What would happen if the individual mandate were removed from the health care bill? Republicans are proposing to do that but leave intact the rules on pre-existing conditions. This sounds like disaster because then the equilibrium is for only the already-sick to have “insurance,” meaning premiums are very high, meaning that the healthy prefer not to buy insurance until they are already sick.
This is not a problem of “skyrocketing costs” as some characterize it. If the same number of people get sick, then costs are the same. Its the premiums that skyrocket. The problem with that is that health care insurance is no longer insurance.
But the individual mandate is not the only way to bring the insurance back into health insurance. (And it appears that the penalties are so low that we are headed for this equilbirium anyway. See this article on MR. ) Many employer-based health insurance providers use a system of “open enrollment.” You can sign on to the plan when you join, but if you don’t and then decide later you want to , you must wait until a specific narrow window of time.
I don’t know what the intended purpose of open enrollment is but one effect it has is to give incentives to buy insurance before you get sick. A system like this would work just fine in place of the individual mandate.
Even better: when you turn 21 you are able to buy insurance from any provider regardless of your pre-existing conditions. This right continues as long as you have had insurance continuously. If you chose not to buy insurance in the past (and you could have afforded it) and you wish to buy it now then you cannot be denied coverage due to pre-existing condition. However, insurance companies are not required to offer you the same policy as the main pool.
Update: Austin Frakt argues that the penalties are already high enough to avoid the bad equilibrium.
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March 29, 2010 at 9:35 am
The Incidental Economist
Read the links to the MR piece. The ACA penalties are not lower than MA penalties. Analysis beats armchair speculation on this one. (See http://theincidentaleconomist.com/individual-mandate-penalties-are-not-too-low/ .)
March 29, 2010 at 6:05 pm
Noah Yetter
Who cares if they’re higher or lower than MA’s penalties? They’re absurdly low. MA has seen limited gaming because the people who have the most to gain by it, 20-30yr old high-income professionals, exist within a cultural norm of “having insurance,” can afford it, and have little available experience to draw on for going without. But make no mistake, when the entire country is offered the tradeoff between e.g. $3500/yr in premiums for a policy you don’t use vs. a $95 penalty for going without, experience with gaming is going to accumulate and the cultural norm is going to weaken. By the time the penalty rises to 2% of income it will be too little too late.
March 30, 2010 at 7:45 am
James K
That’s a good point, Jeff. Looking to existing best practices in areas that more or less worked would have been a good idea overall, and in this case would certainly require less bureaucracy to administer than the means test/mandate system.
I wonder why we are talking about insurance at all? Why not offer a limited set of services to everyone with no cash exchanged (except for the tax dollars that fund the services), then allow those who want faster/more private/fancier services pay for them by buying additional insurance? Australia essentially does this.
March 30, 2010 at 11:46 am
Hildebrand, The Insurance Warden
Removing the individual mandate from health insurance does change the dynamic, and I would agree that it degrades the “insurance” quality of health insurance. However, there is still an “insurance” aspect to it:
Although it is certain that participants will be sick, the question remains how much their sickness will cost. And that’s where the insurance angle comes into play.