Health Reform Without the Mandate? Yes, it’s Possible.

December 16, 2010
Bob Keaveney

Is real health reform possible without a requirement that every person have insurance, or is it doomed if the mandate is declared unconstitutional?

Now that the Constitutionality of the health insurance mandate has been called into question by the courts, supporters of health reform are accelerating their argument that a mandate requiring everyone to purchase insurance is essential to the goal of covering almost all Americans.
But is this really true? Many healthcare economists say that it is, but not everyone agrees.
 
Mandate advocates say that requiring insurance companies to cover all-comers, without regard to pre-existing conditions, as required under health reform, could lead to unsustainable rate increases unless healthier people are also required to get into the insurance pool. Moreover, said Eric Holder and Kathleen Sebelius, the attorney general and secretary of Health and Human Services, respectively, a mandate would eliminate the problem of healthcare freeriders -- people who can afford insurance but choose not to purchase it, then show up at the emergency room and ditch the bill: “The costs of this uncompensated care - $43 billion in 2008 - are then passed on to doctors, hospitals, small businesses and Americans who have insurance,” they wrote in a recent Washington Post op-ed.

But I think that both of these arguments are specious. A mandate would do very little about the uncompensated care problem because a big chunk of that $43 billion is for care provided to people who would not be subject to the mandate: the 40 percent of Medicaid-eligible Americans who are simply not enrolled; those who will be newly eligible for Medicaid under the program’s expansion; and illegal immigrants, who will be prohibited from purchasing insurance on the new regional exchanges (even with their own money). How much of that $43 billion is for care provided to these groups? I admit I don’t know the answer. But my guess: Most of it. (By the way, if you do know the answer, please tell us in the comments section below.)

No doubt, reform will put a big dent in the 50 million Americans who are uninsured, but that will be mostly because of reform’s other provisions: the Medicaid expansion, new rules making it tougher for states to leave Medicaid-eligible people unenrolled, new penalties on businesses that don’t provide subsidized coverage, and the rule allowing more young adults to remain on their parents’ insurance. Not the mandate.

Still, don’t the insurance companies need the premium dollars of the young and healthy in order to afford coverage of the older and sicker? Isn’t that how insurance works, after all? “Imagine what would happen if everyone waited to buy car insurance until after they got in an accident,” Holder and Sebelius argue. “Premiums would skyrocket, coverage would be unaffordable, and responsible drivers would be priced out of the market.”

Yes. But the mandate, as currently drawn up, is no mandate at all. Unlike with automobiles, where uninsured drivers can’t register their vehicles, health insurance scofflaws would merely pay a fine  - a fine that’s much less than the cost of insurance. Many will choose to simply pay the fine. They could still buy coverage after they get sick, and it will be perfectly legal. It happens in business all the time: When a fine for breaking a regulation is lower than the cost of meeting the regulation, the sensible choice is clear. In this case, the scofflaws get the added benefit of knowing that health insurance will be there for them whenever they need it. The so-called mandate, then, actually encourages the very thing it is intended to abolish.

(Of course, you could address that problem by increasing the size of the fine. But the mandate is already the most loathed aspect of health reform. President Obama needs his signature achievement to get more popular by the time he’s running for re-election, not less popular. More on the politics of the mandate tomorrow.)

Add all that up, and one wonders how much the insurance mandate by itself will reduce the number of uninsured people and the amount of uncompensated care, and how much it might really increase the number of healthy-people’s premium dollars in insurance pools.

What would happen to reform without the mandate? Holder and Sebelius say the reform “doesn’t work” without it, but I don’t think reform would unravel. The mandate could be replaced with, say, a national open enrollment period: Six weeks every year or two when the prohibition against coverage-denials would apply, and every uninsured person must decide whether to purchase insurance without being subject to a physical exam or having to submit medical records. Anyone who chooses not to purchase insurance during this open enrollment period must hope they don’t get sick while awaiting the next one because the all-comers rules would be lifted except during open enrollments. (People who lose coverage that they had during the previous open enrollment would be exempt.)

Of course, there would be people who would forego coverage, become gravely ill, and then go on the Today show. But there is no perfect solution to this problem.

What's yours? Is health reform doomed without a mandate?