Tuesday, February 01, 2011

Individual Mandate in the HCR. Again.

One judge has declared the individual mandate (the requirement that everyone has health insurance under the HCR) unconstitutional. I found this editorial in the Christian Science Monitor interesting because of its adoption of the right-wing-created term "Obamacare." But of course Christian Scientists wouldn't like the individual mandate:
But a more realistic scenario for the use of the mandate – assuming the Supreme Court upholds it – is that Congress will eventually want to further control the health decisions of Americans by coercing them to take part in various types of preventative medicine as prescribed by government.
This would violate the freedom to choose one’s own health care, whether it is traditional medicine or alternative means of healing, such as prayer. As Judge Vinson said of the mandate, this is a “bridge too far.”
Even Mr. Obama at one time, during his 2008 presidential campaign, argued against the mandate: “If a mandate was the solution, we can try that to solve homelessness by mandating everybody to buy a house.”
I have been scolded in the past for writing on the individual mandate from an economist's angle, and perhaps I shouldn't go there again.

But there is a reason for that mandate, whatever its ethical and other aspects are, and it is what would happen in the absence of such a mandate if health insurers no longer could deny people coverage on the basis of a pre-existing condition:

Some percentage of individuals would not buy insurance until they got sick, especially those who are young and healthy. It makes financial sense to wait until one really needs it, and there would be some individuals and families who would think exactly like that. The consequences of this would be an insurance system which would get more expensive for those who do have insurance, because the sum of the premia would decrease compared to the reimbursement levels.

That, in turn, would raise the premia. Higher premia would make more people consider the option of waiting until they really need insurance, and so on. This possibility, taken to its logical extreme, could even destroy the whole private insurance market.

That logical extreme is unlikely to happen because the insurance markets have large group plans through employers and most people would buy insurance in any case. But the individual mandate is not part of the HCR just to make the deal sweeter for the insurance industry by offering it many low-risk customers (though that is naturally one of its functions).

It's there because a private insurance system in something like health care will not function without lots of rules of that type and without lots and lots of regulatory help. As an example of that help, the government funded Medicare and Medicaid systems already remove most of the very high-risk customers (especially the elderly) from the market, and Medicaid subsidizes one group of the poor. If I had to write a one-sentence post on financing health care it would consist of this:

A. Private. Insurance. Industry. Is. A. Poor. Fit.

The reasons for that poor fit are so many that they require a book to cover. But you can get some of them by thinking about what an insurable event would look like (a sudden fire in your house, not caused by you, your car getting stolen even though you carefully locked it and had burglar alarms installed) and then by comparing that to the way people need health care, partly in a predictable manner, partly not, and how the need for health care rises with age and in chronic illness.

My view is that the HCR went wrong when it insisted on sticking with the insurance model, even if the political reasons for that can be understood. Once it did that, however, most everything else that happened was a logical consequence of that initial decision, including the individual mandate.

Alternatives to that model exist all over the place. Indeed, almost all other industrialized countries have something different. But that "something different" is seen as communism here. So we are stuck.
Added later: As an example of weird coincidences, I came across this interview with Mark Pauly, a health economist who has almost the opposite view of the individual mandate. He regards it as the way to avoid those other solutions! To keep the insurance market, that is.