The Individual Health Insurance Mandate

Legislation to replace and/or reform Obamacare (the Patient Protection and Affordable Care Act—ACA) was passed by the U.S. House of Representatives last week. Despite President Trump’s premature celebration the process of fashioning a new health care law is just getting underway as the Senate begins the rewriting of the House bill. One of the important issues dividing Democrats from most Republicans, and Republicans from each other, concerns whether everyone should be required to buy health insurance and if so what that insurance must minimally cover. “Health Care Plan B”

The fundamental purpose of insurance is to provide the broadest possible sharing of unpredictable costs. Thus it was not surprising that the Heritage Foundation published a report by Stuart M Butler recommending mandatory health care insurance on October 1, 1989: “Assuring Affordable Health Care for All Americans”. Dr. Butler elaborated his health care insurance mandate in a March 5, 1992 Heritage Foundation report: “Policy Maker’s Guide to the Health Care Crisis”

Robert E. Moffitt elaborated the public policy case for the insurance mandate as follows: “Absent a specific mandate for at least catastrophic health insurance coverage, some persons, even with the availability of tax credits to offset their costs, will deliberately take advantage of their fellow citizens by not protecting themselves or their families, with the full knowledge that if they do incur a catastrophic illness that financially devastates them, we will, after all is said and done, take care of them and pay all of the bills. They will be correct in this assessment…

“An individual mandate for insurance, then, is not simply to assure other people protection from the ravages of a serious illness, however socially desirable that may be; it is also to protect ourselves. Such self protection is justified within the context of individual freedom; the precedent for this view can be traced to none other than John Stuart Mill.” Health Affairs, January 1994.

Two bills offered in the U.S. Senate in 1994, the Consumer Choice Health Security Act sponsored by 25 Republican Senators and the bipartisan Health Equity and Access Reform Today Act sponsored by 19 Republican and 2 Democratic Senators included health insurance mandates.

When Mitt Romney was the governor of Massachusetts signed that state’s “An Act Providing Access to Affordable, Quality, Accountable Health Care,” adopted in 2006 with broad bipartisan support. It required all Massachusetts residents to buy health insurance. Surprisingly in 2008 presidential candidate Barack Obama opposed an individual mandate (but apparently supported the existing employer health insurance mandate for their employees). But only two years later in 2010 then President Obama signed into law the ACA, which included a weak individual insurance mandate.

Conservatives turned against the individual mandate, I assume, because it seemed to exceed the constitutional authority of the federal government under the enumerated powers of the U.S. constitution (remember them). In a very controversial 5-4 Supreme Court decision written by Chief Justice Roberts, the court ruled on June 28, 2012 in National Federation of Independent Business v. Sebelius that although the individual mandate was not constitutional under the commerce clause (already stretched beyond recognition), it could be construed as a tax and was therefore valid under the constitutional authority for congress to “lay and collect taxes.” While I favor a health insurance mandate, I also favor preserving the constitutional limitations on the powers of the federal government, which leave the establishment of such mandates to the individual states.

States have generally been more successful at addressing the financing of its citizens’ health care needs. They also have the advantage of learning from each others experiences. Consider the issues of catastrophic health care costs and those of preexisting conditions. Preexisting conditions are not appropriate for insurance coverage (insurance is meant to share the cost of “future and unexpected losses”), but they must, nonetheless, be paid for by someone. In the past, the financing of these known and/or unusually large expenses have been provided through risk pools. “Before Obamacare, 35 states had risk pools – available to people in the individual market who had been turned down for private insurance because of a health condition…. These arrangements were not perfect,” but worked better than the approach taken in Obamacare and should be restored and improved. “High risk pools worked just fine before obamacare”

So where are we? Republicans and Democrats want generally the same outcome–cheaper but better healthcare for all.  Democrats want that administered by the government and Republicans want to rely more on the private sector. I favor the latter.  Hopefully as the Senate writes their own health care reform bill they will provide the federal government’s financial support (tax subsidies) for those unable to afford their medical care costs (whether directly or via insurance) in such a way that states are incentivized to require individual mandates for adequate health insurance and that health care providers are not rewarded for unnecessary procedures. This is one important and complex piece of the overall adjustments needed to lower the cost of providing good care to everyone while allocating its cost fairly (a whole other debate).

 

 

About wcoats

Dr. Warren L. Coats specializes in advising central banks on monetary policy, and in the development of their capacity to formulate and implement monetary policy. He is retired from the International Monetary Fund, where, as Assistant Director of the Monetary and Financial Systems Department, he led missions to over twenty countries. Before then, he served as Visiting Economist to the Board of Governors of the Federal Reserve System, and to the World Bank, and was Assistant Prof of Economics at the Univ. of Virginia from 1970-75. Most recently he was Senior Monetary Policy Advisor to the Central Bank of Iraq; an IMF consultant to the central banks of Afghanistan, Kenya and Zimbabwe; and a Deloitte/USAID advisor to the Government of South Sudan. He is currently a member of the Editorial Board of the Cayman Financial Review and until the end of 2013 was a member of the IMF program team for Afghanistan. His most recent book is entitled "One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina."
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