• Who needs the employer mandate?

    So, the employer mandate is delayed a year. Why not make it two, three, or infinitely more?

    Years ago, I wrote many posts questioning why we should want to encourage the continuation of employer-based health insurance (ESI). I know of no economist who likes the idea of wedding health insurance to employment. It distorts employment decisions. It suppresses small business creation. It obfuscates compensation. It decreases individual choice. It reduces revenue under our tax code, which exempts the premium of ESI from payroll and income taxes. That preferential tax treatment also encourages overly generous coverage.

    An employer mandate helps support all these terrible things. Why would we want one?

    The only reason I can imagine for wanting an employer mandate is that it may be, superficially, net revenue positive. That is, the cost of exchange subsidies may be higher than the value of forgone taxation of ESI, less any revenue collected from the employer mandate penalty itself. However, once you factor in the other benefits of severing the link between employment and health insurance, it may be a far better world without the mandate, and a better one still without the preferential tax treatment of ESI.

    In my view, the Administration should have gone further than delaying the employer mandate. They should have also proposed a bill to remove it entirely, along with capping or removing the preferential tax treatment of ESI. I’d also like everyone to have access to subsidized exchange coverage. It may even be possible to make some version of a combination of these be revenue positive, but I haven’t tried to run the numbers. Of course, such a proposal would ignite a political firestorm. Perhaps only economists would be smiling.

    @afrakt

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  • The individual mandate may work, if we let it

    My highly refined radar for policy-relevant facts is pulling in a new signal. OK, I admit, the radar has another name: Sarah Kliff. She reports that a new market survey from consulting firm Oliver Wyman* found that,

    [w]hen asked to choose between paying a penalty and purchasing coverage, 76 percent of the uninsured said they’d rather purchase coverage. That would reduce the number of people without insurance to 5 percent of the population and have 25 million Americans purchasing through the exchanges, just slightly higher than the 24 million that the CBO projected.

    Kliff finds this simultaneously surprising and not. I agree with her. My gut says, “Wow!” and my brain says “Duh!” Maybe the “wow” part comes from months (and months, and months) of gloom and doom about how health reform will play out. Maybe I was starting to believe it just couldn’t work. To be fair, this survey does not prove it will. It only illustrates that at least the uninsured are receptive to it.

    But, here’s the “duh” part. As Kliff notes, Massachusetts, under a state law similar to the ACA, has a high take-up rate. More than that, there is evidence that the mandate had a lot to do with the law’s success. As the following figure from an early 2011 paper by Chandra, Gruber, and McKnight shows, even though premium subsidies were available to low-income individuals in the Massachusetts exchange in early 2007, it’s the mandate that fully kicked in by the end of 2007 that caused a big spike in enrollment. So, the mandate matters.

    Subsidies matter too, and the ACA will provide them to a broader range of income groups (up to 400% of the federal poverty level) than does the Massachusetts law (up to 300% of the FPL). Finally, the penalty for not complying with the mandate will be higher under the ACA than in Massachusetts. So, all signs point to substantial participation by the uninsured.

    The last “duh” is that this is, in fact, the principal aim of the law. A lot of work went into crafting something that would appeal to and assist the uninsured. In that light, it really isn’t all that surprising that it appears as if it will do just that.

    * Anybody know if the firm has released methods for their survey?

    UPDATE: Asked about survey methods.

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  • 11th Circuit – Broccoli wins!

    I wanted to actually read the opinion before I posted (radical, I know). We have 3 votes that the Medicaid expansion is constitutional and that the individual mandate is fully severable. The court splits 2-1 on whether the individual mandate violates the Commerce Clause, with the majority answering in the affirmative.  The winning argument was broccoli, not inactivity.

    No one should report this decision as “ObamaCare is unconstitutional.”  The most you can say is “two judges decided the individual mandate is unconstitutional under the Commerce Clause, but would have been constitutional if it had been more explicitly designed as a tax. The rest of health care reform is constitutional.” 

    1.  Standing

    I’ve argued before that the States don’t have standing to bring a challenge to the individual mandate.  This issue was briefed before the 11th Circuit, but the opinion sidesteps the issue entirely (at 10) since it is clear that the individual plaintiffs and NFIB have standing.  Of course, it would have been big news if the states had been dismissed from the suit and it would have made it abundantly clear that this ruling only applies within the 11th Circuit.  (Some AGs improvidently claimed that the district court ruling applied in their home states as well).  The 11th Circuit missed a chance to dramatically reduce the number and type of plaintiffs.

    After more than 40 pages summarizing the PPACA, the court reaches 3 substantive constitutional issues:  the Medicaid expansion under the 10th Amendment; the individual mandate under the Commerce Clause; and the individual mandate under the Tax Power.

    2.  Medicaid Expansion

    Red states have argued that the Medicaid expansion is unduly coercive as a “take it or leave it” offer from the federal government.  The relevant case is South Dakota v Dole, where the Supreme Court allowed the federal government to condition federal highway funds on state compliance with related laws such as the drinking age.  Under the Spending Clause, federal restrictions must be “reasonably related to the legislation’s stated goal.” (Dole at 207, 11th Cir at 56)  The states conceded the constitutionality of the Medicaid expansion under this test, but argued that it nonetheless violated the 10th Amendment by removing state choice and compelling states to act, with no other options (at 57).  This is the “commandeering” or “coercion” doctrine in the context of the Spending Clause.

    The 11th Circuit found no coercion, for four reasons.  First, the states were told from the beginning that Medicaid could be modified unilaterally by the federal government, and Congress has not disappointed on that score (at 63-64).  Second, the feds pay for the lion’s share of the expansion costs (at 65-66). Third, unlike used care sales people who force you into a quick decision, states have 4 years to decide whether to participate.  Finally, the court finds that HHS need not cut all Medicaid funding for a non-compliant state; lesser punishments might follow a state’s decision.

    3. Commerce Clause & Necessary and Proper Clause

    As expected, the decision turns on the Commerce Clause substantial effects doctrine, as interpreted in Lopez, Morrison, and Raich, and a narrow view of the Necessary and Proper Clause from Comstock.  After a summary of the cases, the analysis begins on page 100. The court rejected the activity/inactivity distinction, popularized by Randy Barnett:

    Nevertheless, we are not persuaded that the formalistic dichotomy of activity and inactivity provides a workable or persuasive enough answer in this case. Although the Supreme Court’s Commerce Clause cases frequently speak in activity-laden terms, the Court has never expressly held that activity is a precondition for Congress’s ability to regulate commerce—perhaps, in part, because it has never been faced with the type of regulation at issue here. (at 109)

    But the good news for ACA doesn’t last, as the opinion finds the individual mandate unconstitutional, not so much for its own sake, but for the sake of the children. The court discusses a parade of horribles, things (like broccoli) that Congress could force us to buy.  The Court demands “sufficient and meaningful limiting principles” (at 113) that would prevent the government from making us buy broccoli:

    From a doctrinal standpoint, we see no way to cabin the government’s theory only to decisions not to purchase health insurance. If an individual’s mere decision not to purchase insurance were subject to Wickard’s aggregation principle, we are unable to conceive of any product whose purchase Congress could not mandate under this line of argument (at 125).

    In the end, the individual mandate is unconstitutional because the USG didn’t come up with a constitutionally relevant way to distinguish health insurance from broccoli.  Mariner, Annas & Glantz tried to do exactly that in the NEJM last January.  (The dissent discusses broccoli at 269)

    The opinion offers several escape routes, akin to what Austin and I suggested previously:  carrots and sticks to encourage participation in the insurance market in lieu of a mandate. (Here’s another idea: delay Medicare & Medicaid eligibility by a month for every year a person doesn’t maintain coverage.  Clearly constitutional.)

    The majority acknowledge that Massachusetts and New Jersey have apparently legal health insurance mandates (at 156), but goes on to say:

    But if anything, this gives us greater constitutional concern, not less. Indeed, if the federal government possesses the asserted power to compel individuals to purchase insurance from a private company forever, it may impose such a mandate on individuals in states that have elected not to employ their police power in this manner.124 After all, if and when Congress actually operates within its enumerated commerce power, Congress, by virtue of the Supremacy Clause, may ultimately supplant the states. When this occurs, a state is no longer permitted to tailor its policymaking goals to the specific needs of its citizenry. This is precisely why it is critical that courts preserve constitutional boundaries and ensure that Congress only operates within the proper scope of its enumerated commerce power.

    In order to distinguish Raich, the majority opinion minimizes the estimated damage that would flow from a repeal of the individual mandate (contrasting it to the “gaping hole” that Raich would have left for recreational marijuana use) (at 166).  I agree (would have been nice to cite us).  The court goes on to chide Congress for not making the individual mandate harsher, suggesting that tougher tax penalties might have improved the constitutional argument (at 166):

    Eschewing the IRS’s traditional enforcement tools, the Act waives all criminal penalties for noncompliance and prevents the IRS from using liens or levies to collect the penalty. Id. § 5000A(g)(2). Thus, to the extent the uninsureds’ ability to delay insurance purchases would leave a “gaping hole” in Congress’s efforts to reform the insurance market, Congress has seen fit to bore the hole itself.

    Finally, in a strange twist, the opinion attacks the individual mandate as “overinclusive” – covering both free riders and the (rare) person who will never obtain either health insurance or free care (126-31). In a truly disappointing section for libertarians, they suggest a more individualized process for determining whether the individual mandate should apply to a particular person.

    Tell me, Mrs. Bachman, are you now or have you ever been, or do you ever intend to be, a card-carrying member of a health plan?”.

    4. Tax Power

    If only Congress had imposed a tax on free riders, the case would be over (172-189).  (prior TIE coverage on the tax issue)  I propose this as the “constitutionally relevant” limiting principle needed for the Commerce Clause:  the fact that the provision would have been clearly constitutional as a tax.  Especially when the individual mandate is placed by Congress in the Internal Revenue Code.

    5. Severabililty

    As we’ve noted before, it makes no sense to kill the excise tax on devices, or to reverse transparency in gifts to physicians, or to kick people off Medicaid because the individual mandate is unconstitutional.  The court agrees, but takes a more careful look at 2 insurance related provisions:  guaranteed issue and the prohibition on preexisting condition exclusion (194-95).  This is a thoughtful approach:

    our severability concern is only whether “it is evident” that Congress “would not have enacted” the two insurance reforms without the individual mandate. (at 197)

    The conclusion:

    In light of all these factors, we are not persuaded that it is evident (as opposed to possible or reasonable) that Congress would not have enacted the two reforms in the absence of the individual mandate. (at 204)

    My summary of this opinion:  “two judges decided the individual mandate is unconstitutional under the Commerce Clause, but would have been constitutional if it had been more explicitly designed as a tax. The rest of health care reform is constitutional.” 

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  • All is not lost if the individual mandate is struck down

    The breaking news is that the 11th Circuit Court has ruled the individual mandate unconstitutional but that the rest of the ACA is not. This presents the possibility of an eventual ruling by the Supreme Court that jettisons the individual mandate while keeping in place all other provisions of the health reform law. Should that happen, what might it mean? What could be done?

    Turns out, Kevin and I visited this issue in February. What we wrote then is still relevant today. So, here’s the key part of our piece:

    States can also do their part to bring the remaining free riders into the system. Massachusetts has an individual state mandate in place, which appears to be working.  Some “blue states” can follow Massachusetts’s lead and pass a state-level individual mandate. Others, like Vermont, are exploring single-payer reforms. A natural experiment is unfolding, with additional encouragement from legislation recently introduced in the Senate by Sen. Ron Wyden, D-Ore., and Sen. Scott Brown, R-Mass., that would permit immediate flexibility for coverage expansion under the health law.

    The Centers for Medicare and Medicaid Services also has some plausible regulatory options, even without new federal legislation. Under existing law, CMS can grant such waivers, but they become effective no earlier than 2017. The following suggestions could partially bridge the gap until waivers become possible or the Wyden-Brown bill is passed.

    One idea is to follow the examples set by Medicare Part B, which covers outpatient physician services, and Medicare Part D, the prescription drug program. CMS could permit “qualified health plans” in the exchanges to impose Part B and D-style premium surchargeson customers who delay obtaining coverage. The mechanism would be through an exception to the anti-discrimination rules, and the law gives the secretary of Health and Human Services some flexibility to issue regulations to limit adverse selection.

    Another possible regulatory adjustment is the definition of “qualified individual” in the law. The definition currently excludes undocumented aliens, and CMS also could try to exclude free riders unless they pay a surcharge to rejoin the system. While there is little direct textual support for this rule itself, the ACA grants significant rule-making authority to implement the law.

    A complementary approach would be to amend the definition of a “qualified individual” under state law. The NAIC’s American Health Benefit Exchange Model Act defines “qualified individual.” The suggestion would be to exclude free riders from this definition, with the state law approved by CMS. Exceptions might be necessary for individuals who lacked the financial capacity to have previously purchased insurance, but as seen above, these people aren’t really free riders in the classic sense.

    Others have suggested alternatives, like significant waiting periods after failing to enroll, or significantly higher copays or deductibles for late enrollees. These ideas would require federal statutory amendments to implement them properly.

    The end result could be that losing the individual mandate primarily hurts “red state” individual insurance markets, while blue states would enjoy more coverage and stability. After a couple years of that transparent dynamic, red states (and their residents) might be willing to gradually follow suit. While the absence of an individual mandate will certainly slow coverage expansions, it does not spell the doom of health reform.

    UPDATE: Add link to WSJ article that confirms the tweets I had seen.

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  • San Francisco’s employer mandate: not a job killer

    In the new NBER paper The Labor Market Impact of Employer Health Benefit Mandates: Evidence from San Francisco’s Health Care Security Ordinance, Carrie Colla, William Dow, and Arindrajit Dube explore what happened in the San Francisco labor market after the city implemented a pay-or-play employer health insurance mandate in 2008. Their conclusion: not job killing.

    We find that, compared to control counties, employment and earnings patterns in San Francisco did not change appreciably following the policy. This was true for industries most affected by the mandate, as well as for overall private sector employment. The results are generally robust to inclusion of different control groups, county-specific time trends, and varying pre-periods. In contrast to the small effects on the labor market, we do find that about 25% of surveyed restaurants imposed customer surcharges, with the median surcharge being 4% of the bill. These results indicate that while little of the burden of the mandate fell on San Francisco workers, approximately half of the incidence of the mandate fell on consumers.

    Even, or especially, in San Fran restaurants, there is no such thing as a free lunch. Somebody has to pay for the employer mandate. According to this study, it wasn’t workers.

    The key set of charts follows. See a big loss of jobs or wages as the mandate was implemented in 2008? Me neither. Nor do the study authors who went on to do far more sophisticated analysis than is revealed in these charts. Click to enlarge. It’s still blurry, but so is the original. It may help to know that the blue line is San Francisco and the red line represents 24 other large metropolitan statistical areas.

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  • Taking tax seriously, 4th Circuit style

    The 4th Circuit panel on the ACA litigation has ordered special briefing on the non-constitutional tax issue – if the individual mandate is a tax (and it is found in Section 5000A of the Internal Revenue Code), it is probably covered by the Anti-Injunction Act. Many potential arguments on both sides here (my December analysis included prior 4th Circuit precedent), and the 4th Circuit panel appears eager to hear more. The Court’s unanimous order:

    h/t to BNA (alas, gated)

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  • Tyler & Christian Scientists

    Tyler Cowan builds an argument on the presumption that Christian Scientists can opt out of Medicare.  The Medicare benefit provides no such thing (at p 42):

    1. Christian Scientists pay into Medicare like anyone else with wage income.
    2. They can sign an election form that enables a qualifying Christian Scientist inpatient facility to bill Medicare Part A for their stay, in lieu of otherwise obtaining medically necessary Part A benefits.  Think of this as a Christian Scientist hospice benefit.
    3. If they need Medicare in a regular Part A facility or Part B service, that election is instantly revoked when they get the service, without delay or questions.
    4. If #3 happens, Medicare can delay a subsequent election under #2 for 1-5 years.

    We can question the policy of this particular religious accommodation in Medicare benefits, but this isn’t an opt out.

    If you want opt out models, try the Amish, Catholic nuns and conservative Christians. Self-employed Amish can fully opt out from both Social Security and Medicare (IRC § 1402(g) and § 3127). Religious orders under a vow of poverty can opt out in §3121(r).  Most recently, the ACA provided a religious exemption from the individual mandate (but not Medicare) for “health care sharing ministries” (§§ 1311(d)(4)(H), 1501(b) of the ACA, codified in § 5000A(d)(2) of the IRC).

    UPDATE:  In the comments, Tyler says I misunderstand his argument.  The title of his post is: A Christian Scientist’s guide for opting out of Medicare. My main point is that Christian Scientists can’t “opt out of Medicare,” but other religious groups can.  I’ll talk about the policy of various forms of opt out in another post.

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  • More alternatives to the individual mandate

    From our friends at the GAO, released March 28: Private Health Insurance Coverage:  Expert Views on Approaches to Encourage Voluntary Enrollment.  The report was requested by Senate Dems, maybe as a road map for a post-individual mandate world. The highlights include some now-familiar ideas:

    • Modify open enrollment periods and impose late enrollment penalties.

    • Expand employers’ roles in auto enrolling and facilitating employees’ health insurance enrollment.

    • Conduct a public education and outreach campaign.

    • Provide broad access to personalized assistance for health coverage enrollment.

    • Allow greater variation in premium rates based on enrollee age.

    And also the “road not taken,” using the taxing power to side-step the current constitutional challenge:

    • Impose a tax to pay for uncompensated care.

    And three newer ideas (at least to me):

    • Condition the receipt of certain government services upon proof of health insurance coverage.

    The tuition mandate – no federally guaranteed student loans without health insurance! Constitutional under the spending power, but adds administrative complexity.  Why not go all the way – the drivers license mandate?

    • Use health insurance agents and brokers differently.

    Let’s pay those unemployed health insurance brokers to drag free riders into the system.  Does anyone outside of the industry think this is a good idea?

    • Require or encourage credit rating agencies to use health insurance status as a factor in determining credit ratings.

    What a terrible idea, on so many levels.

     

     

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  • Gleckman on the CLASS provisions

    Howard Gleckman sums up the debate over the CLASS provisions in the ACA. Since I’ve covered that before, I’ll not review it here. Then Gleckman wraps up with,

    Congress could fix CLASS by following the lead of nearly every other developed country in the world and turning it into universal insurance. A mandated program could make basic long-term care coverage available to all for an average monthly premium of only about $40, according to private consultants Avalere Health. And it could cut Medicaid long-term care costs in half, by about $50 billion. However, in today’s anti-government political environment, such a step is, shall we say, unlikely.

    It may also be possible to repair CLASS through a series of technical changes, all designed to reduce premiums and make the product more attractive to healthy buyers. This morning, I participated in a panel at the Urban Institute that addressed those options.  A podcast of  the event is available here.

    As you consider what to do about CLASS, keep the context in mind. Medicaid now pays more than $110 billion annually for the long-term care of both the elderly and disabled.  It funds nearly half of all these services, and spends fully one-third of its entire budget on such care. By contrast, private long-term care insurance pays for less than 10 percent. And before they become eligible for Medicaid, millions of Americans go broke paying for these services out of pocket.

    Even as nearly all Republicans and some Democrats in Congress try to kill CLASS, some of these same lawmakers also favor capping Medicaid’s federal contribution, which now covers about 60 percent of the program’s costs. This will inevitably result in fewer Medicaid dollars for long-term care. They are also proposing to freeze or cut a wide range of non-Medicaid benefits, such as Meals on Wheels, transportation, subsidized housing, and the like. The result: an already tattered support system for the frail elderly and disabled (especially those trying to remain at home) will become even more frayed.

    That brings us back to CLASS. As poorly designed as it is, the program is an insurance-based alternative to means-tested direct spending programs that will be under growing stress in coming years.

    Medical technology is making it possible to live with disabilities for a very long time. Americans are not financially prepared to support themselves through years of care. Few save or have any interest in buying private insurance.

    For those who want to kill CLASS, I have a simple question:If government assistance is not the answer, and CLASS insurance is not the answer, what is?

    Remind me, again, in light of the alternatives, what is so horrible about mandating a degree of personal responsibility? (Read Gleckman’s piece in full. If you’ve made this far, you’ve already read half of it. Go catch the rest.)

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  • After the deluge: Health reform without an individual mandate

    The following appeared as a Kaiser Health News column on 24 February 2011 and is co-authored by Kevin Outterson and Austin Frakt.

    Two federal judges now tell us that the federal health law’s individual mandate isunconstitutional. Three others disagree, and soon we will start to hear from appellate courts. But what if we put the legal arguments aside for the moment and focus on the real question: what happens to health reform if the individual mandate is ultimately struck down?

    Some claim that, without the mandate, the overhaul will collapse. Opponents certainly hope that is true, and Judge Roger Vinson of the Northern District Court of Florida decided to void the entire law on that basis – explaining that the measure’s other provisions cannot be separated from the requirement to buy insurance. Even the White House and its lawyers have on occasion agreed, perhaps only as a rhetorical device. But they are mistaken. Health reform can survive without it.

    The individual mandate serves an important function in reducing free riding by healthy people (that individuals would buy insurance only when sick, driving up premiums for everyone). But so long as the rest of the Affordable Care Act remains in place, the impact will be tolerable and will improve over time. The federal government and reform-minded states have several tools at hand.

    The people most directly affected by the legal challenges are uninsured individuals — about 16 million people — who would be able to purchase health coverage through the law’s health insurance exchanges. The health law would be imperiled only if a large, relatively healthy subset of these individuals do not purchase coverage, but wait until they are sick to do so, driving premiums up.

    This consequence is avoided if healthy individuals contribute premiums throughout their lifetimes, not just when they begin to need care. But most of the 16 million people at issue qualify for substantial federal subsidies. The subsidies have two effects: first, they encourage some to purchase health coverage through the exchanges, even in the absence of an individual mandate. Second, subsidies blunt the premium-increasing impact of free riding on the insurance market, especially if some of the federal subsidies could be paid into the exchanges whether or not the individuals enroll.

    States can also do their part to bring the remaining free riders into the system. Massachusetts has an individual state mandate in place, which appears to be working.  Some “blue states” can follow Massachusetts’s lead and pass a state-level individual mandate. Others, like Vermont, are exploring single-payer reforms. A natural experiment is unfolding, with additional encouragement from legislation recently introduced in the Senate by Sen. Ron Wyden, D-Ore., and Sen. Scott Brown, R-Mass., that would permit immediate flexibility for coverage expansion under the health law.

    The Centers for Medicare and Medicaid Services also has some plausible regulatory options, even without new federal legislation. Under existing law, CMS can grant such waivers, but they become effective no earlier than 2017. The following suggestions could partially bridge the gap until waivers become possible or the Wyden-Brown bill is passed.

    One idea is to follow the examples set by Medicare Part B, which covers outpatient physician services, and Medicare Part D, the prescription drug program. CMS could permit “qualified health plans” in the exchanges to impose Part B and D-style premium surcharges on customers who delay obtaining coverage. The mechanism would be through an exception to the anti-discrimination rules, and the law gives the secretary of Health and Human Services some flexibility to issue regulations to limit adverse selection.

    Another possible regulatory adjustment is the definition of “qualified individual” in the law. The definition currently excludes undocumented aliens, and CMS also could try to exclude free riders unless they pay a surcharge to rejoin the system. While there is little direct textual support for this rule itself, the ACA grants significant rule-making authority to implement the law.

    A complementary approach would be to amend the definition of a “qualified individual” under state law. The NAIC’s American Health Benefit Exchange Model Act defines “qualified individual.” The suggestion would be to exclude free riders from this definition, with the state law approved by CMS. Exceptions might be necessary for individuals who lacked the financial capacity to have previously purchased insurance, but as seen above, these people aren’t really free riders in the classic sense.

    Others have suggested alternatives, like significant waiting periods after failing to enroll, or significantly higher copays or deductibles for late enrollees. These ideas would require federal statutory amendments to implement them properly.

    The end result could be that losing the individual mandate primarily hurts “red state” individual insurance markets, while blue states would enjoy more coverage and stability. After a couple years of that transparent dynamic, red states (and their residents) might be willing to gradually follow suit. While the absence of an individual mandate will certainly slow coverage expansions, it does not spell the doom of health reform.

    Comments closed