The Case Against Mandates

Ever since I first heard of the concept of an "individual mandate" as an approach to health care reform back when I read The Radical Center by Michael Lind and Ted Halstead as a college student, the idea has struck me as crippled by a terrible flaw at its heart. Since it appeared, at the time, alongside other such goofy "outside the box" notions as abolishing all state and local funding streams for education and replacing them with a national consumption tax, I figured other smart people would agree with me that mandates (the legal requirement for every American to buy health insurance) won't work, and the idea would fade away.

Instead, it's metastasized. Republicans love it – Mitt Romney signed a law in Massachusetts that includes an individual mandate, and Arnold Schwarzennegger has proposed one for California. But the cause has also been taken up on the left. John Edwards has proposed a national plan that includes a mandate. Paul Krugman attacked Barack Obama in The New York Times for not having one, as did Len Nichols here in The American Prospect Online. Most tellingly, in some ways, Jonathan Cohn's criticism of Obama's non-mandate for The New Republic's website simply assumed as a given that a mandate was a good idea. In Cohn's depiction, Obama's failure to include one in his plan doesn't say anything at all (good or bad) about his policy judgment, but merely demonstrates a truth about his alleged lack of political courage. (Of course, one might think that bucking the broad consensus view of left-of-center experts while running a Democratci primary campaign isn't exactly the most cowardly thing on the planet).

I'm still not convinced. To see the problem with mandates, you need to remember clearly what they're supposed to accomplish. According to Krugman, the problem with a lack of a mandate is that "some people would take their chances -- and then end up receiving treatment at other people’s expense when they ended up in emergency rooms." This is the case for mandates that many politicians prefer to emphasize, but it doesn't really justify the conclusions that advocates reach. If the concern really were primarily about unpaid emergency room bills for people financially able to afford insurance (if you can't afford insurance, after all, simply mandating that you buy it won't solve anything), that could be dealt with through a bare-bones mandate that people purchase a high-deductible plan to cover exorbitant costs.

But mandaters generally want to require people to buy full-service health plans. They do this because they're worried about "adverse selection." As Nichols explained in his TAP Online piece, "people with more expensive health risks think community rating (charging the same price to everyone) is a bargain for them, while 'young immortals' -- low-risk folk, usually young and healthy, who don't expect to use much health care -- think community rates are a bad deal for them. Both groups are right." As a consequence, the "young immortals" drop out of the pool, driving the community rate higher. When the rate goes up, however, that causes the healthiest segment of those remaining in the risk pool to drop out. So the rate goes higher still. And on and on until things collapse "or, more commonly, insurers persuade state legislatures to let them underwrite differential risks and price (or deny) coverage according to preexisting conditions, age, and other criteria." Mandates are supposed to stabilize the community risk pool: "If everyone is required to buy, then insurers worry far less about attracting a disproportionate share of sicker patients, because the reluctant 'young immortals' are buying, too. So the excess resources they now devote to underwriting and targeted marketing will be largely redundant and disappear."

That's the theory, but it doesn't really make sense. In a world where every patient gets charged the same amount no matter how costly she is to insure, and every person must buy insurance no matter how little he wants or needs it, targeted marketing will determine everything. Advertising on television networks (G4) and magazines (Maxim) with young, male audiences will be a gold mine, while developing a reputation for providing high-quality health care to people in need of medical attention will be deadly. The ideal approach will be to do a lot of slick marketing of your brand as "cool" while making sure that people who do careful research about their health-care options only learn bad things about your plans and service. 

The result would be a truly bizarre sort of market, in which competing firms work furiously to make their plans as unfavorable as possible to people who get sick, while investing vast sums in Sprite-style substance-free branding. The race to the bottom will, mercifully, be somewhat mitigated by the presence of regulatory floors. But progressives should be at least a little bit wary of our ability to outsmart the free market this way -- as long as the insurance companies are given any meaningful leeway, it'll be ruthlessly exploited in ways that make health-care quality worse, not better.

What's more, even if an ironclad regulatory scheme could be derived, the result would just be a situation in which the government is de facto running the health care system (specifying exactly how insurers must conduct their business and setting the prices) only with a healthy slice of profits taken off the top by insurance company executives. And this, on some level, was the point of mandates all along.

The only way to really deal with the adverse selection problem is to have the government provide insurance to a single nationwide risk pool (or something equivalent like a series of regionally defined risk pools) financed through tax revenue. Nobody this side of Dennis Kucinich wants to embrace that conclusion, because everyone thinks it's politically impossible. This is a perfectly legitimate concern, but it helps nothing to dress up an unsatisfactory alternative that was cooked up in the spirit of timidity as the one true sign of political courage.

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See other recent TAP Online coverage of individual mandates:

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