Individual Mandate

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The End of Health Reform Starts in Ohio?

November 9, 2011 in Health Reform | 2 comments

One of the key tenets of health reform is that insurers cannot charge different premiums to individuals based on their pre-existing conditions.  Under this type of system, the optimal strategy for many individuals is to not buy any health insurance until one gets sick.  Since insurers cannot charge these sicker people higher premiums based on these conditions, healthy individuals will end up heavily subsidizing the sick.  In fact, average premiums will increase for everyone.

To prevent this from happening, health reform instituting an individual mandate which requires every American to buy health insurance.  Without this requirement, health insurance prices could spiral out of control.

Ohio, however, has recently rejected the individual mandate.  The Cato institute that Ohioans came out against the individual mandate on a 2 to 1 basis.

Is this the beginning of the end of health reform?

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Predicting a Religious Revival in 2014

August 12, 2011 in Health Reform, Regulation | 2 comments

The Healthcare Economist predicts a religious revival in 2014.  Let me be more specific, in January 2014.  How do I know this?  Am I a religious man?  Has God spoken to me?

Let’s just say I have a certain insight.  In 2014, the individual mandate goes into effect.  All individuals must buy health insurance or else they will pay a tax penalty to the federal government.  Well…not all individuals.  Certain people with religious objections would not have to get health insurance. [American Indians, illegal immigrants, or people in prison would also not have to buy insurance].

The Amish and Old Order Mennonites, for instance, do not have to buy insurance through a ‘religious conscience’ exception.  Will health reform lead to an increase in the number of Amish Americans in 2014?

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U.S. Began Providing Socialized Health Care in 1798

July 13, 2011 in Health Reform, Public Health | No comments

While walking around in San Francisco’s Presidio, I noticed a refurbished building which happened to be a former Public Health Service Hospital.  After investigating its origins, I dug up the following information regarding one of the United States’ first efforts to provide an individual health insurance mandate:

“In July of 1798, Congress passed – and President John Adams signed - “An Act for the Relief of Sick and Disabled Seamen.” The law authorized the creation of a government operated marine hospital service and mandated that privately employed sailors be required to purchase health care insurance…First, it created the Marine Hospital Service, a series of hospitals built and operated by the federal government to treat injured and ailing privately employed sailors. This government provided healthcare service was to be paid for by a mandatory tax on the maritime sailors (a little more than 1% of a sailor’s wages), the same to be withheld from a sailor’s pay and turned over to the government by the ship’s owner. The payment of this tax for health care was not optional. If a sailor wanted to work, he had to pay up.”

 

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Repealing the Mandate: What does it mean?

February 1, 2011 in Health Reform | 2 comments

On Monday, a federal judge in Florida declared that the individual mandate in the health reform law is unconstitutional. Some people are excited; other are not.  What does this mean for you?  Today I will explain.

Why is the individual mandate so important? As part of health reform (PPACA), insurance companies can no longer adjust premiums based on each beneficiary’s pre-existing conditions.  Prohibiting risk adjustment based on individual characteristics is known as community rating.  That means that a sick person will pay the same price for premiums as a healthy person. This sounds like a good idea, but also creates some problems. If individuals can predict with some certainty the likelihood they will become sick in the next year, only those who think they will become ill will buy insurance.

Consider the example below. In this case, healthy individuals have $500 per year of spending and sick individuals have $10,000 in health spending per year. We see that individual A is healthy in both years and individual D is sick both years. Individual B and C are sick in alternate years.

Individual Year 1 Year 2
A 500 500
B 500 10,000
C 10,000 500
D 10,000 10,000
Average Premium if All Insured 5,250 5,250
Average Premium if only Sick Insured 10,000 10,000

If there is an individual mandate, all individuals must buy insurance. Thus, the insurance premium (ignoring administrative costs and profits) would be $5250 each year. Without the mandate, individuals B and C would only buy insurance when they get ill. Thus, all individuals who choose to buy insurance will pay $10,000 in premiums rather than $5250, when there is community rating without an individual mandate. Thus, community rating and the individual mandate go hand in hand if we want to maintain premiums at a reasonable level.

Alternatively, Obama could get rid of both community rating and the individual mandate. In this case, healthy individuals may decide to buy insurance, because if they buy insurance while they are healthy, the cost of insurance when they fall sick will be less. This ignores the problem that insurance is bought annually, but if individuals could enter into long-term insurance contracts to cover their illnesses over multiple years, a mandate would not be necessary.

President Obama, however, is loath to give up community rating.  In the most recent State of the Union address, he said “What I’m not willing to do — what I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a preexisting condition.”  Without an individual mandate, the what he must be willing to do is allow for health insurance premiums to skyrocket.

What does the decision mean for Health Reform? To be honest, the answer is ‘not much.’  This most recent ruling will not be binding.  Instead, the case will likely be decided by the Supreme Court. Thus, although the Vinson decision increased the probability health reform would be repealed, the decision will ultimately lie in the hands of the Supreme Court.

Excerpts from the Vinson Decision

Courtesy of Michael Cannon of Cato @ Liberty:
“It is difficult to imagine that a nation which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place…

The individual mandate is outside Congress’ Commerce Clause power, and it cannot be otherwise authorized by an assertion of power under the Necessary and Proper Clause. It is not Constitutional.

[O]n the unique facts of this particular case, the record seems to strongly indicate that Congress would not have passed the Act in its present form if it had not included the individual mandate. This is because the individual mandate was indisputably essential to what Congress was ultimately seeking to accomplish. It was, in fact, the keystone or lynchpin of the entire health reform effort…

Because the individual mandate is unconstitutional and not severable, the entire Act must be declared void.“

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Effect of Massachusetts Health Reform on Hospital and Preventive Care

May 26, 2010 in Health Reform, Hospitals | 2 comments

Kolstad and Kowalski (2010) examine how the Massachusetts individual mandate affected uninsurance rates, hospital and outpatient utilization, and preventive care:

“Among the population discharged from the hospital in Massachusetts, the reform decreased uninsurance by 28% relative to its initial level. Increased coverage affected utilization patterns by decreasing length of stay and the number of inpatient admissions originating from the emergency room. We also find evidence that outpatient care reduced hospitalizations for preventable conditions. At the same time we find no evidence that the cost of hospital care increased.“

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Health Care Reform in Massachusetts

May 3, 2010 in Health Insurance, Regulation | 7 comments

With healthcare reform having passed, how will the health insurance market look a few years from now?  Although Mitt Romney may (or may not) deny it, Massachusetts has been a model for President Obama’s health reform bill.  In 2006, Massachusetts passed its own health reform and when the share of uninsured residents was at 14%.  By 2008, this figure had fallen to 2.6%.  Let us now take a look at the specific reforms Massachusetts implement to increase coverage.

Based on the research of Doonan and Tull (2010), one can divide the Massachusetts expansion efforts into five broad categories.

  • Medicaid Expansion. Massachusetts expanded Medicaid eligibility to all children below 300% of the federal poverty line (FPL) and all adults below 150% of the FPL.
  • New subsidized health insurance exchange.  Commonwealth Care is a program that provides aces to health insurance for individuals with incomes between 150% -300% FPL.  The government subsidizes these plans depending on the individual’s income.  The state moved individuals who were previously in the stat’s uncompensated care pool (UCP) to Commonwealth Care by restructuring the UCP so that copays, deductibles, and premiums were similar to those offered in Commonwealth Care.
  • Insurance Exchange for Individuals and Small Businesses.  Commonwealth Choice is a program that provides a number of unsubsidized insurance plans to individuals and small businesses (with 50 or fewer employees).
  • Mandates.  The Massachusetts legislature enacted an employer mandate and an individual mandate.  The employer mandate stats that employers with more than 50 people who do not provide insurance must pay a “fair share” assessment of $295/employee/year.  The state also mandates that all residents purchase insurance through an individual mandate.  Each year, each Massachusetts resident must submit a Schedule HC to the Massachusetts Department of Revenue to verify that they do indeed have Connector-approved insurance.  After a 90 day grace period, individuals are penalized each month that they are not insurance in the previous tax year.  The penalty for not having health insurance in Massachusetts is generally much larger than what Congress is currently considering.
  • Insurance Regulation.  The Commonwealth Health Insurance Connector Authority (the Connector) created minimum standards for any insurance product to be offered in the state.  Thus, individuals could not bypass the individual mandate by taking out a very inexpensive health insurance product with a $50,000 deductible.  The Connector Board recommended that the minimum credible coverage (MCC) include preventive and primary care, emergency services, hospitalization benefits, ambulatory patient services, mental health services, and prescription drug coverage.  Doonan and Tull (2010) claim that the mandated benefits were fairly generous, but not out line with what private insurance companies previously had offered.  Because there is more heterogeneity in insurance products across the country than within Massachusetts, Congress would have a much more difficult time determining a valid coverage minimum that did Massachusetts.

Read the rest of this entry »

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Will Obama’s Healthcare Reform Produce a Religous Revival?

October 13, 2009 in Current Events | 1 comment

Many of the healthcare reform bills  under consideration include an individual mandate.  If you don’t purchase health insurance you pay a fee.  For the Senate Finance Committee and Senate Health Committee, this penalty would be up to $750.  The House Version would assess the fee as 2.5 percent of adjusted gross income over a certain level ($18,700 for a couple).  However, in all cases, individuals with religious objections would be exempt from these penalties from not purchasing insurance.

Will Obama’s healthcare reform efforts produce a religious revival?  It’s doubtful, but the number of people who claim to have religious objections to avoid compliance with the individual mandate will rise.

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Thoughts on individual mandates

October 23, 2008 in Health Insurance, Public Policy | 2 comments

Health insurance require that all individuals buy health insurance.  Most voters views on an individual mandate depend on how you frame the question.  If you ask voters: “Should everyone buy health insurance?”  Most people will say yes.

If you ask “Should the government compel all individuals to buy health insurance regardless of the cost?”  Then the response is much less positive.

Michael Cannon of the Cato Institute is against individual health insurance mandates.  Whether you are for or against them, Mr. Cannon make some valid points concerning the drawbacks of health insurance mandates in his “Perspectives on an Individual Mandate” article.  Below are some of the highlights.

  • An individual mandate ≠ universal coverage: Even if there is an individual mandate, many individuals will still forego insurance coverage. Currently, Massachusetts has an insurance mandate, but there are still uninsured individuals.
  • Reduced Choice.  Let us say you are a typical middle class worker.  You 401(k) just took a nose-dive, and your job may be at risk as your company’s sales drop in the weakened economy.  Do you use your limited savings for rent, utilities, school books for your kids or health insurance?  While this is a tough choice, it is one that families would no longer be able to make on their own.  A mandate would compel them to buy insurance.

In an unregulated society, an insurance mandate does not make much sense.  If we want to give health insurance to the poor, we should just give them more money through a more progressive tax system and allow them to choose for themselves what type of insurance to buy.

However, in the society we actually live in, the uninsured can use the emergency room as a source of free medical care.  This imposes a significant cost on the American medical system.  Cannon does note that “One-third of uncompensated care in the United States goes to patients who have insurance but don’t pay their share of the bill.”  It could also be the case that individuals who have insurance do not want to wait 2 weeks to see their doctor and will still use the emergency department even if they have health insurance.  Nevertheless, it is likely that emergency department utilization will decrease with an insurance mandate.  Do the cost-savings from fewer emergency room visits outweigh the cost of restricting individual choice?  That is the key issue with individual mandates.

Cannon also makes some other claims as to the drawbacks of an individuals mandates.  However, many of these issue do not technically correspond to an insurance mandate; rather they are created when the government legislates a minimum insurance benefits package.  For instance, 

  • Higher cost. A mandate where insurers must provide a minimum benefit package will necessarily increase the cost of care, since the lowest cost, least generous insurance packages will be outlawed. Over time, interest groups will lobby legislators to include their medical subspecialty in the minimum benefit package.  As the minimum benefit package grows over time, the cost of health insurance will grow with it.

This is a major issue with a minimum insurance benefit package.  However, Canon does not mention some of the benefits.  First, with a minimum benefits package, it will be easier to decipher what health insurance benefits are included in your health insurance plan. This should reduce administrative costs from patients and insurers arguing over what is covered.  Also, if a minimum benefits package is in place, it would be much easier for consumers to shop for the lowest cost, highest quality health plan.

Then there is the issue of the employer mandate.  Cannon accurately demonstrates that the majority of the cost of an employer mandate will fall on small businesses.

“Not only do employer mandates take away the freedom to run your small business how you see fit, but they also put small business at a competitive disadvantage. The cost of administering health insurance is much higher for small business than it is for big business. In a world of employer mandates, big business would have a significant advantage.”

Most people would agree that businesses need to get out of the business of insuring individuals.  The problem is that employers provide a decent pooling mechanism.  In your workplace, individuals come together for reasons that are (generally) unrelated to health.  Thus, employers have been able to offer more generous, less expensive health insurance than individuals could buy in the non-group market due to the benefits of this risk pooling.

So what is the right answer?  It is important to realize that most health care proposals have significant pros and cons; weighing the costs and benefits of each proposal is imperative in order to create the best health care system possible. 

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