To avoid failure, the Affordable Care Act must evolve

By now, the potential consequences of too few young and healthy individuals participating in the new insurance marketplaces are well known. As Ross Douthat described,

[T]he law can work only if people who don’t necessarily benefit immediately from its provisions decide to participate anyway. If they respond to higher premiums by either staying out or dropping out, then Obamacare will be permanently unstable: the dollar figures, both for insurers and the government, simply won’t add up.

The participation of the young and healthy is supposed to be required, of course, by the individual mandate. But the mandate’s penalty is relatively modest and its enforcement mechanisms relatively weak, which means its power ultimately depends more on civic duty than on immediate self-interest.

The law’s advocates have explicitly acknowledged this point. Explaining the case for the mandate last month, The Atlantic’s Matt O’Brien allowed that “a rational self-maximizer” might decide to pay the fine instead of buying costly coverage. But “real people,” he argued, “aren’t rational self-maximizers … We don’t like to feel like we’re doing the wrong thing. We like to follow the rules instead. Feel like we’re a good person.”

That the viability of the new marketplaces rests on convincing people that it is their civic duty to purchase health insurance is a weak link. Though it’ll hold in many states, I expect it will break in some markets. There may be too many people in some states who believe or are led to believe that going uninsured is just fine.

And, you know what? Provided it’s arrived at by honest means, I respect that choice. It’s not one I’d make for myself or my family at current health insurance prices, but I don’t think I should impose my view on others. It’s neither irrational nor immoral for others to judge current prices too high.

Though I support the Affordable Care Act (ACA), I have a great deal of trouble with the idea that people must purchase insurance. Not only am I not convinced of arguments that they must, the law doesn’t strongly support it. Yes, there is an “individual mandate,” but it’s well known what that really means: if you don’t enroll in a plan meeting certain requirements, you must pay a tax penalty, unless you meet one of the hardship exemptions. (I have no moral qualms about the government’s constitutional role to tax in this manner.)

Sure, you can call it a “mandate.” But it’s just a choice. Play or pay. Both are legal. Views differ on the extent to which each is moral or just. I choose to interpret them as both perfectly legitimate. Indeed, the whole setup is equivalent to a tax break for purchasers of insurance. No purchase, no tax break. Big whoop.

And yet, within the community rating/guaranteed issue framework, the non-participation by younger and healthier people imposes a cost on others. Premiums will go up. Markets may fail. Within a few years, we will face the question of what should be done about that. The answer is almost in the law itself.

ACA section 1332 establishes a new waiver program that allows the Secretaries of HHS and Treasury to waive certain provisions of the ACA in order to support state demonstrations. Section 1332 waivers — referred to in the law as “Waivers for State Innovation” — are available for plan years beginning on or after January 1, 2017. […]

In order to qualify for a waiver, a state’s proposal must be able to demonstrate that resulting coverage will be at least as comprehensive as coverage through a state health insurance exchange. Benefits must be as generous as those provided by qualified health plans through an exchange, and premiums and cost sharing must make coverage at least as affordable as that provided under the ACA. Furthermore, the state’s plan must be budget-neutral and must assure that a comparable number of residents will be covered.

This sounds promising, but I think a few states will balk at the idea that coverage must be at least as comprehensive as the ACA prescribes, with benefits at least as generous, etc. However, if some of these requirements were relaxed, many states that currently resist the ACA might be willing to implement a variant that is more broadly attractive to their residents.

Would that be so bad? I don’t think so. After all, what’s adequate, affordable coverage is subjective. Reasonable people can differ. And the alternative to a less generous, lower premium design may very well be a dysfunctional market, which is clearly worse.

Whether you believed it at the time of passage, reality may soon prove that the ACA is, in fact, too inflexible to meet the goals that motivated it. Universal access to adequate, affordable coverage (in some sense) best describes its chief aim. Though it’s still too early to tell for sure, I’m willing to bet that that aim cannot be achieved in some states unless the law evolves to permit them greater flexibility in design.


Hidden information below


Email Address*