Paul Starr | December 8, 2009
No provision of the health-care reforms being debated in Congress is as likely to generate a popular backlash as is the individual mandate -- the requirement that individuals purchase health insurance if they are not otherwise covered. But there is an alternative to the mandate as it is currently structured that can accomplish the same purpose without raising as much opposition.
The bills in Congress would impose a fine on people who decline to buy coverage after the system is reformed, unless they have a religious objection to medical care or demonstrate that paying for insurance would be a financial hardship even with the new subsidies being provided. Under the Senate bill, the fines per person would begin at $95 in 2014, rising to $750 two years later. The House bill sets the penalty at 2.5 percent of adjusted income above the threshold for filing income taxes, up to the cost of the average national premium.
The trouble with the fines is that they communicate the wrong message about a program that is supposed to help people without insurance, not penalize them. Many people simply do not understand why the government should fine them for failing to purchase health coverage when it doesn't require people to buy other products.
The rationale for the mandate is that it is necessary to carry out the other reforms of insurance that the public overwhelmingly approves -- in particular, ending pre-existing-condition exclusions by insurance companies. If legislation banned those exclusions without a mandate, healthy people would rationally refuse to buy coverage until they got sick, and the entire insurance system would break down. The mandate is designed to deter people from opportunistically dipping into the insurance funds when they are sick and refusing to contribute when they are healthy.
But Congress could address this problem more directly. The law could give people a right to opt out of the mandate if they signed a form agreeing that they could not opt in for the following five years. In other words, instead of paying a fine, they would forgo a potential benefit. For five years they would become ineligible for federal subsidies for health insurance and, if they did buy coverage, no insurer would have to cover a pre-existing condition of theirs.
The idea for this opt-out comes from an analogous provision in Germany, which has a small sector of private insurance in addition to a much larger state insurance system. Only some Germans are eligible to opt for private insurance, but if they make that choice, the law prevents them from getting back at will into the public system. That deters opportunistic switches in and out of the public funds, and it helps to prevent the private insurers from cherry-picking healthy people and driving up insurance costs in the public sector.
In the United States, an opt-out would not apply to anyone whose income was close enough to the poverty level to qualify for Medicaid. It would be available on a new income-tax form on which people with incomes above that threshold could choose between paying a fine for failing to insure or taking the five-year opt-out. (Taking the opt-out would not affect eligibility for veterans' health care, Medicare, emergency care, or any program entirely funded by a state or out of charitable donations.)
What would happen if after opting out, people got sick and couldn't pay their bills? In that case, by their own choice, they'd be back in the world that exists today. They could still try to buy insurance without a subsidy; they just wouldn't be guaranteed any insurer would take them.
The law ought to treat children, however, differently from adults. Just as there is a public interest in assuring that children receive an education, so there is a public interest in seeing that children receive health care. Instead of providing a five-year opt-out for children or imposing a fine on their parents for failing to cover them, a default program should cover any child who isn't otherwise registered for private or public insurance. That default program could be the State Children's Health Insurance Program or Medicaid; whether the parents owe any money for that coverage should be dealt with as part of the income tax.
These two measures -- a conditional opt-out for adults and default coverage for children -- could move the legislation away from an emphasis on fines as a means of enforcement and help avert a backlash. Many liberals have thought that a backlash is avoidable if subsidies for coverage are generous enough so as to allay any fears among those affected by the mandate. But whatever subsidies the law calls for, it is unrealistic to suppose that in the years before the mandate kicks in, people will have accurate information about the costs they are going to bear. The calculations are too complex, and the opponents of reform will play on that uncertainty.
An opt-out would provide an escape valve for people who feel, rationally or not, that the mandate threatens them economically. So let them opt out. Just don't let them back in at will, and over time people will learn to make use of the benefits that government subsidies and other reforms provide them.
The bill in the Senate defers the individual mandate along with most of the extension of coverage until 2014; the House postpones implementation until 2013. Some of the motivation for the slow timetable may be anxiety among Democrats in Congress about popular opposition to the mandate. But postponing reform is an ineffectual way to address that problem. The better alternative would be to provide a conditional opt-out for adults and default enrollment of children and to move up the timetable for carrying out the whole program.
This is kind of old, but given that states are preparing to fight the bill in the courts based on the mandate, this seemed like a relevant idea. I also saw a suggestion on ElectoralVote.com yesterday that I thought was pretty interesting:
"If Congress is not allowed to insist on an individual mandate, what is plan B? One possible idea is to change the law saying that insurance companies may not discriminate against people with preexisting conditions if they sign up for their insurance in the month of January. In other months, they may discriminate. For most people, who will already have insurance if and when such a court decision happens, nothing will change. But for the young invincibles, suddenly they have to rethink their strategy. If they have a car accident in June, or a suspicious lump is discovered in August, they will not be able to get medical care until next January. It changes the picture considerably."