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Posted at 10:30 AM ET, 02/ 4/2011

If not the insurance mandate, then what?

By Derek Thompson

Could health care reform survive without the mandate to buy health insurance? Sen. Claire McCaskill (D-Mo.) is mulling a plan to replace the legally controversial mandate with "an open-enrollment period for people who want to buy health insurance, and assess a penalty on anybody who tries to enter the insurance market after that window closes," TPM's Brian Beutler reports.

Open-enrollment is the equivalent of a once-a-year opportunity to buy health insurance or else face the expensive consequences of being uninsured. For analogy, let's say I tell you at the beginning of flu season that you can buy Nyquil for a $2 discount today, but tomorrow the price will go up to $20 forever. What do you do? You stock up on Nyquil, of course! Note that I haven't required that you do anything. I've just weighted the incentives to make you buy the medicine. It's not a mandate, just an irresistible deal.

The open-enrollment period uses the same discount logic. If we make a small window where people can enroll for health insurance and combine that with stiff penalties for folks who buy insurance late, more Americans will buy insurance even if they're healthy.

That's the thinking. But there are at least two risks. The first risk is that healthy young people with little income generally won't sign up for insurance no matter how expensive it's going to be later, because they feel healthy. This has consequences for the insured. If fewer healthy people enroll, insurance pools will have a greater share of less healthy, higher risk individuals, which could push up premiums. The second challenge is what do you do if a low-income person who didn't enroll develops a serious illness? The logic of our little discounting game says you leave them uninsured to send the message that missing the open-enrollment period has serious consequences. But what kind of prosperous country turns away a sick single mother of four to make an economic point?

The bottom line is that without the mandate, health care reformers could have a hard time creating effective and humane incentives to get everybody insured.

Derek Thompson is an associate editor at the Atlantic, where he writes about economics, business and technology.

By Derek Thompson  | February 4, 2011; 10:30 AM ET
 
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Comments

"If fewer healthy people enroll, insurance pools will have a greater share of less healthy, higher risk individuals, which could push up premiums."

This is frustrating!!! How do we convince healthy people to pay too much for their insurance so we can use their premiums to pay for sick people's pre-existing conditions? I know -- let's just hold a gun to their head. Surely there's nothing about *that* in our musty, unintelligible hundred-year-old Constitution!

Posted by: whoisjohngaltcom | February 4, 2011 10:37 AM | Report abuse

I'd rather the ACA had an enforcement mechanism that MIGHT work (open enrollment, for example) than no ACA at all (if we let the Supreme Court at it). Repealing and/or replacing the individual mandate is a smart move at this point - though it would be prudent to wait and see if the Circuit Courts split on the issue. If they all rule in favor of the ACA (possible), then the Supreme Court will _probably_ leave things alone.

Posted by: JpS42 | February 4, 2011 10:43 AM | Report abuse

@whoisjohn . . .

the problem is that a healthy person can just as easily be hit with a bus, develop chronic conditions that they can't afford to pay for out of pocket. If you're not always in you should have STEEP consequences to not participating and if they do develop these open enrollment guildeines the costs need to be equal to the gaming of the system that takes place which causes our costs to rise.

"The logic of our little discounting game says you leave them uninsured to send the message that missing the open-enrollment period has serious consequences. But what kind of prosperous country turns away a sick single mother of four to make an economic point?"


Wouldn't she still get subsidies or do they go away with the mandate. I doubt Ms. McCaskill and her co-horts would go along with the end to the subsidies. Then if this sick single mother has almost all of her insurance paid for and still doesn't get it (or doesn't get Medicaid) should we still feel as sorry. I mean we can't FORCE them to get free medical coverage can we?

Posted by: visionbrkr | February 4, 2011 11:07 AM | Report abuse

I'm with visionbrkr (Whaaaaaaa?!). At some point, even in the best system, we have to cut people off even if that results in a really sad story. If the only thing that can save the single mother of four's life is a brain-body swap surgery which would place her brain in the reanimated body of a healthy 20 year old, but it costs $1 trillion to do it, I'm afraid we just let her die and spend a tiny fraction of that amount taking care of her kids.

That's the thing that annoys me about the whole "rationing" talking point. At some point in any system you can imagine, someone is going to get cut off. Whether it's the government making the decision, an insurer, or an individual, that's rationing. The questions are where the cutoff is, what types of things get rationed, who makes the decision, and how the decision to ration affects the rest of the system.

The open enrollment system isn't the worst, but as the post points out, it's not perfect on its own. I'll wait until I see some legislation or a more fully fleshed out proposal before I decide whether I think it's a good replacement for the mandate.

Posted by: MosBen | February 4, 2011 11:25 AM | Report abuse

"The logic of our little discounting game says you leave them uninsured to send the message that missing the open-enrollment period has serious consequences. But what kind of prosperous country turns away a sick single mother of four to make an economic point?"

*********

It's not an economic point, it's a point about being an adult responsible for her own life, and the lives of her children.

At some point when we become adults, we need to assume personal responsibility for our actions, even if we screw up and have to face the consequences.

Being a parent of four children should mean that you become more responsible about your own and your children's health and lives. If you're not, whose fault is that? Isn't it your own fault? And shouldn't you -- and not me, or others -- bear the consequences?

I agree with visionbrkr.

Posted by: Policywonk14 | February 4, 2011 11:32 AM | Report abuse

I could get behind the McCaskill idea -- I'd like to see the specifics first, of course. Paul Starr made a similar proposal a while back. I'm not a huge fan of the mandate.

However, I'd be utterly shocked if the political calculus enabled a repeal/replace of the mandate.

I could be wrong, but I don't see sufficient numbers of Republicans getting behind a proposal that would ensure the PPACA's SURVIVAL. They want to kill it. Indeed, I'd be surprised if the GOP even allowed such a bill to come to the floor in Boehner's chamber.

Posted by: Jasper999 | February 4, 2011 11:38 AM | Report abuse

"But what kind of prosperous country turns away a sick single mother of four to make an economic point?"

If this single mother of four makes less than six figures ($103,160 in 2010 dollars), then she gets subsidized insurance. I'd imagine the vast vast majority of single mothers of four make far less than six figures.

You rig the game in her favor and she still doesn't want to play? Then she really doesn't place much of a value on insurance at all.

I'm not sure why anyone else should place more of a value on her life than she does.

There is a system set up in which I am forced to pay into, and she can't even pay the token amount the government is asking of her, and demands the rest of us to pick up her slack? And for that matter, she is offered massive subsidies and puts her children at risk? I already think this sort of help should be provided voluntarily - I'm perfectly fine turning her away. Wouldn't lose a wink of sleep over it.

Posted by: justin84 | February 4, 2011 11:50 AM | Report abuse

I guess I should clarify a couple things. The "Whaaaa?!" wasn't supposed to come off quite as snarky as I'm reading it now.

Also, my point isn't that we shouldn't care about the single mother of four, or just tell her that she's out of luck no matter the situation. We should have a fair system which provides the possibility for all or nearly all citizens to receive affordable healthcare. If that means an individual mandate, great. If this plan works to that goal and isn't going to be overturned by the Supreme Court, that's fine too. Still, at some point there are going to be sad stories in any system. Maybe there's some legitimate reason this mother of four didn't get insurance during the open enrollment. If that's the case we should have some way to help her out. But at some point we're going to get someone that makes what turns out to have been a really bad decision and we're going to have to accept that bad outcome. I'm not against, minimizing these bad outcomes in a reasonable and fiscally responsible way, but we'll never eliminate them completely.

Posted by: MosBen | February 4, 2011 12:00 PM | Report abuse

--*If we make a small window where people can enroll for health insurance and combine that with stiff penalties for folks who buy insurance late, more Americans will buy insurance even if they're healthy.*--

Here's an idea, Derek. Allow insurance companies to offer policies that people are free to buy if they so desire, and if they don't and become sick or injured they pay a penalty called "paying the bill without insurance." It's no different than the daft thing you're touting, and it has the benefit of requiring no bureaucracy, no new laws (except maybe a repeal or two of existing laws), and no further busybodies scheming how to best to spend their fellow citizens' earnings. How about it, Derek?

Posted by: msoja | February 4, 2011 12:02 PM | Report abuse

I guess I should clarify a couple things. The "Whaaaa?!" wasn't supposed to come off quite as snarky as I'm reading it now.

Also, my point isn't that we shouldn't care about the single mother of four, or just tell her that she's out of luck no matter the situation. We should have a fair system which provides the possibility for all or nearly all citizens to receive affordable healthcare. If that means an individual mandate, great. If this plan works to that goal and isn't going to be overturned by the Supreme Court, that's fine too. Still, at some point there are going to be sad stories in any system. Maybe there's some legitimate reason this mother of four didn't get insurance during the open enrollment. If that's the case we should have some way to help her out. But at some point we're going to get someone that makes what turns out to have been a really bad decision and we're going to have to accept that bad outcome. I'm not against, minimizing these bad outcomes in a reasonable and fiscally responsible way, but we'll never eliminate them completely.

Posted by: MosBen | February 4, 2011 12:03 PM | Report abuse

"the problem is that a healthy person can just as easily be hit with a bus, develop chronic conditions that they can't afford to pay for out of pocket. If you're not always in you should have STEEP consequences to not participating and if they do develop these open enrollment guildeines the costs need to be equal to the gaming of the system that takes place which causes our costs to rise."


This would be properly corrected with actuarily fair age, gender, and health rating adjustments.

The rational healthy person is much more likely to voluntarily buy insurance when he/she is charged a fair price. When you choose to try to screw him over by charging him/her a much higher premium naturally he will rebel.

Posted by: krazen1211 | February 4, 2011 12:08 PM | Report abuse

visionbrkr:
"the problem is that a healthy person can just as easily be hit with a bus, develop chronic conditions that they can't afford to pay for out of pocket."

Healthy people are cheap to insure. Insurance protects against catastrophic loss. The uninsured should be afforded a means-tested no-frills limited-liability safety net. You don't insure your health -- you insure your wealth. When they've spent all their own money, only then should the uninsured get welfare medicine from everyone else. And the acceptable standard of care and limits of treatment need to be lower/less comprehensive than the current standards.

The way you prevent "gaming the system" is by making the game more costly and less profitable than playing by the rules. ECON 101.

The bleeding hearts need to stop fretting over "how can we be so cruel and so unfair." *Life* is cruel and unfair. What we need is some patriots to realize that the law prohibits us from reaching into the forcible reach into pockets of others to undo the hands that life deals us as individuals.

Posted by: whoisjohngaltcom | February 4, 2011 12:16 PM | Report abuse

"The second challenge is what do you do if a low-income person who didn't enroll develops a serious illness? The logic of our little discounting game says you leave them uninsured to send the message that missing the open-enrollment period has serious consequences. But what kind of prosperous country turns away a sick single mother of four to make an economic point?"

But how is that different from the current system? And in fact, on the whole, don't we still have a vast improvement over the current system, including for that mother (or most mothers in that situation)? Look at it this way. Most people probably will take advantage of open enrollment. There will be subsidies for those who can't afford it. There will be guaranteed issue. For those who don't take advantage of open enrollment and get sick, they won't have insurance, but for only less than a year, and then they can sign up during open enrollment (with guaranteed issue). Maybe that year (or less) of no insurance will be fatal for some, but probably not all, or even most. The point is, there would still be some people who fall through the cracks (those who don't sign up for open enrollment, who develop a severe illness, and for whom not receiving full health care for less than a year will have drastic long-term effects), but the system would still be a vast improvement over what we have now.

Posted by: JamesCody | February 4, 2011 12:21 PM | Report abuse

"How do we convince healthy people to pay too much for their insurance so we can use their premiums to pay for sick people's pre-existing conditions?"

I love it when conservatives show that they do even understand what insurance is. It's risk spreading, people. It's risk spreading.

Posted by: JamesCody | February 4, 2011 12:24 PM | Report abuse

--*At some point in any system you can imagine, someone is going to get cut off. Whether it's the government making the decision, an insurer, or an individual, that's rationing.*--

Um, no. Strictly speaking, insurers don't ration. They offer terms that include limits, to which you are free to agree or not. Refusing to exceed those limits does not amount to rationing, but represents respect of the contractual obligations.

Likewise, strictly speaking, the type of rationing that individuals do, and the type of rationing that governments do, are two completely different things. Individuals ration *themselves* based on their own criteria, while governments ration *others* based on arbitrary political considerations.

--*The questions are where the cutoff is, what types of things get rationed, who makes the decision, and how the decision to ration affects the rest of the system.*--

The promise of that ol' "free country", Mosben, is that individuals are presumed to be adults, ie., responsible and capable of making decisions on their own behalf. If some new paradigm holds that individuals are incapable of exercising responsible volition in regards to their own health and care, shouldn't we just dispense with all that quaint old nonsense about freedom and rights and the rest?

Posted by: msoja | February 4, 2011 12:27 PM | Report abuse

"How do we convince healthy people to pay too much for their insurance so we can use their premiums to pay for sick people's pre-existing conditions?"

That was suppose to be: I love it when conservatives show that they do NOT even understand what insurance is. It's risk spreading, people. It's risk spreading.

Posted by: JamesCody | February 4, 2011 12:28 PM | Report abuse

I'm not a fan of the "open enrollment" idea, for the reasons noted - healthy people, especially young people may "play the odds" and not buy.

My personal solution to "if not the mandate, what?" would be to transform health insurance into an "auto enroll" system, much like 401k plans are at some employers. Personally, I'd like to see people "auto enrolled" in Medicare, but you could do it with Medicaid, too. I.e., you would be auto enrolled in Medicaid, with premiums calculated as a percentage of your AGI, *UNLESS* you chose a different insurance plan from the exchanges (if you're an individual purchaser) or your employer chose a different plan (if they offer group insurance).

Unrealistic, I'm sure, but it would solve the problem of the uninsured, AND might even make Medicaid a more financially sound program with paid subscribers as well as "welfare" subscribers. Which would help the states with their burden as well.

Posted by: KarenJG | February 4, 2011 12:35 PM | Report abuse

James Cody:
"That was suppose to be: I love it when conservatives show that they do NOT even understand what insurance is. It's risk spreading, people. It's risk spreading."

Really? Like the "risk" of annual routine doctor visits? People need to be insured for that? Like the "risk" of routine childbirth? Like the "risk" that people with chronic conditions will require chronic care? Like the "risk" that if you live long enough you will become old? These aren't risks -- they're certainties and eventualities. And you're not looking to spread risk, you're trying to spread the costs.

Insurance is about protecting assets from catastrophic costs. It's not about guaranteeing health. It's about protecting one's wealth from unexpected health expenses that might otherwise wipe them out.

Free healthy people's assets are at lower risk from loss due to unexpected illness. It's well within their means to insure themselves and to invest for their future health needs. But not if they're to be treated as slaves to pay for the gold-plated care of others who've made no such preparations.

I know what insurance is. I see no evidence that you do -- even if you think you do.

Posted by: whoisjohngaltcom | February 4, 2011 12:57 PM | Report abuse

"I love it when conservatives show that they do even understand what insurance is. It's risk spreading, people. It's risk spreading."

Being forced to pay for other people's pre-existing conditions isn't spreading "risk".

If you have a pre-existing condition, there is no "risk" of developing it - it is certain.

A healthy 25 year old man earning $40,000/yr will have to pay $3,391 in premiums for a plan that has an out-of-pocket limit of $4,167.

http://healthreform.kff.org/subsidycalculator.aspx#incomeAgeTables

Where I live, that same healthy 25 year old can get a plan with a $2,500 deductible/out-of-pocket maximum for $69.83/mo or $837.96/yr, and a $7.5 million lifetime max.

http://www.ehealthinsurance.com/ehi/ifp/plan-details?planKey=4361:670&productLine=IFP

The $838/yr is insurance of the 25 year old's personal risk. The difference between that and the $3,391 is largely a pure transfer (while more might be covered under the $3,391 plan, remember that the out of pocket max is higher too).

Posted by: justin84 | February 4, 2011 1:46 PM | Report abuse

@MosBen,

don't worry about the snark. I've gotten a lot worse around here and I get that we disagree a lot of the time so no big deal.


@whoisjohn . . .

sorry but you're wrong. healthy people are NOT cheap to insure. Not when the cost of care is what it is. I'm healthy, have a family that is healthy (take no prescriptions at all)and i spent about $4000 out of my pocket last year (a couple of ER visits for my kids) and preventative care and the occasional sick visit (flu that won't go away).

Now I paid for that through my HSA but until we attack the actual cost of care then it'll remain expensive.


I guess if you want to say healthy people are cheap to insure relative to chronically ill people then yes you'd be right. It still doesn't make it affordable for many.


Posted by: visionbrkr | February 4, 2011 1:52 PM | Report abuse

"Being a parent of four children should mean that you become more responsible about your own and your children's health and lives. If you're not, whose fault is that?"

It's a shared responsibility. It's obvious that the parent has a responsibility, but by the same token, the people who pushed for the policy of denying people medical care, knowing that some people will screw up and be denied medical care, are responsible for their actions.

Posted by: KennethAlmquist | February 4, 2011 1:54 PM | Report abuse

@justin,

while your example is correct its more likely that a person would reach the out of pocket maximum "quicker" with the plan with the $2500 deductible than with the subsidized plan.

Posted by: visionbrkr | February 4, 2011 1:59 PM | Report abuse

--*the policy of denying people medical care*--

Are you talking about Death Panels?

Posted by: msoja | February 4, 2011 2:01 PM | Report abuse

@KennethAlmquist,

so what's your take on MA who for several years have been pre-ex free. In 20 years who will you blame for this situation happening because I can tell you it will absolutely STILL be happening. You can lead a horse to water but you can't make them drink and you can only blame someone else for your problems for so long.

Its a very slippery slope in making exceptions to open enrollment rules because when you make an exception for one you'll inevitably get everyone looking for that same exception.

That's why BTW Medicare's open enrollment rules have NO exceptions. If you're outside the open enrollment you get the penalty (I believe its 1% per month for every month you don't elect but i'm not 100% sure on that.)

Posted by: visionbrkr | February 4, 2011 2:21 PM | Report abuse

"while your example is correct its more likely that a person would reach the out of pocket maximum "quicker" with the plan with the $2,500 deductible than with the subsidized plan."

Visionbrkr,

I don't know exactly how the silver ACA plan with that out of pocket limit is designed but that seems plausible to me. It's probably a combination of co-pays, co-insurance and a modest deductible.

However, I think it's important to note that in the worst case, the maximum financial loss is significantly lower.

Also, the $2,500 deductible plan is elligible for HSA tax deductible saving, while I'm not sure if the ACA plan is.

At any rate, the health plans available under ACA are a combination of risk sharing (insurance) and cost sharing.

Posted by: justin84 | February 4, 2011 2:28 PM | Report abuse

"That was suppose to be: I love it when conservatives show that they do NOT even understand what insurance is. It's risk spreading, people. It's risk spreading."

Standard liberal ignorant tripe.

The concept of risk spreading doesn't mean that all groups or members of a group pay the same premium, or that all potential risky applicants need to be accepted.

Posted by: krazen1211 | February 4, 2011 3:22 PM | Report abuse

"....healthy young people with little income generally won't sign up for insurance no matter how expensive it's going to be later, because they feel healthy. This has consequences for the insured. If fewer healthy people enroll, insurance pools will have a greater share of less healthy, higher risk individuals, which could push up premiums."

Forcing healthy young people who don't need gold-plated all-inclusive health insurance to buy it anyway just so it lowers the premiums for those who DO need it, is sort of like requiring people who don't drive to buy auto insurance anyway....just so MY car insurance premium can be lower.

Posted by: dbw1 | February 4, 2011 3:54 PM | Report abuse

"Its a very slippery slope in making exceptions to open enrollment rules because when you make an exception for one you'll inevitably get everyone looking for that same exception."

Sort of like how once they awarded one Democrat-friendly business or labor union a waiver from implementing the ACA, everyone will want a waiver. Over 700 so far....

I haven't done the math on this list yet myself, but I read one opinion piece claiming approx 40% of the beneficiaries of these waivers are unions/ union members....even though unions only represent about 10% of our workforce.

Must be nice to be a Friend of Barry.....

Posted by: dbw1 | February 4, 2011 4:06 PM | Report abuse

"Its a very slippery slope in making exceptions to open enrollment rules because when you make an exception for one you'll inevitably get everyone looking for that same exception."

Sort of like how once they awarded one Democrat-friendly business or labor union a waiver from implementing the ACA, everyone will want a waiver. Over 700 so far....

I haven't done the math on this list yet myself, but I read one opinion piece claiming approx 40% of the beneficiaries of these waivers are unions/ union members....even though unions only represent about 10% of our workforce.

Must be nice to be a Friend of Barry.....

Posted by: dbw1 | February 4, 2011 4:11 PM | Report abuse

"Its a very slippery slope in making exceptions to open enrollment rules because when you make an exception for one you'll inevitably get everyone looking for that same exception."

Sort of like how once they awarded one Democrat-friendly business or labor union a waiver from implementing the ACA, everyone will want a waiver. Over 700 so far....

I haven't done the math on this list yet myself, but I read one opinion piece claiming approx 40% of the beneficiaries of these waivers are unions/ union members....even though unions only represent about 10% of our workforce.

Must be nice to be a Friend of Barry.....

Posted by: dbw1 | February 4, 2011 4:23 PM | Report abuse

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