The Individual Mandate

The theme for this posting is “Please Forgive My Negativity.”

My goal is to discuss the voluntary uninsured and the individual mandate without getting into a values and “rights” debate with myself because honestly, this topic is one thing that really makes my head spin.  I hate it, but I also think that current coverage of this issue is totally missing the point.  (See this article).

I’m writing this while sitting in a middle seat on a plane at the gate at Logan Airport, where we’ve been waiting for the past 90 minutes because of a broken light bulb in the Exit sign, so I’ll probably be more cynical than usual.  However, I will make an effort…

Most serious policy people agree that absent a single-payer health care system, you can’t have universal coverage without an individual mandate to have insurance. In the case of the Senate Finance bill, it will either be through the workplace (supposedly) or through an open-market “exchange” which the government would regulate.  In order to coerce or provide motivation for individuals to shell out money for insurance, the federal government will lord over them a fee for noncompliance (details of which are being figured out).  The Daily Kos actually has a pretty good but out-dated pros/cons discussion of the mandate here.  The essence of it is that “The individual mandate would require that everyone carry some kind of minimal, catastrophic insurance aimed at preventing these kinds of unpayable medical bills when the unthinkable happens, from a split-second automobile accident to a previously undetected cancer.”

The House Bill calls for a penalty of a 2.5% additional tax on income.  The Senate HELP Committee and House bill would both impose a mandate on employers to provide coverage.  The Senate Finance Committee bill would fine families depending on their income.

If implemented, this would bring a large percentage of the 47 million uninsured into the insurance market, providing a boon to the insurance industry.  In exchange, the insurance companies will adopt less discriminatory ratings practices.  Over in her own world is Senator Olympia Snowe (R-ME).  She believes that insurance companies should be forced to adopt nondiscriminatory practices (i.e. no pre-existing conditions as part of rating) without having any fees at all for people who choose not to have insurance.

The reason this is straight impossible is that insurance companies operate for profit. If they have to accept people blindly, whether or not they have a history of getting admitted to hospitals 3 times a year, they are probably going to take a financial hit for it.  Because they are in business for $$, they either need a guarantee of more money in the pay-out pot (through the coverage mandate) or they will raise the rates on the rest of us.  If this ends up happening, now you know which Senator to call…

While conservatives are busy shouting “Keep the government out of my health care!” the non-partisan Urban Institute is saying that the “evidence is strong that voluntary measures alone would leave large numbers of people uninsured.  Voluntary measures would tend to enroll disproportionate numbers of individuals with higher-cost health problems, creating high premiums and instability in the insurance pool in which they are enrolled, unless further government subsidization is provided.”  Fine Print: Higher Taxes.

Did you say TAXES?!
Yes, and speaking of which, George Stephan-helmethair-opolous tried valiantly to get the President to agree that the individual mandate in the Senate Finance Bill is, in practice, a tax.  The President told Stephanopolous that “That’s not true.  For us to say that you’ve got to take responsibility to get health insurance is absolutely not a tax increase.”  GS came back with a Webster’s definition of a tax – “a charge, usually of money, imposed by authority on persons or property for public purposes.”  Without getting into the definition of what “is” is, let’s just say that this side-debate, along with Georgia Republican Phil Gringrey’s assertion the other day that a mandate is just plain unconstitutional, may present some political and judicial problems down the line.

The President is trying to accomplish universal coverage, but can’t do it with single-payer, and since he made a campaign pledge not to raise taxes on low and mid-income earners, in the eyes of many he also can’t do it with an individual mandate.  This is Quagmire Number One.

Quagmire Number Two is what to do about the evidence that an individual mandate might not be feasible or solve all our problems anyway. As Michael Cannon at the CATO Institute says, “Evidence from state experiments with individual mandates – Massachusetts, in particular-suggests that people will still forgo insurance…. If you want to eliminate free riding, an individual mandate won’t get you there.” This guy is a pretty hardcore Libertarian, I’ll admit, but he does have a point.  An AP Story this morning makes the situation clear:

“Determined to get as many people as possible covered, lawmakers first proposed fines of as much as $3,800 per family for health insurance scofflaws. But they have been steadily scaling back the penalties, with the Senate Finance Committee last week dropping them to $1,500 maximum per family in their version of a health care bill. The committee also phased the penalties in over five years with no fines at all in the first year and eliminated all criminal and most civil punishments for failure to pay.

The industry — counting on millions of more Americans buying insurance — says the penalties are now so weak they practically beg to be ignored. The result, the companies warn, is that people would wait until they get sick to buy coverage. That would raise premiums for everyone else, since Congress’ health care overhaul would also require insurers to take all applicants.”

Quagmire Number Three is introduced in the form of what happens if there IS an individual mandate.  Two not so good things:

1. The government will have to create a “minimum benefits package” so that the uninsured won’t go get a $20 plan that covers bandaids and nothing else, and call it a day.  This package will be seen as a big opportunity for special interests (e.g. pharma, physicians, hospitals).  I heard recently that more and more government affairs professionals in DC are being corporately classified as business development associates.  Makes a lot of sense!

Anyway, this minimum benefits package probably won’t be small, and could potentially drive up premium costs.  This would definitely be counterproductive to easing the burden.

2. If an employer knows that you, as an individual, can buy insurance on an exchange, they might dump you (don’t take it personally), and get out of the health care business all together.  This issue would necessitate an employer mandate, stipulating that your boss must continue to provide coverage unless it’s truly financially prohibitive.  Employer mandates are tough territory because they put small businesses at a competitive disadvantage to larger ones who have lots of bargaining power and a larger pool to bring down rates.

So Obama is facing some really ugly decisions.  The essence of public policy is that not everybody is happy, but in this case it’s not clear anyone will be happy, except maybe the Senators that get elected to replace the ones who got caught on the wrong side of too many interest groups.

Backing up a minute, let’s look at who is actually voluntarily uninsured anyway. The answer is that they’re out there, but no one knows exactly how many could afford coverage if they wanted it, and who would be worse off if they had to shoulder this extra monthly bill.  As an NPR segment on Sunday said, “An Employment Policies Institute study found that 43 % of the uninsured – about 20 million people – earn more than 2.5 times the federal poverty level… Though some uninsured people may appear well-to-do on paper, other factors could still push insurance costs out of reach.  Around 7.5 million uninsured Americans have family incomes higher than $75,000 but premiums might be high because of health status, age, cost of living, and geography.”

Regarding the “young invincibles,” they too are out there, but it’s not clear how many could have it through their employer if they wanted it, and how many would be joining this individual market.

Dr. Jane O’Neill, who was the head of the Congressional Budget Office in the late 90’s coauthored the EPI report mentioned above.  She says: “We urge policymakers not to rush the healthcare debate.  This study shows that we need to better understand America’s uninsured population and the factors affecting both coverage and access to care.” Her point is that information that this study presents is valuable and could be useful in designing a targeted, state-by-state approach to increasing access.

While slowing down the process isn’t an option here, at the risk of editorializing, I have to say that she may be right.

Without either a) a conversion to single-payer or b) a full-blown market-driven, transparency-all-the-way approach, the individual mandate seems to highlight problems with the current system instead of changing it. It’ll be interesting to see how this unfolds.  Rumors are floating that Obama is still secretly lobbying for a public option in the Senate bill, which would purportedly bring down premium costs.  Senators might not be as easily intimidated by Rahm Emanuel as Members of the House are though, so we’ll see.

It’s hard to be positive or even neutral about a political situation and a supposed policy solution that are both so bad.  If the individual mandate can’t hold this deal together though, I’m not sure what else can.

If you read this far, I’m ridiculously impressed.  Thanks!


~ by Kathryn Bailey on October 6, 2009.

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