Metaphorically (if Scatologically) Speaking

It has been said that Michelangelo’s task of creating his magnificent “David” was actually quite simple. Just take a huge block of marble and chip away the parts that don’t look like David. In fixing the Affordable Care Act, a similar approach is needed. Just start with the huge manure pile that is the Affordable Care Act (ACA) and hose off the parts that don’t look like a pony. As hard as it may have been to see either David or the pony imbedded in its original matrix, both are there.

In the case of ACA, the hosing off consists of four essential tasks:

  1. Repeal and replace the individual mandate.
  2. Expand and simplify the individual health insurance exchanges.
  3. Expand the prevention incentives.
  4. Fix the safety-net entitlement.

This article deals with number one, the mandate issue.

Flawed Arguments Pro and Con

Technical issues matter, especially when it comes to reforming health insurance. One of the most frustrating aspects of watching the Congress throw so much nonsensical “mud” against the wall and calling what stuck health reform was its exclusion of the technical experts who could have told them how to do it right. Nothing in ACA evidences this more clearly than the mandate that all Americans buy health insurance. If the recently chastised solons Obama and Reid are sincere in their newfound willingness to work with the Republicans to “tweak” ACA, the mandate is an excellent place to start.

In brief, the arguments in favor of the mandate have been:

  1. People without health insurance are a burden on doctors, hospitals, and people who do have it.
  2. The voluntarily uninsured are foolish not to buy insurance.
  3. We can’t think of any way to make insurance attractive enough for everyone to want to buy it.
  4. We also can’t think of any voluntary way to prevent free riders from waiting until they’re sick to buy coverage and thereby kill off the insurance exchanges with adverse selection.
  5. Therefore, we must force everybody to buy it.

The counterarguments against the mandate have been:

  1. It represents an unprecedented and unnecessary use of coercive state power to force every man, woman, and child to buy an inefficient, poorly delivered service from a private third party.
  2. Competent adults should be held responsible for their own decisions.
  3. The mandate won’t work because its penalties are too low to stop free-riding.
  4. The mandate is an unconstitutional violation of due process, the commerce clause, and the takings clause of the Fifth Amendment.
  5. If we can kill the mandate, we kill Obamacare.

Both sides seem to agree that ACA, generally, and the individual insurance exchanges, specifically, are utterly dependent upon the mandate. They are both wrong. There is a vastly superior alternative to the mandate that would allow voluntary participation and prevent the very real problem of destructive adverse selection.

Replacing the Mandate with Late-Enrollment Restrictions

The solution? Instead of penalizing people for not enrolling when they’re first eligible, we would penalize and restrict enrollment of people who later try to free-ride the system by enrolling late. There is an extensive suite of penalties and restrictions to choose from (which see) that have been successfully used by employers, Medicare, guaranteed-issue life insurance, and others for decades. The overriding rule for this approach is simple: those who would game the system by enrolling after their initial eligibility periods must bear all the costs of their own gaming. In effect, we would put the gamers into a separate risk pool and accordingly adjust the benefits and premiums to maintain its separate financial viability. Unlike Massachusetts, we would not allow free-riders into the same risk pool and thus pay the same premiums as those who enroll on a timely basis.

This approach is the fairest. It rewards those who play by the rules, penalizes those who don’t, and assures that no one will ever be forced to buy something they don’t want.  It provides complete freedom to choose, but it also forces people to bear the consequences of their own bad choices.

Wait a Minute!

But what about all those people who will still refuse to buy insurance and then show up in emergency rooms demanding free care? In a previous article, I explained how late-enrollment restrictions will reduce this problem from its current 7% or so of total medical costs down to rounding-error amounts as empowered American consumers pursue their own best interests in a truly reformed, affordable, value-driven health care system.

An Extroverted Actuary Looks at Your Shoes Instead of His

It’s been disappointing that so many of my fellow actuaries have remained silent on the mandate issue, because, after a modicum of thought, any one of them could have shot holes clean through the mandate argument and proposed this solution. Disappointing, but not surprising. There really may be something to the definition of an actuary as an accountant minus the personality.

Political Barriers

I realize that the paternalistically prescriptive pro-mandaters won’t like my alternative. Neither will the anti-mandaters who think killing the mandate will kill Obamacare. But if we throw out these extremes of the left-right political spectrum (please), perhaps there will eventually emerge (sooner would be good) a majority middle ground in Washington that might welcome such an admittedly technical solution to the justifiably notorious mandate problem. But first, they have to open their heretofore closed aural canals to hear it.

Next: Part 3 – Fixing the Insurance Exchanges