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The individual mandate is too good of a deal, not too bad of one

"While the eventual health care legislation is likely to be a boondoggle, it at least holds out the hope of partially remedying the present system’s worst injustice," writes Ross Douthat on his new blog. "The way our mix of semi-free markets, tax breaks and government subsidies interact to price millions of Americans — some of them lower-middle class, some of them sick, some of them employees of small businesses, some of them self-employed — out of the insurance market entirely."

Moments later, however, Ross goes on the attack against the individual mandate. Millions of Americans -- he uses 18 million, the same number that won't have coverage, but many of those folks are exempted from the individual mandate -- "will be paying more and getting exactly nothing in return."

But what's the alternative? No one wants an individual mandate. But the folks who spend all their time trying to solve the first problem Ross describes have concluded that you can't do it without an individual mandate. After all, why do people get priced out of insurance? The answer, aside from "they're poor," is that they're bad risks. They're older, or they're sicker, or they've been sicker at some point in the past, or they work at a dangerous job or a job associated with chronic injuries.

If reform simply forces insurance companies to sell to these people, then prices skyrocket for everyone, as the sicker or the older rush into the market, while the young and the healthy hang back. In that scenario, you've not solved the problem of pricing people out. You've arguably worsened it. If you want to solve the problem of pricing out but you don't want an individual mandate, you need to think of an alternative to it.

Moreover, it's simply not true, as Ross says, that the people paying the $750 individual mandate penalty get nothing in return. Far from it, in fact. For one thing, they get access to emergency care, as happens now. For another, they get the chance to come back into the system when they actually need insurance. Someone who puts off purchasing coverage and then tries to buy Aetna's plan the first time they collapse unexpectedly will not be sold a plan. Having chosen not to buy insurance when they didn't need care, they can't buy it now that they do need care. They become the priced out or, in some cases, locked out.

Under reform, these people get the chance to come back into the system when they need coverage. They can't be discriminated against. Indeed, you can argue that these folks, the ones willing to game the system, are the most advantaged of all the groups. It's why the individual mandate should be stronger, not weaker, than it is now. This isn't the biggest deal at the outset of the plan, as there's fair evidence showing that people overvalue insurance and will buy it even though paying the penalty is a better deal. If that turns out to be wrong, you can strengthen the mandate down the road. But the economics of the situation favor the people who decide to pay the penalty rather than purchase insurance, not the other way around.

By Ezra Klein  |  November 18, 2009; 12:52 PM ET
Categories:  Health Economics , Health Reform  
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Comments

60 vote point of order after conference

http://blessedistruth.wordpress.com/2009/11/16/i-like-it/#comment-281

So there’s a — there’s a real risk if they were to lose that vote for them.

(Meaning a real risk for centrist Dems. Wouldn’t it be even riskier to vote for something they have repeatedly stated they will NOT vote for, such as a public option?)

(So Reid will have to get to 60 after conference. I would think that would be a real motivator for Reid and Pelosi NOT to veer left. So maybe we will end up with Snowe’s trigger after all.)

Posted by: SisterRosetta | November 18, 2009 1:20 PM | Report abuse

For another, they get the chance to come back into the system when they actually need insurance. Someone who puts off purchasing coverage and then tries to buy Aetna's plan the first time they collapse unexpectedly will not be sold a plan.

-----------------------------

Ezra,

I don't get why some people don't understand the individual mandate and the need for a strong penalty and the fact that the change in the SFC version is absolutely why insurers spoke up when and how they did (and then got blasted for speaking the truth that was later spoken by others including CMS). Go try and buy flood insurance when you've got water pouring into your basement. Go try to buy homeowners insurance when your house is on fire. How about you pay property taxes JUST WHEN your kids are in school.

These are all examples as to why risk pools require EVERYONE to be accountable.

Posted by: visionbrkr | November 18, 2009 1:23 PM | Report abuse

There have been studies done on how long people carry insurance in Massachusetts which indicates that the free rider problem is worse than you'd think. There are some people who have more guts and time to play this game that I would.

Economically, the mandate is a mandate, but legally, it's a tax that you don't have to pay if you have insurance. Many of the benefits you get from any specific tax are at best indirect anyway.

Posted by: windshouter | November 18, 2009 2:09 PM | Report abuse

Ezra,

This is exactly the problem we're now having with Vermont's Catamount health program for the uninsured. Only 40% of enrollees stay on the program for a full year and a large percentage enroll and dis-enroll numerous times throughout the year. In effect, Catamount has become a Costco for obtaining coverage when you need it. Folks aren't stupid.

Because the subsidy is fixed in statute, this type of behavior does drive up program costs which will eventually creep into the premium rates for those in the program and the costs to the state for the subsidies.

This kind of behavior is fundamentally unfair to those who use the program responsibly and can only be fixed by either a mandate or a waiting period.

Posted by: cfuller1 | November 18, 2009 2:28 PM | Report abuse

"But what's the alternative?"

Of course there ARE alternatives though. You could force a unitary system, either single payer or Wyden-Bennett style full exchanges. You could expand the payroll tax (mostly paid by the young), then use those revenues to cover ins. co's increased costs. There are only "no alternatives" if you want to channel all of these new revenues directly into insurance companies.

But of course that's the thing that frightens people about the individual mandates. It's NOT just being forced to pay money. It's being forced to pay money to a for-profit entity over which they have no control or practical influence. It's one thing to force people to pay money for shared services; it's quite another to force them to pay to put another floor on the VP of marketing's house...

Posted by: NS12345 | November 18, 2009 6:15 PM | Report abuse

ns12345,

i'd agree with your argument except for the fact that there's an 85% loss ratio, an end to pre-exisiting conditions oh and for now there's a public option in there that's supposed to "keep insurers honest". excuses for not wanting the individual mandate are fading away.


oh and please tell me the assumption isn't that the penalty goes to insurers pockets to "put another floor on the VP of marketing's house".

Posted by: visionbrkr | November 18, 2009 6:44 PM | Report abuse

Come on -- people are priced out of insurance because we have decided as a society that medical care should make a profit for some people. Many of us consider that simply evil. All the epicycles involved in health care reform arise from trying to protect that fundamental flaw with complex systems that circumvent its noxious by-products such as uninsurable poor people.

Posted by: janinsanfran | November 18, 2009 7:10 PM | Report abuse

I'm having trouble figuring out why I don't drop my insurance and pay the fine, until I need something more. I'm also having trouble figuring out who out there wouldn't do the same, including many/most small businesses. AFAICT, we're signing up for a classic adverse selection cascade with all the bad consequences that entails. Am I wrong?

Posted by: lfstevens | November 18, 2009 9:55 PM | Report abuse

visionbrkr,

As much as I believe you are making at least somewhat reasonable points, I have still rarely if ever heard anyone adopting a sarcastic tone in defense of the ins. cos. in this debate. Do you care to tell who your employers are, or if you are self-employed, who you clients are?

Posted by: michaeljamesdrew | November 19, 2009 2:16 AM | Report abuse

michaeljamesdrew,

as i've always admitted on here to anyone that's asked (to my ridicule and detriment) I'm a health insurance agent in NJ for the last 15 years. NJ is a guaranteed issue state with very limited pre-existing conditions exclusions. I don't defend insurers as they need to be reformed. Pre-ex and recision needs to end. MLR's need to be stronger than they are in these bills and the reforms are better than the status quo even if it does eventually jeopardize my job (which I don't think it will and if it does not for a long time). This reform effort does no good in cost control. CMS says so, not just insurers. Interesting to see CMS put basically the same report out as insurers did a month or two ago and no one blasts CMS like they did AHIP. But now its not about "I told you so's." I told you so's will be for when in 10 years or later when there should have been more cost controls (DOC FIX)

As far as the mandate goes I use the example of comparing my state of NJ to Massachussetts. Both are very liberal states have very similar mandates that require certain things to be covered that drives costs. The main difference between NJ and MA is that NJ doesn't have an individual mandate and MA does. NJ has 80 some percent covered currently and costs are going up higher than MA and MA has 96-97% insured. When the SFC weakened the mandate penalty the CBO score dropped from 94 to 91% insured which may not seem like much but it absolutely is. Its almost 9 milllion people and studies show that those 9 million will be the healthy that know that they're better off paying $95 to $750 (depending on the year it is) of a penalty than the cost of healthcare.

Again I've always said reform needs to happen, 44,000 people shouldn't die every year because they don't have access to healthcare but I worry about the reforms and affordability for those with and without coverage now.

Posted by: visionbrkr | November 19, 2009 8:09 AM | Report abuse

"These are all examples as to why risk pools require EVERYONE to be accountable."

Seldom agree with him, but visionbrkr is exactly right on this one.

Posted by: steveh46 | November 19, 2009 1:00 PM | Report abuse

The comments to this entry are closed.

 
 
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