Who Needs a Health Insurance Mandate, Anyway?

By guest blogger Robert Field:

The most intense flash point in health reform debates is the mandate that requires everyone to have health insurance starting in 2014. Its constitutionality is the central issue in most of the lawsuits challenging the law. It is also the Act’s least popular element in opinion polls, and the one that raises the most passionate opposition. 

Supporters say the mandate is essential to health reform’s overall structure, and that without it, the system of coverage for all through insurance exchanges won’t work (see NY Times blog). But, is it really so crucial? Many observers believe there are alternatives that could accomplish the same goal. 

The insurance mandate for individuals is one of three legs on which reform of the insurance market rests. Leg number one is the requirement that insurance companies accept everyone, regardless of preexisting medical conditions. This is known in the industry as “guaranteed issue.” Leg number two is subsidies for those with low incomes so that financial pressures won’t pose a barrier, even when medical status does not. 

The mandate is leg number three. It guards against what economists call “adverse selection”, which could be caused by the first two legs. If insurance is guaranteed to be there when you need it, many may wait until they get sick or injured to enroll. If enough people do this, insurers won’t be able to spread the risk widely enough, and policies will become unaffordable. Hence the need to force everyone into the risk pool, both healthy and sick. 

Guaranteed issue and subsidies are the carrots that get people into the risk pool, and the mandate is the stick (see Marketplace Radio). Without all three, it is argued, the system of guaranteed coverage through private companies would collapse. No one likes using sticks, but reform proponents contend this is one time when you have to. 

However, there are other sticks that are not as big or as obvious (see NY Times). One is used in the Medicare prescription drug benefit. No one is forced to enroll, but if you don’t, premiums go up by one percent for every month of delay for the rest of your life. Another is used for employment-based coverage. There are no preexisting condition restrictions when you change jobs and get new coverage, unless you have let more than two months elapse since you were last insured. Both of these rules are meant to discourage people from waiting to enroll until they get sick, and both seem to work. 

Critics claim that alternative sticks such as these will be less effective than a mandate. They point especially to healthy young adults, who may need a special prod to obtain coverage. However, the mandate by itself will be far less than fully effective. For many people, the penalties for noncompliance will seem low relative to the cost of coverage. Estimates are that over 15 million will choose to remain uninsured. 

Even if mandate alternatives gather fewer people into the insurance net, they have a major advantage in being less intrusive. The public is more likely to accept them, since they let the system retain an element of voluntariness. And they render many of the legal challenges to health reform moot. This seems like a trade-off worth making in the interest of shoring up reform’s long-term prospects.

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