Why does the individual mandate matter?

Posted: March 30, 2012 by alephnaughty in Economics, Health, Law, Philosophy, Politics
Tags: , ,

Two of the central planks of the Patient Protection and Affordable Care Act (PPACA) go by the names of ‘guaranteed issue’ and ‘community rating’. According to guaranteed issue, no health insurance company is permitted to deny someone coverage based upon a pre-existing condition. According to community rating, insurance companies must offer the same policies to everyone for the same price. The idea is that health status is largely something beyond anyone’s control, and so it is unfair for those who, through no fault of their own, suffer ill health to have to pay a price for it. Whatever you think of the merits of these ideas, they’re embedded (in spirit, despite lots of exceptions) in the PPACA.

The worry, in theory, is that many people will wait till they develop a pre-existing condition to get coverage, saving premium expenses in the meantime. The reason is if they do so, they will not have to worry about being denied coverage because of guaranteed issue, and they will pay the same price then whether they buy it now or not. If people in fact do this, insurance companies will only have relatively sick people on their rolls, forcing them to raise premiums to cover the cost of their claims. Higher premiums, in turn, will encourage the relatively healthy among the insured to forgo insurance, rendering the pool still sicker, driving up premiums more. And so on and so forth.

This problem is known as ‘adverse selection’. The ultimate outcome, in principle, is that the price of insurance will spiral upwards until it is no longer a profitable business, causing a disappearance of the market. This has not happened in any of the states that have guaranteed issue and community rating policies, but it has been shown that their premiums rise faster than in states without those policies. What we can expect, then, is that they will quickly and sharply drive up the cost of health insurance.

The purpose of requiring everyone to buy health insurance is to prevent this spiral from getting off the ground. If everyone has insurance, no one can forgo it until they get sick, making adverse selection a non-issue. Arguably, there are other reasons to be wary of such a mandate, but most experts agree it is essential if community rating and guaranteed issue are to work without causing premiums to explode. If the Supreme Court rules the mandate unconstitutional, leaving these other pieces in place, the PPACA is going to cause a lot of problems no one particularly intended.This is why they may choose to eliminate guaranteed issue and community rating, too, in which case the core of the bill will be withdrawn.

I’m not a lawyer, but for what it’s worth, the mandate isn’t that big a deal. Suppose that the government decided to tax every citizen, to pay for a ‘motherhood and apple pie fund’. They then also decide that they’re going to cut a check of the same size to everyone who has health insurance. Nobody would dispute the constitutionality of either of those measures in the slightest, and yet together they amount to a fine for those who do not have health insurance. The only difference is that this is called a ‘tax’, while the mandate’s fee is a ‘penalty’. Note that the penalty is collected by the IRS, and you cannot go to jail for refusing to pay it. Sounds like a distinction without a difference to me.

Legal opponents raise the question of what limits there are on the government if it can require you to buy something. This, to me, is pretty silly. It isn’t requiring you to do anything. It’s just using the word ‘require’ to stigmatize those who choose not to get health insurance, making them feel like outlaws. It also asks them to pay a fine for doing so. The government isn’t coming into anyone’s home, insisting that they buy health insurance at the point of a gun. They’re just making your life a bit more difficult if you don’t get health insurance. Welcome to society. Sometimes the government has to make certain things more of a headache for the sake of promoting the general welfare. PPACA may or may not promote the general welfare, but saying that the government can’t give you a headache for making certain decisions is to say that the government cannot affirmatively try to solve any social problems at all. If you don’t like the PPACA, try to elect some folks who will get rid of it. Don’t try to make it impossible for the government to solve large social problems going forward.

  1. Patrick Gage says:

    It’s called a penalty, plain and simple. The Democrats thought that they were being really smart when they passed this mandate. They called it a ‘penalty’ because they didn’t want to be accused of raising taxes. Now, in the Supreme Court, they’re arguing that it’s a tax, and hence constitutional. At the same time, they’re saying it’s not a tax. Their case is so confusing and convoluted, I can’t even believe they think they have a chance. And despite what you think, the government is requiring you to purchase health insurance, because if you don’t, you pay a stiff penalty. It’s a “choice” that is not a choice. They just claim it is.

    • alephnaughty says:

      And if you don’t pay the penalty, what happens to you? Do you go to jail? No. Do you have to pay a bigger fine? No. Does anything happen at all? Well, the IRS will send you annoying notices. Maybe it will call you now and then, too. That’s a headache, no doubt. And yeah, you might feel bad about breaking the law. But that’s it, friend. Nothing more to it than that.

      I’m not expressing support for the policy, nor am I criticizing it. I’m just saying, if the thing is unconstitutional, we ought to know what the thing is. And the thing is just one more instance of the government giving you a headache if you do something it doesn’t like. And if that’s unconstitutional, just about every piece of public policy that impacts anyone’s incentives in any way is too. Seems pretty silly to me. If you don’t like the mandate, just say so, and try to get it repealed. Don’t put the policymaking process in a straitjacket, preventing it from doing anything constructive ever, just because you don’t like this one thing.

      And for what it’s worth, having health care financing is a good thing, just like having financing for anything good in life is a good thing. When folks compare the mandate to requiring people to eat broccoli (not saying you are) this betrays a lot of ignorance. There is such a thing as too much broccoli. There is no such thing as too much health care financing. It may cost you too much to get more than a certain amount–fair enough. But it’s always better to have more than to have less, other things being equal. Hysterical comparisons intended to evoke images of extreme authoritarianism reflect a desperation on the part of critics to use any means necessary to defeat a piece of social policy they don’t like.

      I said I wasn’t going to express my opinion, but I lied. I’m against the mandate. I want something very different from what PPACA does. But I think the solution to that is to think of, propose, and defend alternatives. Hopefully enough of my peers will agree and a better system will arrive. But this by any means necessary mentality bespeaks a certainty that is silly, and a desperation that is comical, in my humble opinion.

      • Patrick Gage says:

        Although I’m obviously also against the mandate, I’m certainly interested with your information. I guess I never thought of what would happen if you don’t pay the fine. I guess I just assumed you’d be punished in some other way. But is that where the “buck” stops? With this mandate, can the government not force you to pay the fine? If so, why is there one in the first place? Who in their right mind would elect to pay a fine? Interesting stuff. Thank you.

  2. alephnaughty says:

    I think they realized early on that throwing people in jail for not buying health insurance was not going to be a political winner, so they did everything they could to make sure that won’t happen. Why is the mandate in there? Good question. Recall what I said in my last comment: health care financing is a good thing–full stop. Everyone already wants more, they just might want other things a bit more. The mandate, between the fine, the stigma associated with breaking the law, and the annoying calls from the IRS, is supposed to make your life a bit more of a headache if you go without health insurance. For some, that won’t do it, they’ll still go without it. That’s why you keep hearing the bill will cover 30 million people, when over 50 million are uninsured. But those 30 million who are really close to buying it but not quite there, the mandate plus the subsidies is predicted to put them over the edge. Trust me, Obama wants to get reelected and remembered favorably by historians more than anything else. The image of people being hauled to jail for being uninsured is one that would only hurt him on both counts.

    Again, the mandate isn’t my idea of ideal health care policy, but there’s different ways to take something you don’t like off the books. The Supreme Court, in my view, ought only to be invoked in the most egregious cases, and this really isn’t one of them. Appreciate your open-mindedness.

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