Health Insurance Public Policy

Thoughts on individual mandates

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. 


  1. I propose that we use the consumerism model being employed by most health insurance companies as a basis for real universal healthcare. We can use this model to institute a true single payer national healthcare system without losing the benefits of a competitive free market. All preventative healthcare such as physicals etc. would be covered 100% as well as all families under the poverty level would be 100% covered. All families above the poverty line would be required to meet a yearly deductible via the proliferation of HSA’s (we could potentially explore the possibility of letting people access their 401k’s to either fund the HSA’s or pay for medical expenses). The deductible would be directly linked to the family size and income level. Larger families have a larger deductible as do wealthier families up to a cap. After meeting the deductible the single payer system takes over similar to a high deductible health plan. The national healthcare system will provide payment for standard prescribed services beyond the consumer’s deductible. Where I would differ is the consumer would still retain the option of using any additional funding in their HSA to pay for additional services, such as private service rather than public, advanced treatments etc. using tax free HSA money.

    This strategy has multiple benefits including:

    Everyone is covered and no one is forced to buy anything.
    Regardless of income level all citizens are covered and able to receive the medical care they need. No one is unfairly burdened by being forced to pay for insurance they cannot afford. Medical costs will not be inflated to cover the costs associated with treating the un-insured.
    Consumers become more engaged in their healthcare decisions. Lowered healthcare costs.
    By voting with their dollars consumers will be better positioned to drive innovation and control medical costs. Similar to shopping for an auto mechanic or construction contractor the consumer will be allowed to research and seek out the best services for the greatest value.
    The public will have a financial incentive to maintain their health.
    The healthier you are the less you will spend on healthcare. Un-used HSA funds can be used to supplement retirement income should the consumers health and financial situation warrant it. Consumers who maintain a healthy lifestyle will be rewarded with a healthy, tax free, supplemental retirement income thanks to their careful planning and proper choices.
    Consumerism creates open market entrepreneurial opportunities.
    The competition for consumer dollars will create businesses and drive innovation. Along with the new businesses will come jobs and new opportunities for high quality low cost healthcare solutions.
    Alleviates many of the known pitfalls associated with other national healthcare systems.
    Through the melding of consumerism with national healthcare we can limit or remove many of the common complaints associated with other national healthcare systems. Long wait times for service will be limited by the competition for the consumer’s dollars. Stagnant medical innovation would also be eliminated via increased competition brought about via consumerism. By allowing those with the desire and means to do so to use HSA dollars to fund out of pocket expenses for advanced or un-orthodox treatments we can encourage and drive innovation that may eventually become the standard in the future providing an ever better quality of healthcare for all.

    Obviously this is a very high level outline and does not get down deep in the weeds. I do feel however that this can be a very workable solution. The health insurance companies are clearly staking a lot in the success of this methodology to maintain profitability going into the future. If they can use this to be profitable, a not-for-profit single payer system should easily be able to break even without costing more to the consumer. Even if it is government run! J

    I’m all for using profitability as a driving force where it makes sense to do so. In my opinion, health insurance simply doesn’t fit the mold. One of the easiest and most common ways for a health insurer to make a profit is to deny claims. With the need to make a profit, denying a claim is reduced to simply a way to make a buck. Remove the need to make a profit and the playing field changes. No longer is the person who needs an expensive transplant on the other end of the phone simply an income drain. Suddenly they are a person, a mom, a dad, a brother or sister and they need help. Life is too precious to be left to profitability.

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