• The simplest (political, not legal) defense of the mandate

    If one wants to address the problems in health insurance markets and/or to get providers to accept payment reforms, the mandate–or something like it–is the political price. Yes, it’s about money. What else?

    Put it this way, if one wants to retain a private market-based health insurance system (which ours largely is), it takes a mandate. Reject the mandate without replacement with a similar mechanism and the whole thing unravels, not just as a matter of health economics (adverse selection) but as a matter of politics.

    If the private solutions fail, what’s left? It’s rather obvious, isn’t it? Yet this seems not to be widely appreciated.

    • Sticking to the economics, let’s say we lost the mandate and the whole current system unraveled. How certain can we be that no private alternative would arise? True it may not resemble the employer sponsored first dollar coverage system we have today, but is it realistic to think no private entity would write any policy that anyone would purchase?

      • @Jeremy – How much unraveling are you assuming? Just the loss of the mandate but the ban on medical underwriting remains, as does community rating? There is evidence on this. See http://theincidentaleconomist.com/wordpress/mandate-relevant-evidence/ . That’s evidence of worse adverse selection in a market that already is experiencing it. Seems pretty bad to me.

        What would happen is that states would begin to patch things up. The insurance industry would certainly pressure for it. I don’t expect a national solution, given the politics.

    • I was thinking of what would happen if the current system unraveled all the way and what a truly transformed market might look like. Since this would clearly be very painful in the short run, it’s not something I would hope to see politicians try to bring about quickly.

      I’m sympathetic to your calls to consider the politics, but that doesn’t mean we shouldn’t try to think through hypotheticals.

      For a time, I thought Obama might use the Federal government’s unique position to transition us from the current employer sponsored environment to something quite different. As it turned out, I wasn’t being very realistic about the politics. But contra Ezra Klein, I don’t think it was GOP resistance to any alternative that made a move away from employer sponsored coverage impossible. On this score, Obama would seem to have a tougher time with a Democratic constituency, labor.

      • @Jeremy Shown – Agreed on labor. That’s part of politics. Interest group influence explains a lot of the shape of the bill. And it is why the GOP can’t get what it claims to want.

        If the law was struck down entire we’d see more of what we’ve been seeing. The only private-side innovation that’s making big strides are high-deductible health plans. I predict that to continue. I could even see that holding back massive premium increases for some time. Then I predict a backlash as people get fed up paying more out of pocket. I’m not saying that’s right. I don’t have a problem with high deductible or even catastrophic plans (so long as there is some protection for low income populations and some value-based design to promote care that works and costs less long-term). I’m saying people will hate it, as they did managed care. Then we’ll be back to square one.

    • @JRS re: “is it realistic to think no private entity would write any policy that anyone would purchase?”

      I’ve done a lot of construction defect insurance coverage work in California. One the funny things about policies issued to grading subcontractors is that just about every policy I’ve seen issued to one (assuming that the carrier knows that the insured performs grading) is that the policies exclude coverage for property damage arising out of earth movement. Also, most policies issued to graders are issued by non-admitted carriers. Basically, because subsidence losses can be so costly, graders can’t get coverage for the losses which are most likely to arise out of their work.

      Which is a long way of saying that I think it is realistic to think that some things are uninsurable.

    • I hate to be a pest. But with DeFazio now supporting Starr’s opt-out alternative (http://goo.gl/aDvVM, ), I would certainly benefit from a refresher on the economic rationale behind the mandate. Is it needed *only* to prevent free riding (as suggested by Starr, DeFazio, Jon Chait, Ezra Klein, Atul Gawande, and many, many others)? Or is it needed *also* to ensure adequate cross-subsidization? I thought it was both, but the opt-out hype would have us think that there’s no problem if the well-off and healthy opt-out and keep their premium dollars to themselves for (at least) the five year opt-out period. (There’s also the issue of who pays when those who have opted out show up at the ER and can’t pay for it, but that is distinct from the concern about inadequate cross-subsidization.)

    • Austin, many thanks. Reading the posts you refer to, I see you confirming there my understanding that the mandate is one useful mechanism to induce healthy people to enter risk pools with unhealthy people (thereby lessening the chances of death spirals due to adverse selection). But I can’t detect whether it’s your view that the opt-out alternative will, like the mandate, induce the healthy to purchase exchange-based insurance, thereby entering risk pools alongside the unhealthy. Perhaps you intend to remain uncommitted on this point. But if you’re uncommitted, isn’t it possible that the healthy will respond to the opt-out alternative by opting out, and then either paying for care out of pocket (which does not cross-subsidize) or else purchasing low-premium, high-deductible plans (which also do not cross-subsidize)?

      I guess I’m still unclear why no one is worried that the opt-out alternative will lead to adverse selection within the exchanges—precisely sort of instability you say the mandate is there to guard against.

      • @Paul – I’m not aware of a lot of good evidence to inform an opinion. I’ve already suggested what Massachusetts tells us. There’s also Medicare Part D but it is a different product and different population.

        Keep in mind the exchanges come with subsidies, for those under 400% of poverty, plus likely lower loading fees relative to the non-exchange, individual market. There will be high-deductible options within the exchanges for people under 30 and for those meeting certain hardship thresholds. (This is not widely known, apparently, but I’ve written about it.)

        On the whole, there will probably be more adverse selection than a mandate would produce. How much more? In the absence of good research, how can I know?

    • Austin, once again, many thanks. My inquiry was not intended to put you on the spot. You are someone who is in a position to say that there is not enough research to know whether adverse selection would be a problem without a mandate. But you also seem to concede that this is at least something to be thinking about. I simply find it curious that the likes of Starr, Klein, Chait, Gawande, etc. are wholly ignoring this issue, and instead talking about the mandate as if its raison d’etre is preventing free riding.

      • @Paul – This is interesting. I think it takes some careful thought as to why one supports a mandate. There are many possible reasons. Also, one might use the term “free riding” or “gaming” when one really means something else that is more precise, yet jargon, like limiting adverse selection. It depends on the audience.

        One could support a mandate simply because one thinks insurance is in everyone’s best interest, whether they want it or not. That’s not my view. I don’t really want people to be forced to do anything. With penalties low as they are, those folks should just pay them.

        The best reason I can think of for supporting a mandate is to make the insurance reforms work, and by work I mean work for the insurers. They have to stay on board or the whole thing is a failure. And I’m not talking political failure. I’m talking failure to repair the very problems that almost everyone agrees exist in the non-group insurance market.

        With that as the goal, the only thing that is important is to keep adverse selection under control. I’m not convinced one needs a mandate to do that, but I do believe it is the surest way to make it work. Given past positions of Republicans and the experience in Massachusetts, it was a reasonable thing to try. And it may yet stick.

        I should add that this is all short-term thinking. Long term (very, very long term) one needs the individual market to work because the employer-sponsored group market is not something we want to keep. But we can’t dismantle it without setting up an alternative. Hence the exchanges, hence the mandate, hence the subsidies.

    • A bit off-topic, but I thought of it when Austin mentioned the subsidies in the exchange: I think an overlooked problem coming when the subsidies start are the implicit marginal tax rates resulting from the phase-out of the subsidies. A single 50 year old adult making $46K/year gets a $2600 subsidy to buy insurance. The same person making $47K/year gets no subsidy.

      You can plug in numbers on this Kaiser Foundation tool to see more examples: http://healthreform.kff.org/SubsidyCalculator.aspx

    • “What’s left?” Let me answer that question: If you’re a centrist, Canadian-style single payer (Medicare for All). If you’re on the left, UK-style National Health Service (VA for all). Both solutions have been shown to save hundreds of billions of dollars a year, and improve health care outcomes, as opposed to profit-driven approaches. Of course, the Democrats chose to bail out the insurance companies, and are, ironically enough, being punished for it at the polls. Which makes perfect sense: The insurance companies can no longer profit by denying care, they will do it by degrading it. And who wants to be forced to buy junk insurance under penalty of IRS enforcement?

      Here’s the chart you need to understand how our system differs from all others:


    • I assume that individual states will begin adopting their own solution, and some of those will be based on a single payer or no underwriting model. If just three of the likelier candidates among large states take this approach (California, Illinois, New York), nearly 25% of the population of the U.S. will be “off the grid,” making commercial insurance that much more of an iffy proposition in remaining states, especially southern states, for a variety of reasons. California is the most likely candidate, as the University of California medical system is already a state run behemoth, and the San Francisco health benefits project points the way forward.

      It’s one thing to crow about states’ rights from your perch in Congress, it’s another thing to really live it, in a state that has been more or less subsidized in large and small ways by wealthier neighbors. The reality is that ACA, as envisioned, would result in yet more redistribution of federal dollars from blue to red states (via the subsidy). Have our elected officials ever displayed a lower level of self-awareness?