Mandatory Savings?

Requiring people to buy medical insurance will fuel health care inflation.

The recently revived idea of creating a government-run health plan to compete with private insurers may reinforce the impression that President Obama and his allies in Congress are standing tall against those corporate fat cats who delight in denying lifesaving care to children and old ladies. But Obama and the insurers still see eye to eye on a central element of his health care agenda: the requirement that every American obtain medical coverage.

It’s obvious why the insurers like this idea. What industry wouldn’t welcome a law that forces everyone to buy its product?  But the insurers also argue that a mandate will help control costs, and the president agrees. Judging from the experience in Massachusetts, which imposed its own insurance requirement in 2006, they’re both wrong.

Because he wants to show that an insurance mandate is fair as well as fiscally wise, Obama focuses on uninsured Americans who skip out on their medical bills, leaving policyholders and taxpayers with the tab. “Such irresponsible behavior costs all the rest of us money,” he said in a speech last month.

Perhaps so, but it’s not very much money. In a 2008 Health Affairs article, George Mason University economist Jack Hadley and three co-authors calculate that “uncompensated care represents 2.2 percent of health spending in 2008.”

Obama came closer to explaining the real motivation for the insurance mandate when he said that “unless everybody does their part, many of the insurance reforms we seek—especially requiring insurance companies to cover preexisting conditions—just can’t be achieved.” He worries that insuring older, sicker people will be prohibitively expensive unless the young and healthy are forced to subsidize them.

The insurers are more forthright on this point, warning that insufficient penalties for failing to buy insurance will result in “adverse selection,” fueling the rise in premiums. Yet the penalties in Massachusetts are faster and heftier than the ones proposed in the bills Congress is considering, and the state continues to experience rapid health care inflation.

Since 2006, Michael Tanner notes in a recent Cato Institute paper, health insurance premiums in Massachusetts have risen by 8 percent to 12 percent a year, almost double the national average. During the same period, total medical spending has increased by 28 percent. The cost of subsidizing coverage through the state’s Commonwealth Care program is expected to hit $880 million next year, 20 percent more than originally projected.

There are several reasons why mandatory insurance, contrary to Obama’s promises, has been accompanied by rapidly escalating costs. First, when you subsidize something, people tend to consume more of it. Total spending is therefore bound to be higher, whether it’s covered through direct taxes or through the indirect tax of forcing people to pay for insurance they don’t want.

Second, despite stricter penalties, Massachusetts seems to be experiencing adverse selection. Tanner notes that, while the share of residents without insurance has shrunk from about 10 percent to about 5 percent, the proportion of uninsured people in the 18-to-25 age group has increased from 30 percent to 35 percent, indicating that “the young (and presumably more healthy) are less likely to comply with the mandate.”

Third, requiring people to buy insurance entails defining the minimum level of coverage, which necessarily makes insurance more expensive than it would otherwise be. In effect, the government prohibits the cheapest insurance plans, the ones with the highest deductibles and the least generous benefits.

Defining one minimum medical package for the entire country, thereby inviting every health care interest to descend upon Capitol Hill and lobby for inclusion, will compound the inflation caused by state requirements. Cato's Michael Cannon warns that such a federal standard could force 100 million Americans into more expensive plans while effectively banning the money-saving combination of high-deductible insurance and health savings accounts.

The upshot is a phenomenon we have seen many times before: Instead of protecting us from big business, big government buys it off with our money.

Jacob Sullum is a senior editor at Reason and a nationally syndicated columnist.

© Copyright 2009 by Creators Syndicate Inc.

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  • TP||

    I have recently examined the state of individual/small business health coverage in my state. My state seems to be taking a different approach than Mass. Instead of mandating that everyone carries health insurance, they are mandating that insurance companies provide insurance for specific demographics. This includes dependent coverage up to the age of 31, pre-existing condition coverage (after six months), and community rated plans for individuals and small business. For the poor there's Family Care, sliding scale Charity Care, and Primary Care Facilities (clinics).

    I found out that 3 years ago when I bought insurance and was denied coverage due to a pre-existing condition, the company was breaking the law. My condition was diagnosed 15 years ago, and is treated with OTC medication. The law states that insurance companies can only go back 6 months, and only for conditions diagnosed or treated by a doctor within those 6 months. Bastards. Well, now I know better. An educated consumer is the best defense against dishonest businesses.

  • ||

    I'm curious TB, how does all those mandates impact insurance costs? How do they stack up to states with a lot fewer mandates?

  • Attorney||

    I think every American should be required to have a lawyer. To protect them from being oppressed by landlords, car manufacturers, and such.

  • Isaac Bartram||

    IIRC, someone proposed a "legicare" program in the British Columbia back in the early 70s.

    And the reasoning was based on the notion that legal representation was just as much a right as medical care.

  • Attorney||

    Reality outdoes parody again!

  • Johnny Longtorso||

    Actually, a right to a lawyer does physically appear in the Constitution.

  • Attorney||

    But the Constitution does not require you to have a lawyer.

  • Isaac Bartram||

    I should note that the plan was discussed but not implemented.

    But I did it instructive on the huge number of entitlements that start to accrue due to what i would cal rather expansive interpretation of human roghts as outlined,for example, in the UN Declaration.

    As I pointed out when we first started talking about our current economic crisis there is, in addition to healthcare on demand, now an expressed right that the value of neither one's house nor stock portfolio can ever diminish.

  • Isaac Bartram||

    "But I did find it instructive...

  • ||

    Doesn't California already do something like this? I'm not sure, but I thought I read that the state was instituting something similar.

    Of course, California is broke.

  • ||

    I agree Attorney, and while we're at it, we need a gov provided publicists to announce to the nation when we're being oppressed. We need a pair of body guards to protect us from violent aggression. We need exo-skeleton suites to protect us in case we trip, or are in some way endangered through physical accidents. We need augmented reality helmets to record our interaction, and help us manage our lives so as not to infringe on the rights of others, or offend our great government. Of course we need national wi-fi to connect our new smart suits to the gov entities so they can track and monitor us so we don't risk going into off limits areas.

  • ||

    Limbo by Bernard Wolfe

    It is essentially a commentary on Cold War era America through the device of future projection. In the spirit of great satire, Wolfe extrapolates an extreme and ludicrous version of the present moment and places it far into the future. The statement is simple: This is what we're going to be like if we keep going this way. It's all there - WWIII, nuclear devastation, rebuilding what's left with the few that are left, but here's the kicker: since we obviously will never learn to control ourselves and to prevent future destruction, everyone will lay down their arms and legs, literally, via amputation, and replace them with nuclear powered, auto-controlled limbs.
  • Xeones||

    And aelhues, for our own safety and well-being, we will not be able to remove these exoskeletons. Also, they are completely immobile.

  • ||

    Is it wrong to revolt against my fellow Americans who enslave me with their votes?

  • Attorney||

    Ix-nay on the evolt-ray!

  • Xeones||

    Is it wrong to revolt against my fellow Americans who enslave me with their votes?

    Yes. Democracy is an end unto itself, no longer merely a means to obtain liberty. If 50% +1 vote for serfdom, then serfdom is Good.

  • hurlybuehrle||

    Another wrinkle to the situation here in Mass. is that many employers seem to be jumping ship into high-deductible HSA plans from traditional HMO/PPO-style plans. Which I thank God for; if I had to pay those premiums I'd be very broke. And technically I have coverage so I don't pay the "breathing tax".

  • Mike M.||

    Great piece by Sullum. The biggest problem with our health care system is that the demand for health care is too damn high, and as usual, the government is going to make the problem even worse.

  • jtuf||

    The next time someone argues for socialized medicine, ask him what his last medical procedure was and how much was the full cost (not just the copay). Odds are, he won't know the answer.

  • JB||

    I want to see little bitch-boy Obama show up at my door and demand I buy health insurance. lol.

  • ||

    Hahaha. I am laughing out loud. At you.

  • Colin||

    When I lived in Massachusetts six years ago, I paid about 2.5 times as much for health insurance as I pay in California today -- where, because of extensive competition, I haven't had an increase in three years.

    If Massachusetts is the future, all of us who pay our own insurance are doomed.

  • Bo D||

    What about our pets? Why no health care for our pets? Does Congress hate kittens?

  • Another Phil||

    In arguments about health care as a "right," I've accused people of killing my cat by not helping to pay for his cancer treatment. Yeah, I can be a dick.

  • ||

    True. Apparently, you can also completely fail to offer a convincing argument. Do you measure the merits of all civil and human rights by reference to your cat?

  • Andrea||

    NPR, in its 2-part series on health care*, included a segnment on health care for pets.

    Seems Americans have no problem with their pets having operations that cost thousands of dollars.

    *This American Life, Chicago NPR, 10/9 and 10/16.

  • ||

    Actually the interesting thing is the cost differential.

    My cat had to have a hernia operation. They scheduled it that week and it cost $600.

    For a person it can cost $10-20k.

    But of course the veterinary medicine market is far more free than human health care market.

  • ian||

    that last sentence of the article is priceless

  • Mike in PA||

    See? This is how they get to one single plan. Because if they can't deny you based on your pre-existing condition, then EVERYBODY will buy the cheapest possible plan until they get sick. Except that when they get sick, there'll be no more expensive plan because the insurance company couldn't possibly make money if the only ones in the plan were already sick.

    And, since insurance companies won't provide top-quality coverage, the government will have to come in and do it.

    This whole debate is so disingenuous it just makes me sick. How about I just drop off the grid and take care of my newfound illness on the black market?

  • ||

    Please do.

  • ||

    Let's all go to Mexico and do what the Texas settlers did. It might just be the only way out.

  • ||

    You mean we immigrate there at the request of the Mexican government, instigate a war with said government after it tells us we can no longer use slave labor, and then vote to be voluntarily annexed by the United States so that we do not get our asses kicked in said war?

    Sounds great to me!

  • ||

    I remember the argument that mandatatory auto insurance in Pennsylvania would make it cheaper for everyone. My new bill (with doubled rates) arrived within a few days of its passage. Soon, fewer people had insurance than before insurance became mandatory because it was unaffordable for many.

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  • Andrew||

    There is actually a solution that would satisfy both the libertarian and the progressive to the mandate dilemma: allow people to sign a waiver to opt out the mandate. Those who opt out would be subject to future pre-existing condition exclusions. They would not be eligible for free emergency care funded by others. It solves the free-rider problem and protects the freedom to take risk.

  • ||

    You mean a waiver that I shall never force someone else to pay for me nor be forced me to pay for someone else?

    Yes. You'd have a winner there with Libertarians.

    But I suspect you don't want anything that smacks of freedom.

  • batteries||

    good post,I can not express my feeling now

  • abercrombie milano||

    My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets...

  • Savings Accounts ||

    logic will tell you that you really won't get the full deal by just doing regular skill English reading,types of religiousness are different mindsets..

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