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Chiseling away at the individual mandate

Peter Suderman
Medical Progress Today
January 13, 2011

Republicans aren't likely to have much success repealing last year's health care overhaul before the next presidential election, but they may prove more successful in chiseling away at individual provisions. And of the law's major components, the individual mandate—which requires nearly everyone to purchase health insurance or pay a federal penalty—is arguably the most in jeopardy.

Even so, it won't be an easy task. The mandate was put in the law for a reason: Many policy experts believe the requirement is the key to the law's success. If legislators decide to take out the mandate, they will be pressured to consider replacement policies. Yet most replacements have drawbacks, and it's not clear that any of those alternatives will reduce the federal government's massive expansion into health care markets.

It’s easy to understand why the mandate has come under such intense fire. It is both legally dubious and widely disliked. More than 20 state attorneys general have signed onto a lawsuit challenging the provision's constitutionality, and one judge has already agreed that it lacks constitutional merit. In surveys, it's consistently one of the least popular provisions in the bill. Republicans in Congress are busy telling supporters that they've already placed the provision near the top of their target list.

Even some Democrats have expressed wariness about the provision. Former Democratic National Committee Chair Howard Dean has argued that it's mainly "great for insurance companies," and should be scrapped. Oregon Sen. Ron Wyden has introduced a law that would allow his home state to opt out of the mandate. And while on the campaign trail, even President Obama opposed it as unnecessary and burdensome.

Yet soon after taking office, Obama relented. His health reforms would be built on what policy experts referred to as a "three legged stool." Insurance companies would be strictly limited in their ability to charge more to those with preexisting conditions and other health risk factors; they would also be required to sell policies to anyone, regardless of health history. But those two key consumer reforms would create an opportunity for customers to game the system by waiting until they were sick to buy insurance. An individual mandate would force everyone to buy in, and thus keep gaming to a minimum.

Without the mandate, the system could fall apart. Numerous states—including Kentucky, Washington, Maine, and New York—have seen their individual health insurance markets dwindle and decline after implementing similar insurance reforms without a mandate. In New York, for example, the segment of the population covered by individual insurance shrank from 4.7 percent to 0.2 percent. The logic is plain: Healthy individuals see little reason to pay for insurance when they can purchase it at any time.

If the mandate goes down in the courts that will likely be less of a problem. Last year’s health care legislation was passed without a severability clause, meaning that if the court rules the mandate unconstitutional, it will probably excise other related provisions—including the new preexisting conditions rules. Indeed, in its defense of the mandate, the administration has stressed that it is essential in order to bring enough healthy individuals into the insurance pool and ensure that the other insurance rules to work.

But if Congress decides to kill the mandate, those insurance rules will likely stand. That means Congress will inevitably begin a search for alternatives. Indeed, some legislators are already on the hunt. Democratic Sen. Claire McCaskill told MSNBC last week that "there's other ways we can get people into the [insurance] pool—I hope—other than a mandate, and we need to look at that."

One possibility might be to set up open enrollment periods in which insurers would take new customers. By scheduling a short period of time each year during which insurers would take new enrollees, customers would be prevented from hopping on and off insurance plans whenever they felt like it. Politically, though, the plan is a tough sell. A major goal of the health overhaul was to ensure that anyone could get "affordable" coverage at any time. Limited enrollment periods would allow insurers to deny coverage throughout much of the year.

Another option might be to convert the mandate's penalty into an incentive. Currently, the law calls for the IRS to collect a fine from anyone who does not purchase a minimum level of health coverage. Congress could transform that penalty into an incentive—a tax credit—to encourage the purchase of coverage, although doing so in a way that did not alter the existing law's balance of spending and revenue could prove exceedingly—perhaps prohibitively—complex.

Other options include incentivizing states to set up individual mandates of their own, like the one in Massachusetts; automatic enrollment in a government-run plan similar to the proposed public option; and allowing insurers to charge significantly higher rates to those who sign up outside the open enrollment plan. But these ideas would certainly face challenges too: The first relies on heavy federal coercion of state governments. The second requires the creation of a government-run insurance option. The third would almost certainly be portrayed as caving to insurers.

The most drastic option would be to shift to a single-payer system, like those found in Europe and Canada, in which the government effectively serves as a universal insurer and pays for most health care. But liberals have pushed single-payer for decades, and it has always been politically non-viable.

Still others argue that there's no need to replace the mandate. States that have experimented with restricting insurers from charging more to those with preexisting conditions have not had other incentives to purchase insurance. The new health law expands Medicaid eligibility to 133 percent of the poverty line and includes subsidies for the purchase of private insurance for those up to 400 percent of the poverty line. Legislators may simply decide that law will draw enough individuals into health coverage without either the mandate or a replacement.

Attacking the mandate is easy because it is unpopular and perhaps unconstitutional. But replacement or no, repealing the mandate will not actually fix the law's larger flaws. The new system is still likely to suffer cost overruns like those that have plagued a similar model in Massachusetts. And repealing the mandate would leave in place the law's swelled government health care apparatus: government-run insurance marketplaces, a slew of new regulations, and a massive expansion of the severely dysfunctional Medicaid program. Carefully chiseling away at the mandate may be a good start. But in the long run, a sledgehammer may be what's needed.

Peter Suderman is an associate editor at Reason magazine and a 2010 Robert Novak journalism fellow.

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