A key requirement of the House and Senate health reform bills is that all Americans without employer or government coverage must purchase health coverage through a new insurance exchange. The reason is to avoid the ravages of “adverse selection” by “free-riders” who wait until they get sick to buy insurance and thereby bankrupt the system. This free-rider problem is at the heart of the market failure I’ve written about that prevents universal access to necessary, affordable health insurance.
In effect, insurance mandates are a required license to breathe. The often heard argument-by-analogy is that it’s no big deal, because we already require drivers to buy auto liability insurance. But driving is a privilege subject to reasonable public safety regulation and comes with the right to abstain—as 100,000,000 non-driving Americans do. Everyone breathes. Also, mandatory auto insurance is to protect the victims of drivers’ mistakes, not the drivers themselves. Car insurance mandates aren’t just irrelevant but also ineffective—14.6% of drivers still don’t buy it (similar to the 15.3% who lack health insurance).
Mandate advocacy is widespread and surprisingly non-controversial. It’s hardly news that the health insurance industry and self-proclaimed liberal New York Times columnist and former economist Paul Krugman support them. What is remarkable is that prominent proponents of free markets and limited government have so readily raised the white flag. These include Republican Newt Gingrich, libertarian Charles Murray, and Harvard Business School Professors Regina Herzlinger and Michael Porter.
It is pretty lonely on the voluntary side of the issue where stalwarts include finance expert Greg Scandlen and Cato scholars Michael Cannon and Michael Tanner. They point to the inherent unenforceability of mandates and the problem of subsidy-seeking special interests who, with coverage mandates, can more easily lobby for increased benefit levels.
Stripped of its camouflage, the mandate argument boils down to this:
1. People without insurance are a burden on those who have it.
2. Additionally, the uninsured are foolish not to buy insurance because it’s good for them.
3. We can’t think of any way to make health insurance attractive enough for everyone to buy it voluntarily.
4. We also can’t think of any way to keep free riders from burdening the insured.
5. Therefore, we must force everyone to buy insurance.
It’s a weak argument, but if you’re having trouble taking the opposite position, try these:
1. Historical Precedent: According to the CBO, “The government has never required people to buy any good or service as a condition of lawful residence in the United States.”
2. Ultimately Unaffordable: Mandates do nothing to control excessive medical inflation and, thus, force people to spend less and less on their other needs.
3. Taxation without Representation: Mandates convert the voluntary purchase of a service into the coerced payment of a quasi-tax to a private third party that gets to set the amount.
4. The Privacy Argument: Mandates are an unjust intrusion into people’s private lives. Employers and governments have no business knowing their health purchases, status, history, or habits. Low-income people seeking exclusions from Massachusetts’ mandate must disclose personal income, evictions, disaster losses, family problems, and utility shutoffs to qualify.
5. Poor Value and Choice: Virtually everyone acknowledges that health insurance offers terrible value. People should decide for themselves how to spend their hard-earned money.
6. Subsidizing Inefficiency: Mandates require everyone to help perpetuate an often unresponsive, indifferent, inefficient medical system that too often delivers poor quality, sometimes kills people, and will become even less accountable to consumers.
7. Superior Priorities: Many people rationally prefer to spend their money on higher personal priorities—such as food, housing, heat, a job, a business, reliable transportation, and college educations for their children.
8. Religious Objectors: Religious beliefs lead many to shun modern medicine (Christian Scientists) or health insurance (the Amish).
9. Unneeded: Some people have sufficient resources to forego insurance, particularly those savvy enough to negotiate prices or to shop overseas for better, lower-cost care.
10. Too Pro-Allopathic Medicine: Many people prefer alternative therapies and healthy lifestyles to standard medical practice.
11. Threatens Civil Liberties: We are a nation founded on the belief that we—not the government—are the best judges of what is good for us.
12. Doubtful Constitutionality: Mandates raise questions of due process, taxation without representation, violations of the Commerce Clause, and inconsistency with the Fifth Amendment’s takings clause.
13. A Special Interest Bonanza: Mandates invite rent-seeking special interests to lobby Congress for ever-greater coverage of medically unnecessary care.
14. Unenforceability: Mandates are unenforceable even by the IRS, since 27,000,000 residents don’t file returns. The Census Bureau chronically misses tens of millions of people. Even the Canadians’ “universal” health insurance system doesn’t get 100% participation.
15. Better Alternatives: Harvard economist and Obama adviser David Cutler has estimated that affordable health insurance could yield a purchase rate of 98–99% without mandates. And there are proven methods—long used by Medicare, employers, and others—to minimize free riders on a voluntary-participation basis. At bottom, people should buy health insurance because they believe it will make them better off, not because they’re forced to.
Individual insurance mandates are unfair, unworkable, and fortunately unnecessary (as I will discuss in Part 2). What we really need is universal access to health insurance that virtually everyone wants to buy—without the adverse selection problem. We can get that.