State Health Care Reform: Key Questions and Answers

Health | Policy Reports

No. 311
Monday, April 21, 2008
by Linda Gorman and R. Allan Jensen

Do We Need Individual Mandates?

"A health insurance mandate forces people to buy a product they may not want at a price they cannot control."

Many things can be more important than having health insurance, including buying food, paying for housing, having a job and having reliable transportation to get to that job.  An individual insurance mandate ignores this by requiring everyone to purchase the kind of health insurance the government stipulates, regardless of cost and before he or she meets other household needs.  It also ignores the fact that having health insurance does not guarantee medical care — which is a particular problem in government programs with reimbursement rates so low that physicians and hospitals choose not to participate.

The philosophical issue of what constitutes minimal health insurance is likely to be a much larger problem than is commonly recognized.  Some advocates favor requiring policies with low deductibles and low plan limits, such as a $100 deductible and a maximum benefit of $50,000.  Others favor requiring policies designed to cover catastrophic events, with deductibles of thousands of dollars and plan limits in the millions of dollars.  Although individual insurance needs vary with such factors as age, location, health status, wealth, income, medical care preferences and the propensity to travel, most proposals do not take these differences into account.

For example, the Colorado Blue Ribbon Commission for Health Care Reform proposed establishing an unelected, unaccountable panel to periodically review what the government will accept as a minimum health insurance policy.  Benefits would be adjusted as needed.  Families would be required to pay for those minimum benefits whether or not they are a good value relative to other household needs.  At present, many people pay cash for their dental care.  It is more expensive to pay for dental care via insurance because of the additional costs of insurance company profit and overhead.  Should the panel arbitrarily decide that the minimum benefit package must include dental care, overall expenditure on dental care would increase.

The imposition of an individual mandate with minimum coverage requirements will likely mean that thousands of people who currently have health insurance will find that their policies do not meet the minimum standards because their deductibles are “too high” for the officials defining the minimum standards, or because their policies lack certain benefits.  These decisions will be made by a regulatory body that has no direct knowledge of the incomes, assets, health status or values of the individual policyholders.  This is what is happening under the failing Massachusetts health reform plan.

From an individual’s point of view, a mandate is a tax.  By forcing people to buy a product they may not want at a price they cannot control, the individual mandate functions as a potentially unlimited tax for health insurance.  People who currently get health care but have no insurance will be required to purchase insurance, thus increasing their costs.  People who are allegedly unable to purchase insurance because it is unaffordable will have to be subsidized to a larger extent than they are at present.  Funding those subsidies will require direct tax increases that will raise costs for all citizens, whether those increases are in the form of taxes on insurance premiums, provider taxes, sales taxes or increases in the income tax.2

People generally say that they do not buy health insurance because they cannot afford it.  As elected officials cannot require that the impoverished spend money they do not have on insurance they cannot afford, individual mandates are almost always coupled with extensive subsidies for health insurance purchase.  This means that the enforcement and administration of an individual mandate requires the collection of substantially more income data than is currently available to determine who qualifies for subsidies.

Although the Massachusetts plan has been in operation only since April 1, 2006, it has already generated a 13-page “Certificate of Exemption” application that allows people to ask for an exemption from the individual health insurance mandate if they can demonstrate sufficient financial hardship.  Among other things, hardship is defined as a notice of eviction or utility shutoff, or a natural disaster or human-caused event that substantially damages individuals, their homes or their possessions.  People are also exempted if they can establish that purchasing health insurance would cause a “serious deprivation of food, shelter, clothing or other necessities.”  In effect, the individual mandate in Massachusetts requires citizens to petition the government for relief whenever they suffer a serious financial reversal.  Even with extensive subsidies, Massachusetts authorities have exempted an estimated 20 percent of the uninsured from the mandate on the basis of their inability to afford health insurance.

"Most states mandate automobile liability insurance, but large numbers of motorists drive without it."

How can such a mandate be enforced?  The Colorado proposal contemplates requiring proof of coverage when registering for school, and when applying for or renewing a driver’s license or car registration.  People who cannot show proof of coverage will be fined a year’s worth of premiums when they file their state income taxes.  This would significantly increase government control over individual decisions in normal household matters.  Furthermore, it is unlikely that an individual mandate can be fairly enforced.  Most states mandate automobile liability insurance, but large numbers of motorists drive without it.3 The ability to enforce a health insurance mandate is of particular concern in areas where large numbers of the uninsured are illegal aliens who may not file tax returns.

Read Article as PDF