, while the well-to-do elite sacrifices for these wars by giving itself tax cuts and to “go shopping.” Europeans would not quite understand it; but it makes perfect sense here.
Which is why I do not favor the mandate but instead Paul Starr’s paternalistic libertarianism, albeit with a rougher edge to it — an edge worthy of rugged individualists.
“You know after thinking about it some more, it does seem that New Jersey consistently votes for and sends to Washington politicians who want to tax and spend and, that being the case, I think it’s only fair that they get back 55 cents on the dollar. We shouldn’t reward the looting class.”
Taxing and spending is looting? I thought that not taxing and spending is looting.
“All that leaves unsolved, however, what to do with people who opted to go without insurance, then fall seriously ill or have an accident, and need very expensive health care for which they do not have their own means to pay. To they still have a right to health care? What would Judge Hudson have to say about it?”
Diogenes must continue his search for an honest conservative who will admit that they will just let them go without care.
Steve
Do you think those programs would have the same antiselection problem if they qualified for tax treatment on a par with the employer tax exclusion?
@ Uwe Reinhardt
First time I’ve ever heard of Paul Starr referred to as a libertarian.
HD Carroll, I appreciate what you’re saying. Nevertheless, it’s clear that our government does let “people die in the streets” – in traffic accidents, that is. In fact, government encourages it by building roads and letting us drive on them for zero marginal cost to the user. (I.e. most roads are not tolled. We pay for gas, of course!)
But the government has never said: “‘X’is what the socially acceptable number of annual deaths in traffic accidents is. If the actual number of fatalities is greater than X, the government will increase regulations and spending on road safety. If the actual number of fatalities is less than X, we will reduce regulations and decrease spending on road safety until the number of fatalities increases to the socially optimal number.”
It would obviously be politically intolerable to do so. Similarly, it is politically intolerable to do so for medical services. Hence, the dancing around the issue of Comparative-Effectiveness Review.
Because “society” rejects the idea of a central power making these decisions, it is better to leave it out of the hands of the state, and let the organs of civil society come to their own decisions.
Uwe,
This is a first: I’m agreeing with your comments. The risk control concept of a tight open enrollment periods makes sense rather than the individual mandate. Two year waiting rather than 5 or 10 would be fine (it’s Christmas). Straight community rating wouldn’t work – need to allow at least 4 to 1 if you’re going to do guaranteed issue to fairly assign premium to risk (I’d prefer the market to decide where premiums might range closer to 6 to 1). Back off of all of the state benefit mandates and give an insurance tax credit direct to the American family and we’re getting somewhere. Even better get rid of all the tax deals.