A major prong of the health-care reform bills currently being debated is the mandate, which would require every person with adequate finances to purchase health insurance. (The Atlantic Wire already covered the question
of whether this mandate would constitute a tax, and whether it would be unconstitutional.) Conventional wisdom says the mandate would lower costs with risk sharing--in other words, by tossing young, healthy individuals into the pool. But is this true? Two economists say
the reality of the matter is a little more complex, while a business blogger proposes legal fixes to cut health care costs.
- Mandate Will Penalize Poor Even with reform proposals "cal[ling] for various levels of subsidy," economist Tyler Cowen argues in the New York Times, there's a problem with "what economists call 'implicit marginal tax rates'"; it would be too expensive to offer everyone the same level of subsidy, but that means that "as a family earns more, its subsidy would probably decrease, eventually
falling to zero." That means "we are taking money away from the poor as
they climb into higher income categories," creating a "disincentive to
earn more." Mandates appear to work in Switzerland and the Netherlands, Cowen says, because those countries have "health care cost inflation ... under
control," and have "greater equality of incomes ... it’s less of a stretch to
offer poorer people coverage that is roughly comparable to that of the
wealthy." But even these countries will start to have problems as costs rise.
- Mandate Necessary to Achieve Two Goals If Americans were willing to "deny care to uninsured or
underinsured people who are critically ill, but who cannot pay for that
care with their own resources," and were "content to let health insurers set their premiums on 'actuarially sound and fair' principles," then an insurance mandate wouldn't be necessary, argues Princeton economics professor Uwe Reinhardt. But Democrats in particular favor something called "community-rated premiums" (i.e. "[u]nder the purest form ... chronically healthy and chronically sick applicants
all pay the same premiums") and "guaranteed issue" (meaning "the insurer must serve all applicants willing to pay that insurer’s community-rated premium"). If you want that, you need a mandate:
If insurance coverage is voluntary, individuals who believe
themselves to be healthy will take a chance and go without health
insurance, knowing that in case of serious illness they can buy
insurance at premiums completely divorced from their own health status.
Therefore, the risk pool of insured would include mainly individuals
who are sicker, which would drive up the community-rated premium, which
would then drive even more relatively healthier people out of the risk
pool, and so on.
- Cost-Cutting Is a Better Plan 24/7 Wall St.'s Douglas McIntyre
agrees with Cowen on the importance of cost control. Instead of
elaborate reform proposals, he says, "[t]he Administration ... might be
better off creating laws that would
wring excess out of the current system. It would avoid risking hundreds
of billions of dollars in taxpayers money and would yield enough
capital to help give insurance to the uninsured." How would we go about
The government would have to set up an agency like the SEC to monitor
overused medical practices and fraud. The new agency would have to have
broad investigative and subpoena powers and the ability to bring civil
actions against people, companies, and doctors who violate rules and
regulations for the disbursement and payment for medical services ... The
other part of any effective effort to bring down costs is to give
financial incentives for patients to change behavior to curtail the
rise in preventable diseases.
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