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It's one of the hottest ideas in health care policy.
Both Democrats and Republicans have embraced it. Senator Ron Wyden (D., OR) is pushing health care legislation that contains it. Legislation pursued by the Republican governor of California, Arnold Schwarzenegger, includes it, too.
Democratic presidential candidate John Edward’s health care reform proposal has it in there, but so did legislation that Republican presidential candidate Mitt Romney implemented while he was governor of Massachusetts. The conservative Heritage Foundation supports it, as does libertarian writer Ronald Bailey.
So, what is this trendy idea in health care?
“It” is called an “individual mandate.”
An individual mandate is a government requirement that every individual must acquire health insurance. People who are financially able must purchase private insurance, while people eligible for public programs, like Medicaid, will be compelled to sign up for those. Any individual who does not acquire health insurance will be subject to government sanction, most likely in the form of a fine or tax penalty.
Supposedly, this is a solution to the problem of the medically uninsured. Force everyone to have coverage—so the argument goes—and the problem of people lacking health insurance will disappear. “The goal of health care,” stated a recent article in the liberal magazine The American Prospect, “is to get everyone covered, at the lowest possible cost, with the highest possible quality.”
It sounds wonderful, doesn’t it? But even aside from the ugly little matter of compulsion, it is hard to understand why this grandiose idea is so popular, since it is destined to create more problems than it solves.
First, there is the basic problem of who defines “health insurance.” After all, if the government requires everyone to have health insurance, then some political authority has to determine what legitimately constitutes health insurance.
The recent experience in Massachusetts is illuminating. Legislation passed under then–Governor Romney created a new, semi-governmental agency called the Commonwealth Connector. Initially conceived as a clearinghouse for people buying insurance on the individual and small-group market, the law endowed the agency with the power to determine what would constitute health insurance in the Commonwealth.
Of course, the Connector could not leave that determination up to the free choices of individuals, who might assess their personal needs in order to determine the most suitable options. So instead, members of the Connector determined that all plans sold through the agency had to provide prescription drug coverage, offer unlimited benefits per year and per sickness, and limit annual deductibles to no more than $2,000 for an individual and $4,000 for a family.
Among other things, this had the adverse effect of forcing 250,000 Bay State residents who were already insured to buy even more coverage, because their health insurance didn’t meet the Connector’s minimum standards. Yet those superior brains who run this appendage of the nanny state clearly think they know what is best for mere ordinary folks. If people purchase more coverage, they declared, that “will help secure them access to preventive care and protection from medical bankruptcy, should they become seriously ill.” That a quarter-million residents might have other, more pressing spending priorities for their own money is, of course, completely irrelevant.
When government tries to enforce insurance mandates, a lot of people slip through the cracks.
The history of the Connector also shows that an individual mandate can cause the price of everyone’s health care to rise. For example, the agency was charged with setting minimum standards for the coverage that would be offered (and partly subsidized) to low-income residents. But the rules that the Connector established prevent low-income folks from purchasing less costly health savings account (HSA) policies. Under IRS regulations, all HSA policies must come with a deductible of at least $1,050. That is, the insurance company cannot start paying for health care services until the policyholder has paid that deductible; the only exceptions are for preventive care services. Yet the Connector required all low-income plans to cover a host of non-preventive services below any such deductible—which will, in effect, prevent lower-cost HSAs from being included among those low-income plans. That all but ensures that such coverage will become very expensive very quickly, because when there are few demand restraints on those with insurance, they tend to over-use health care services and drive up prices.
Despite all their efforts to coercively engineer the health insurance market in Massachusetts, the members of the Connector fell short of the basic goal of the individual mandate: universal coverage. In the end, the Connector had to exempt about 60,000 residents from the mandate because they had incomes too large to qualify for state-subsidized coverage but too low to purchase coverage on the private market.
Another obvious problem of the individual mandate is that of enforcement. Experience shows that when government tries to enforce insurance mandates, a lot of people slip through the cracks. As a study by Michael Tanner of the Cato Institute points out, most state governments have enacted laws that require motorists to purchase automobile insurance. But states with such laws still have about the same percentage of uninsured motorists (about 15 percent) as states without such laws.
The Internal Revenue Service would probably be the agency charged with enforcing a national individual health insurance mandate. The IRS is already infamous for its slow, inefficient, cumbersome tax enforcement. Requiring the agency also to track everyone’s health insurance status would only add additional unwieldy responsibilities and huge new administrative costs to the agency, costs ultimately to be borne by the taxpayers.
A less obvious problem is that an individual mandate will lock in many counterproductive laws and regulations that currently inhibit markets from working properly in health care. At present, for example, state laws prevent people from purchasing health insurance out of state. They also force insurance companies to sell insurance containing various benefits (such as chiropractic care or drug-and-alcohol-abuse counseling) whether consumers want them or not.
Plenty of other laws at the federal level interfere with the market and make health insurance and health care more expensive. For instance, there is a tax code that gives an unlimited tax break to employees to purchase health insurance, and there are laws like Stark I and II that prevent physicians from more efficiently integrating their services. An individual mandate will likely slow efforts to reform those laws. As Greg Scandlen of Consumers for Health Care Choices says, “What we need is to get rid of all of those laws that have caused so much of the problem with health insurance. But if we force everyone to be insured, and government subsidizes those who can’t afford it, then there is little impetus to remove laws that make coverage more expensive.”
Given all of the practical problems of imposing an individual mandate, why has this coercive notion gained so much popularity among the political elite? This question is especially pertinent for those conservative politicians and thinkers who support the idea, yet simultaneously claim to favor “free enterprise.”
One answer is that many conservatives have never differentiated promoting capitalism from courting corporations. So-called “corporate welfare” programs, such as agricultural subsidies, are a notorious example: they violate every principle of free-market capitalism by redistributing taxpayer dollars into the pockets of businesses. Today, facing huge health-care costs (largely due to government policies), many businesses are only too eager to dump the whole problem of health insurance into the lap of the government. That’s why big corporations include many proponents of various forms of socialized medicine.
Thus, in defending his state health care plan, then–Governor Romney wrote about a 2003 visit with Tom Stenberg, the founder of Staples. “If you really want to help people,” Stenberg told Romney, “find a way to get everyone health insurance.” “I believe that we have,” Romney said about his health plan in 2006. “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced.”
Forcing everyone to have coverage isn’t likely to make much of a dent in health care costs.
Pointing to the free care that uninsured individuals receive from hospital emergency rooms, Romney added that “while it may be free for them, everyone else ends up paying the bill, either in higher insurance premiums or taxes. The solution we came up with was to make private health insurance much more affordable.” In other words, under an individual mandate, uninsured individuals will no longer be able to shift their health care costs onto those who are insured. Thus, costs will decline for those who already have insurance. Or so the reasoning goes.
However, it is doubtful that the uninsured really cost the health care system that much. Researchers at the Urban Institute calculated that in 2001 the uninsured accounted for about $34.5 billion in “uncompensated” health care (i.e., costs not paid for out of pocket or by an insurer.) In inflation-adjusted 2005 dollars, that would be about $40.8 billion. That’s barely a rounding error in a nation that spends about $2 trillion annually on health care. So, forcing everyone to have coverage isn’t likely to make much of a dent in health care costs. Besides, compelling the uninsured to participate in taxpayer-subsidized health insurance is hardly a way to stop others from having to pick up their doctor bills.
Unfortunately, too many political elites have bought into the notion that the purpose of a health care system is to provide everyone with insurance coverage. Rather the goal of a health care system should be to provide everyone with high-quality, low-cost health care. To achieve that goal, what the medical industry needs is not more governmental coercion, but more self-responsibility. Market forces should be allowed to work, and patients should pay more of their health care costs directly. Doctors, hospitals, and other providers should be permitted to compete more freely and to innovate, finding ways to deliver quality health care at a lower price, without regulatory impediments. Once the price of health care declines, so will the price of health insurance. And as the price of health insurance declines, the problem of coverage will take care of itself. That, in fact, was the situation in the medical care field before the “Great Society,” before the infusion of countless billions of government dollars and regulatory mandates bid (and forced) health-care costs into the stratosphere.
Will this happen? Thanks to today’s proliferation of laws and regulations, we are a long way from having free markets in health care. There are ideas that would help get us there, such as President Bush’s proposal to transform the tax exclusion for health insurance into a limited, standard deduction, and a proposal by Congressmen Dennis Hastert and John Shadegg to allow individuals to purchase health insurance out of state.
An individual mandate, however, will only further entrench government laws that hinder market competition and invite even more political meddling in the health care sector. Not only will coercion deprive individuals of the right to choose the health care and insurance they want and need, it will also make medical care more expensive for all of us—and for some of us, completely unaffordable.