Beyond the individual mandate

If Supreme Court says no to health reform, how else might the government induce people to buy insurance?

August 24, 2011|By Cedric Dark

There are pros and cons of using an individual mandate for health insurance as a policy lever to promote universal health care. From a pure policy standpoint, the argument for is simple. To get rid of "free riders" in the medical system and improve the efficiencies of the health insurance marketplace, something is necessary to compel everyone to purchase an insurance plan. An individual insurance mandate, while imperfect, is one such tool. Conceived by conservative thinkers Mark Pauly and Stuart Butler in the late 1980s and early 1990s, the individual mandate now faces attack from many who formerly supported it.

The individual mandate would function much like others — such as that for car insurance — to compel people to purchase a product they otherwise might avoid. Uninsured motorists pose a risk to other drivers; uninsured people impose financial burdens on society whenever they obtain uncompensated care. As an emergency physician who provides uncompensated care on a daily basis, I can say with authority that it is foolish to think the insured are not paying for the cost of the uninsured.

However, the recent ruling against the individual mandate by the 11th Circuit Court of Appeals puts the constitutionality of the mandate in doubt. With the legal battles against the Affordable Care Act split (10 district courts have dismissed cases; six ruled for the law; two struck down a part or all of the law; two appellate courts validated the law; and one has now struck down the individual mandate) the issue of the individual mandate will undoubtedly be decided by the Supreme Court.

If the individual mandate were ultimately deemed unconstitutional, are there alternatives that could achieve the same policy goals? How else can you compel millions of people to purchase something many of them don't want to purchase, whether it's health insurance or broccoli?

The Government Accountability Office has offered a good description of several possible alternatives. While some seem unlikely to achieve near-universal coverage, a few are worth notice.

First, the government could impose a tax an all federal taxpayers to cover uncompensated care. Doing so would make the remainder of the voting public aware of the amount of money they already spend to cover uninsured "free riders." According to some estimates, it is as high as $1,100 per family.

Another option would be conditioning receipt of government services on proof of insurance. In order to accomplish the necessary policy goals with this tool, services as basic as driver's licenses, gun permits, college loans and tax refunds would need to be included.

A third, more market-based, solution would be to permit greater variation in the age-rating of premiums. By allowing a wider variance, younger, lower-cost individuals would have access to cheaper insurance plans. This option would not provide direct incentives to purchase health insurance or penalties if one remained a "free rider."

A fourth recommendation would be to link health insurance coverage to credit scores, so that failing to carry insurance would negatively effect one's credit. While this might penalize some people who choose to remain "free riders," many people without insurance may already have poor credit. If so, tying credit ratings to insurance status would nullify the penalty.

The best alternative requires a major overhaul of the tax code. To encourage taking health insurance, the federal government should offer a large, refundable tax credit (in the amount of a standard health insurance plan) to those with proof of coverage. Not only would this encourage those with financial means to buy health insurance, it would also encourage those who are eligible for public services — Medicaid and CHIP — to enroll.

To provide some teeth, The Internal Revenue Service should also stop giving tax-free status to employer-sponsored health plans. That exemption ultimately costs the government $157 billion annually and overwhelmingly benefits individuals with higher incomes.

Democrats should support this approach because it still prioritizes health and makes the subsidy for health insurance more progressive. Republicans, meanwhile, should realize this alternative would help slow the cost growth of health insurance as patients become more aware of the cost of their coverage. If the individual mandate is ultimately deemed unconstitutional, I hope rational minds in Congress will agree to accept this alternative.

Dr. Cedric Dark is an emergency medicine physician practicing at Saint Agnes Hospital in Baltimore. He is the founder of Policy Prescriptions LLC, a health policy consulting firm focused on providing evidence-based health policy. His email is cedric@policyprescriptions.org.

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