Taking the Individual Mandate Off Life Support
9:29 AM, May 13, 2011 • By TOM MILLER
This week, the latest challenge to Obamacare, and its individual mandate to purchase health insurance, was heard before the 4th Circuit Court of Appeals in Richmond. Similar appeals cases are due to be heard next month in Cincinnati and Atlanta. Already two federal judges have declared the mandate unconstitutional and beyond the powers of Congress to enact. Regardless of how these courts and the Supreme Court rule (when it eventually makes it to the highest court) on these arguments, it’s time to get rid of the unworkable, unenforceable, and unsustainable mandate.
The individual mandate has been presented as a necessary means to more popular ends – universal coverage, better access to care for those with pre-existing health conditions, and lower health care costs for those already insured. However, the real evidence of the connection between the mandate and the problems it purportedly could solve is shaky at best. Nevertheless, the Obama administration and its congressional allies hoped that an individual mandate could accomplish two political goals: First, it might obscure the full cost of expanded coverage by conscripting private resources to pay for most of it without explicit tax increases; second, it would ensure enough new captive customers for private insurers to provide them with sustainable revenue and keep their risk pools from falling apart, despite expanded regulatory requirements and benefits mandates.
However, trying to force people to buy insurance that they cannot afford, or coercing them into paying more than it actually appears to be worth to them, remains politically difficult. Lowering the visible sticker shock for most folks through additional taxpayer subsidies and below-cost price controls doesn’t work economically, either. Government budgets tighten, political demand for health care explodes, market supply of medical providers cannot keep up, and overcharged premium payers resist. And eventually someone has to pay for it all.
Hence, Obamacare’s compromise, for the time being, on a weak mandate scheduled to begin almost four years after the bill became law (in 2014). Its soft penalties are set at a small fraction of likely insurance premium costs, with further exemptions for those facing “unaffordable” coverage options. The law’s guaranteed-issue incentives for potential purchasers —enroll ‘just in time when sick,’ and ‘go bare’ when healthy (and pay less in penalties than premiums)—further ensures limited and erratic mandate enforcement.
Even these faint gestures and evasions could not avoid offending the political sensibilities and core values of a majority of voters. The mandate-friendly pollsters at the Kaiser Family Foundation reported last March that 67 percent of Americans favored repeal of the mandate, and only 27 percent favored it. The individual mandate has consistently remained the most intensely unpopular provision of the new health law since it first took shape. The serious court challenges to its constitutionality only reinforce those basic sentiments.
But whether it is repealed by legislation or by the courts, the mandate needs to be replaced by something else that works better to address serious cost and coverage problems in health insurance. Various political actors are already looking for alternatives. In late March, the Government Accountability Office responded to a request from Senator Ben Nelson (D, Neb.) for an analysis of “voluntary enrollment” alternatives to an individual mandate. They included less-frequent open enrollment periods coupled with late enrollment penalties (the incentive model for Medicare Part B and Part D coverage), expanded auto-enrollment (with opt-out) in employer health plans, several lesser taxes to pay for uncompensated care, and lots of begging and cajoling (called “public education and outreach”). Not surprisingly, GAO surveyed about 40 “expert” representatives of the health policy status quo and found those alternatives did not satisfy them.
Other critics on the left reflexively say that such incentives will fail to insure as many people as their tautological modeling for legal mandates predicts. Without a doubt, those who see universal coverage as their foremost political objective always imagine that it will be obeyed faithfully and executed flawlessly.
What’s missing from the Obamacare debate is a more realistic understanding of the limits of government coercion within our political system, the balance of power between government and citizens in our Constitution, and the longstanding societal values that sustain both of them. The individual mandate touches exposed nerves and offends core principles in ways that other elements of the modern regulatory state do not.
Mandate alternatives often presume that if subsidies are generous enough, they can make purchasing insurance a no-brainer. But continuing to chase after rising health care costs with open-ended public subsidies for comprehensive insurance coverage across the board, amid a slow-growth/deficit-ridden economy, is a no-brainer in a far different sense. This just in: we’re running out of private money to waste in the public sector.
Instead of pursuing coverage mandates at lower dosages or through more partly disguised means, we should consider a better mix of four policy reform ingredients.
First, rely on persuasive incentives rather than coercive commands. Part of this approach actually was proposed first in the House Republican alternative to Obamacare, back in November 2009. The basic idea is to extend insurance portability rights and protection against new medical underwriting due to changes in health status (already provided since 1996 by the HIPAA requirements for employer group health plans) to those entering, exiting, or remaining in the individual health insurance market—as long as they maintain continuous qualified insurance coverage. In short, the incentives to get insurance and maintain it would be strengthened. Switching between group and individual markets would become less complicated and stressful. However, those who delay obtaining coverage when healthy, or drop it and stay uninsured for too long, would run the risk of paying higher premiums in the future or facing restrictions on coverage of pre-existing conditions they develop in the interim. This is the health policy equivalent of winging two lame ducks (the individual mandate and the new regime of over-reaching federal insurance regulation) with a single shot.
Second, redistribute and prioritize current insurance coverage subsidies. There just isn’t a sustainable line of credit ahead or enough tax revenue to keep financing the levels of tax expenditures and public program benefits that foster the illusion we can pay most, or at least a substantial share, of everyone’s health insurance premiums with other people’s money. We should not, and actually do not, need to bribe upper-middle class and wealthier Americans to purchase and maintain insurance coverage. They already have assets to protect themselves, and generally live healthier lifestyles. We could instead lower their other taxes to offset the net effects of making the full unsubsidized costs, and real value, of their current coverage and care more transparent to them. However, that doesn’t mean that additional subsidies (offset by other spending reductions in the health care portion of the federal budget) won’t be needed to help other populations targeted on the basis of lower-income and higher health-risk needs. Those dollars can help pay for some, and sometimes all, of the actuarially-equivalent costs of their basic care, but almost everyone needs to start seeing more of the real price tags in health care markets again, instead of the fake ones at the government discount store.
Third, because no system of coverage incentives and need-based subsidies is fool proof, we have to maintain a back-up system of safety-net protections for those who fall through the cracks or must be protected from the unbearable consequences of their irresponsible behavior. Beyond a narrowed base of Medicaid assistance for the temporarily low-income and more permanently disabled, the next layer of support should involve more sustainably financed, high-risk pools that are operated by states within basic federal parameters. Such subsidized coverage would still cost more than the conventional insurance for standard-risk customers, but its premiums would be capped in proportion to an enrollee’s income and likely risk-related health costs.
Fourth, no matter how much money taxpayers decide they can afford to throw at the wall of insurance coverage problems, the real key to affordability is health care that is delivered quicker, simpler, cheaper, more consistently, and more effectively. An individual mandate tries to ignore that problem, because it cannot solve it. To fix it, better incentives are needed for more efficient health care. Less affordable health insurance is a secondary symptom, not the primary cause, of high-cost health care. We should insist as private purchasers and taxpayers that insurers and health care providers find ways to offer different mixes and methods of care and coverage that cost less and are worth more. The bureaucratic tool kit stuffed into several hundreds of pages in the Affordable Care Act failed to include the most essential item: market-based supply and demand.
In the meantime, what if President Obama – who never officially embraced the idea of an individual mandate during his initial presidential campaign – decided to cut his political losses and agree that the mandate wasn’t such a good idea after all? He’s already signed an extension of the Bush tax cuts, kept the Guantanamo Bay terrorist detention facility open for business, grudgingly conceded the need for at least some cuts in federal spending, increased troop levels in Afghanistan, and dispatched bin Laden without reading him his Miranda rights. The president could retain most of his health law legacy by jettisoning its weakest link before rolling the dice at the Supreme Court or in the November 2012 election. But that’s not something I would bet on.
Tom Miller is a resident fellow at the American Enterprise Institute and coauthor of Why ObamaCare Is Wrong for America (HarperCollins, 2011).
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