Why We Need the Individual Mandate

Yesterday a federal judge struck down the new healthcare law’s individual mandate, which requires everyone to have health insurance. (Actually, the mandate doesn’t apply to everyone: those who’d have to spend more than 8% of their income on coverage are exempt, as are undocumented immigrants – and if you don’t have coverage, you pay a fine.) US District Judge Henry E. Hudson ruled that the individual mandate is unconstitutional, but he did not strike down other portions of the law or issue an injunction against its implementation. Two other district court judges have found the mandate constitutional, and it’s expected that the Supreme Court will ultimately decide the question.

Now is a good time to remember why we need an individual mandate in the first place. When I first heard about the concept – back when Massachusetts was considering its landmark healthcare overhaul – I didn’t like the idea of requiring everyone to have health insurance. Sure, we require all car owners to carry insurance, but not everyone has to drive a car. I’ve come around to supporting the individual mandate because I’ve realized it’s the only way to make our current insurance system work.

Jumping into the Risk Pool
To understand the role of the individual mandate, we need to remember that insurance is fundamentally about pooling risk. Out of a large pool of people, the odds are that only a few of them will incur major medical expenses in a given year. Everyone in the pool pays an annual premium, and those premiums will cover the expenses of the unlucky ones who end up needing chemo or heart surgery.

In theory, insurance companies would aim to succeed by attracting the largest client pool possible. Ideally, they would also experiment with ways to keep their enrollees healthy so that they’d incur fewer healthcare costs. Some insurers are indeed trying to deliver good preventive care and help people manage their chronic conditions to avoid costly hospitalizations. But when insurance is based on employment and people change jobs frequently, there’s a chance that insurers who invest in prevention will end up saving their competitors money.

So, many insurers have also done something that’s rational but problematic: They’ve tried to keep unhealthy people out of their risk pools. This has been particularly noticeable in the individual market, where people with a single preexisting health condition have often been unable to find an insurer who will offer them affordable coverage. Some companies that sell individual policies also made a habit of finding questionable excuses to rescind coverage for people who developed health problems after enrolling.

While some insurance companies went way overboard in denying insurance for pre-existing conditions and rescinding coverage for those who hadn’t disclosed them, it’s reasonable that they’d want to have such policies in place. If they didn’t, the only people who’d buy coverage would be those who needed treatment – and at that point the insurance system would cease to function, because there would be no premiums from healthy enrollees to cover the costs of those who got sick.

New Requirements for Insurers and Individuals
What the government has done with the Affordable Care Act is to promise the insurance industry a large risk pool that includes a lot of healthy youngsters who’d previously gone uninsured, and in exchange require insurance companies to stop denying, rescinding, and charging exorbitant rates for coverage based on applicants’ health conditions. To create the larger risk pool, the law requires that everyone have health insurance, and it provides Medicaid coverage and subsidies for those who’d have trouble affording private plans on their own.

(People with incomes up to 133% of the federal poverty level will get Medicaid coverage, and those with incomes of up to 400% FPL who don’t get employer-sponsored coverage will be able to get subsidies for policies purchased through the health-insurance exchanges states are creating. If you’re interested in these or other details of the law, the Kaiser Family Foundation has a handy summary.)

If we lose the individual mandate, insurance companies will be left with a smaller, sicker risk pool, and the result will be higher premiums. Jonathan Gruber does the math and finds that without the mandate, average premiums would be 27% higher in 2019.

The individual mandate was originally a Republican idea. The Associated Press’s Ricardo Alonso-Zaldivar reports that the Heritage Foundation embraced it in the 1990s; Republican members of Congress touted it as an alternative to the Clinton healthcare proposal; and then-Governor Mitt Romney called it a “personal responsibility principle” when he signed the requirement into Massachusetts law in 2006. I’m guessing that Republicans embrace it because it’s the only way to have a functioning insurance system while relying on private companies. The simplest way to pool healthcare risk is to have a national healthcare system. If the Affordable Care Act gets hacked to pieces and can’t do what it was intended to, then we can expect the calls for a national healthcare system to gain strength once again.

Comments

  1. #1 R.
    December 14, 2010

    I’m quite pleased that the provision failed, in fact – because, as you point out, it’s the only way for the existing private insurance system to keep working. As long as the current system is working, there’s no hope of a true universal healthcare system. If driving the current system completely into the ground is the only way to get a first-world healthcare system in place in the USA, just let me fetch my shovel.

  2. #2 Roland
    December 14, 2010

    R. is right. This isn’t about healthcare, it’s about health insurance. Here in the US, the insurance companies have successfully conflated the two. The insurance companies are the problem, and they must go. The bill was written as a giveaway to the insurance companies, and it must go too.

  3. #3 MosesZD
    December 14, 2010

    Problem is that unlike car insurance, there is no meaningful cost containment or competition. In most States there are just a few large providers that play “it’s my way or the highway…”

    For example, in Maine, one insurance company (Wellpoint) has 71% of the market. Aetna is #2 with 12%. Because there’s no competition in Maine, therefore they have some of the highest rates in the country.

    This mandate didn’t fix that. It just made it so you had no choice but to buy or get in trouble…

    The state I live in is one of the worst in the US. If I buy and individual ‘decent’ family policy from Blue Cross it would run about $14,000 a year. Just like my self-insured business clients have to pay for family coverage.

    Fortunately my wife works for the University so we use her HI. Though we pay out-of-pocket about $200 a month for group health (from Blue Cross) and on a fairly stiff deductible in a traditional 80/20 plan.

    So, Andy pays $14K. Lee pays $14K. We pay $2,400… And it’s not gold plated. We have deductibles. We have co-pays.

    My other option is pretty much nothing. According to the Tennessee Department of Commerce and Insurance we have four HI providers for individual policies:

    Blue Cross: 99.54% of the individual policy market. No, that’s not a typo.
    Aetna, Coventry and United — the rest, a whopping 0.46%.

    So we’re going to get what out of our forced participation in the abusive HI monopoly? Besides being forced to buy health insurance at ridiculous prices?

    The problem is, and will always remain, HI (as is much of medicine) suffers from structural market failures. We’ve known that for a very long time. The entire industry has perverse incentives on all sides.

    The only real solution to the health insurance/medical crisis is some realism into the entire medical profession, putting patients first and profits second. But that’s not going to happen.

    So, even though we’re #1 in medical technology in the world. We’re #48 in medicine. We have the richest doctors and about the worst service and down-right third-world population-results…

    Forcing people to bankrupt themselves in the insurance hegemony isn’t the solution. We know the solution and it has to do with your wallet and that huge effing overhead you support. We’re just too damn afraid to implement it.

    As for car insurance, I can go with Farmers, State Farm, Allstate, Geico, 21st Century, Progressive, Shelter, Amica, Safeco, Liberty Mutual… So the market forces them to compete, since I can go anywhere I want, anytime I want…

    But for HI, it’s BCBS or nothing. And they don’t compete on price. They don’t have to…

  4. #4 Knight Of the Sovereign Order of Balthamus
    December 14, 2010

    It is unconstitutional for anyone including government authorities to force someone against their will to purchase a product from a private company. Unless they live in a totalitarian regime.

    What if the government says that you have to go out and buy a brand new Porshe by january 31, 2011. if you fail to do so they will penalize you and or imprison you. Is that fair? No. it’s the exact same thing with helath insurance.

    I am a private individual sovereign citizen who will decide for my self what i need, when I need it or even if I need it at all. The government is sticking their totalitarian asses in my business and I don’t like it one bit. I say the person who came up with this idea to force people through government extortion to purchase something at gunpoint (the police that show up with IRS agents at your door have guns don’t they?) should be stripped of their citizenship, given 10 lashes with a horsewhip and deported to Antarctica – naked! Bastard whores never give the people any slack. If I ever invent a time machine, I’ll bring back Jack the Ripper and seek him on Washington. It’s the least the fascist dicator pisspots deserve. Please, dear God, please just wipe out socialism for me. Just a simple little asteroid on their head will do. Please wipe out socialism. All I ask is they all fall dead at the same time – possibly due to enarged asshole syndrome caused by homopathic tendencies. Sodom will fall and I hope when it does it fall on the ones who created it. Fascist socialist tyrant satan worshipping freaks of nature.

    I hope this whole HELLthcare ponzi scheme/population control law fails and takes down those who wrote it with it. Vlad the Impaler for president never looked so good. I would seek him on the socialists. Of course if he impaled them up the ass, they would probably like it. That’s how fucked in the head they are.

  5. #5 Jack
    December 14, 2010

    I am always amazed that otherwise intelligent people would be willing to completely disregard the unconstitutionality of a provision so that a certain goal of theirs would be achieved.

    Lots of things would work better if we forced people to do certain things. We could force people to get a certain level of education, to eat the right things, to exercise – of course when it is all said and done what you have really done is greatly expanded the power of the government and greatly limited personal freedoms. Those are significant losses.

  6. #6 Greg Laden
    December 14, 2010

    It is not unconstitutional to charge people a tax.

    I want a 10,000 K per person health insurance tax. Waived for those with adequate coverage.

    Mischief managed. Thankyouverymuch.

  7. #7 Jill
    December 14, 2010

    Jack. You would make a wonderful dictator. What would happen if your subjects refused your forced crap? Would you slaughter them like other dictators before you?

    You cannot force people to do anything. If you try to force people to do something all you will get in return is a war. Haven’t you learned anything from Iraq yet? No one is going to be your little slave.

    I am a individual sovereign citizen. I eat what I want when I want it. I buy what i want or can afford when i can. If I choose not to, then so be it.

    I I choose to order a pie and eat it and you open your smart mouth to me about it, you would more than likely be wearing that pie. In other words, mind your own damned business and there would be no trouble.

    If you force people at he point of a government gun, then one of your goals will be accomplished – exercise. You see being forced o eat certain foods at the point of a government gun will cause your citizens to rebel and your pathetic ccommunist regime to run and therefore get exercise becuase thos you have force will sluaghter your soldiers, take their guns, and then come after the dictator who is making their life miserable. You see, force causes war. i though you would be against war.

    I like force myself. You should be FORCED to have 15 children. You should be forced to eat meat three meals a day. You whoudl be forced to drive the largest gas guzzling SUV made. You should be forced to gave gay sex with an HIV positive gayist. You should be forced to deer hunt and eat raw deer meat.

    What you don;t like forcing people to do things? Maybe it depends on who is doing the forcing eh? When you were in charge it was ok. Now that we slaughtered your communist regime we force you. That’s how force works. What comes around goes around.

    Do you honestly expect free sovereign people to obey your commands? More than likely you would be shot before the end of your first day as dictator. People hate shiteater communists and American people would rather die fighting them than obeying them. I am one of them. Sovereignty rules. Communism sucks. Just ask Russia.

  8. #8 Darrell
    December 14, 2010

    Greg. That is extortion. You would make a great congressman. By the way. I want a $500,000,000 tax on anyone who mentions global warming as being real. We’ll waive the tax when you prove it as anything but a scam. Fair enough?

    Mischief managed for real.

  9. #9 Jack
    December 14, 2010

    Jill,

    I don’t think I have ever seen anyone misunderstand a post more completely – you do realize I oppose the individual mandate, indeed Obamacare on the whole? Please re-read my post, pparticularly where I describe such coercion as a ‘significant loss’

  10. #10 JasonTD
    December 14, 2010

    It is not unconstitutional to charge people a tax.

    I want a 10,000 K per person health insurance tax. Waived for those with adequate coverage.

    Mischief managed. Thankyouverymuch.

    Two things Greg,

    First, Obama rejected the idea that it was a tax when the bill was being debated. (Despite the CBO saying it would raise billions in revenue over several years.)

    Second, I’m sure many would like a $10k per person health insurance tax, unless they have ‘adequate’ coverage, with ‘adequate’ defined very generously. My employer (a school district in Florida) pays considerably less than $10k for my coverage. Would I then have to pay the difference since my coverage is not ‘adequate’?

  11. #11 Liz Borkowski
    December 15, 2010

    Whether or not the mandate is constitutional will be decided by the courts. The government’s case is that it falls under the commerce clause, which allows the federal government to regulate commerce among the states.

    It’s not the case that health insurance is like any other consumer good, because my neighbors’ non-purchase of insurance affects me. If my healthy neighbors don’t add themselves to the risk pool, my premium goes up. If my uninsured neighbor falls terribly ill, she’ll go to the emergency room and be left with a bill she can’t pay, which will result in that hospital shifting costs to its insured patients.

    If we don’t have the mandate, how else will we make either insurance or healthcare affordable? Switching to a national healthcare system is certainly one answer, and it’s what I’d prefer if I could go back in time to the point when we set ourselves on this ridiculous path – I just don’t know how we’d get there from here. I do wish the new law included a public option, which could’ve helped counter the problem of a few insurance companies having a virtual lock on the market. For a public plan to be self-sustaining, though, a mandate’s still necessary.

    For those who oppose government involvement in healthcare, what do you think we should do? Should we tell those who don’t have employer-sponsored insurance or millions of dollars to spend on healthcare that they’re just out of luck? If they get cancer, they should just die? Most of us couldn’t afford cancer treatment or heart surgery if we had to pay for it out of our own pockets.

  12. #12 Provider
    December 15, 2010

    First off the individual mandate a tax not a law it isn’t more or less socialist or conservative than any other tax. Certain tax benefits or penalties are associated with owning a house just like having health insurance. I am however not as strong of an advocate for it. It really does depend on passing on those profits of a bigger pool back into the pool itself instead of just pocketing it. Private insurance companies are criminals and a public awareness of this fact has been present for decades. They flatly deny coverage for costs that are contractually stated as covered benefits. There is just too much money in saying no to a ten thousand dollar claim, and this happens over and over again. If they do that and are still uninhibited by old or new laws how do we expect them to fairly distribute profits back into lower premiums?

  13. #13 Liz Borkowski
    December 15, 2010

    Provider, the law does require insurance companies to spend 85% (or 80%, in the individual and small-group markets) of premium dollars on clinical services and quality – or return the rest to consumers as rebates. So, the unspent $10,000 from a denied claim wouldn’t be additional profit unless the company had already spent 85% of its premium dollars on care.

    You’re right, though, that wrongful denial of claims is a problem in the insurance industry. States are supposed to create ombudsman/consumer assistance offices for people getting private coverage in the individual and small-group markets, and if they decide to be picky about which plans can be offered on exchanges they could refuse to include insurers that have been found to wrongfully deny a lot of claims. So, states that have the resources and political will to address this kind of problem could potentially use the law to get better insurance for their residents. But this problem won’t just vanish.

  14. #14 Jack
    December 15, 2010

    “It’s not the case that health insurance is like any other consumer good, because my neighbors’ non-purchase of insurance affects me. If my healthy neighbors don’t add themselves to the risk pool, my premium goes up. If my uninsured neighbor falls terribly ill, she’ll go to the emergency room and be left with a bill she can’t pay, which will result in that hospital shifting costs to its insured patients.”

    Actually, the purchase of consumer goods and quality of life experiences are always affected by my neighbor’s behavior; the cost of buying a house is dependent on what others are willing to spend on it. The quality of my school is determined in part by how my neighbor raises their kids. The cost of public transportation is affected by how many people are willing to take it. Poverty exists in large part because of the choices of individuals – if we start making the basis for government coercion the fact that it will make life easier or less costly for me, then there is no end to what we can compel other to do or not do.

  15. #15 Douglas Watts
    December 15, 2010

    Poverty exists in large part because of the choices of individuals …

    Err … right.

  16. #16 L J Furman
    December 16, 2010

    President Obama appears to think every American should have access to health care. Judge Hudson in Virginia, however, ruled that compelling people to buy health insurance is unconstitutional.

    Suppose we expand Medicare, Medicaid, and the health care system that covers elected Representatives, Judges, soldiers, union teachers and other civil servants to include all citizens. And what about medical practitioners who don’t want to take new Medicare and Medicaid patients? Expand the Veterans Administration on national security and public health grounds. Call it the National Public Health System. Or Health Care for All Americans.

    Popular Logistics, Health Care for All Americans

  17. #17 Knightly
    December 16, 2010

    I’m a single man. None of the ladies I speak to seem too interested in my individual man date. :(

  18. #18 messej
    December 16, 2010

    @LJ Furman….have you considered presenting the plan you outlined to the House or Senate?….it sounds like a great plan; much like the talking points President Obama used when he was campaigning. IT’S A GREAT PLAN THOUGH.

  19. #19 Joseph
    December 18, 2010

    IMHO, individual mandate without a public option is just cruel. Insurance without support of a company is just da#n expensive. I’ve done COBRA to keep insured while my insurance changed hands after my employment changed hands; it’s extremely expensive if you’re not backed by your employer anymore. Employer mandate, however, would rock (no exemptions; if you’re an employer (including self-employed) you gotta provide Acceptable Minimum Insurance to your employees).

    With a public option, I’m totally behind the individual mandate (in fact, it’s the most complete solution). But you gotta have the private option or you just end up kicking people when they’re down.

  20. #20 J Albers
    December 20, 2010

    Unlike the wacky right-wing “sovereignists”, I’m opposed to Obama’s health care “reform” because it won’t provide sustainable quality and affordable health care for all. It will, however, provide massive profits to the insurance firms, big pharm and other corporations in the “health care industry”.

    Mandating health insurance is a REPUBLICAN solution to increasing health insurance coverage, not providing quality and affordable health care for all in the US.

    Before the Republicans were against it (2009), they were for it (1993). Romney appears to have the worst memory, having promoted it in 2006 as Massachusetts Governor.

    However, it was Mark Pauly, conservative economist at the University of Pennsylvania Wharton School who developed the proposal, which was embraced by Bush Sr. when Democrats were focusing on employer insurance mandates in the ’80s.

    In opposition to Clinton’s failed health care “reform” proposal in 1993, 20 Republican Senators – including currently seated Chafee (R-RI), Hatch (NV), Grassley (IA), Bennett (UT) and Bond (MO) – sponsored a bill that included individual health insurance mandates.
    (See http://www.npr.org/templates/story/story.php?storyId=123670612)

    With this “reform” many people will be forced to purchase high-deductable insurance polices that will still provide a disincentive to obtaining health care services when they need them. And no one should realistically expect that this give-away to the profit-driven health care mega-industry will really reduce the costs and provide quality care for all.

    The current ‘claim’ that individual costs will be subsidized for the ‘truly’ needy through government subsidies – making insurance ‘affordable’ – neglect to acknowledge that these ‘entitlements’ could be eliminated or not funded at the same level at any time in the future.

    This was a bad proposal from the start and Obama and the Dems who opposed any discussion of alternative approaches should be ashamed for promoting this sham reform.