The Problems With Individual Health Care Mandates
With Hillary Clinton and John Edwards’ health care plans, the idea of individual mandates has popped up as a topic in how to address the health care problems facing the U.S. In the past, I’ve expressed some support for this kind of a policy (see this post, and this one).
Now over at the Cato Institute Glen Whitman has some pretty decent sounding arguments as to why such mandates won’t do much. These arguments boil down to:
- The cost savings by forcing everyone to obtain health insurance is small.
- Noncompliance with Clinton’s proposal will likely be a large and on-going problem.
- How to define a minimum benefits package.
- Limiting flexibility in health insurance packages.
- The problems of community rating.
With regards to the savings the argument goes like this:
Currently the uninsured get their health care via the emergency room. This is expensive and inefficient care at best. Thus, if we can get these people out of the ER and into a general practitioners office or some other source of health care that is more appropriate health care expenditures would decline.
Whitman argues that while these kinds of costs do exist they are actually a fairly small part of health care spending overall and as such an individual mandate even with full compliance is unlikely to provide much of a solution to the rising cost of health care. Further, as currently structured Clinton’s plan has no enforcement mechanism for those who decide to still opt for no insurance. While Clinton’s plan does include subsidies and other incentives to induce people to purchase health care there is nothing ensuring that they do. As such, compliance will not be 100% thus reducing any benefits obtained due getting the uninsured out of the ER.
And let’s be clear here on these “incentives” that are part of Clinton’s plan: they merely transfer the costs from health care purchasers to tax payers. Since tax payers and those who purchase health care tend to be pretty much one and the same, there will be little or no savings here. So you get a tax break to purchase health care, but taxes go up to cover the short fall in tax revenues caused by these subsidies. Net result: no change in aggregate (at best).
The same political pressures that allows oil companies to secure yummy crunchy pork in various energy bills, transportation bills, etc. would also be at work when it comes to defining a minimum benefits package. From a purely theoretical standpoint no benefits package should cover child birth. Child birth is a completely voluntary procedure and as such should be paid by the patient and not by an insurance company. How many think that this kind of hard and rather rigorous economic logic will work well with young families planning on starting a family, single soon-to-be mothers and others? My guess is not well and any minimum benefits package will include pregnancy care and child birth costs.
Also, individual mandate policies are, at least, closer to the “one-size-fits-all” than other options. As such innovative health insurance policies that might appeal to a portion of the population might be prohibited and thus reduce over-all welfare and economic efficiency–or in more simple terms be more expensive.
Finally there is the issue of community rating. Unless very, very carefully constructed this kind of pricing mechanism will result in some sort of cost-shifting. The ironic thing is that this was what individual mandates were supposed to put an end to. Recall the logic of why individual mandates will save money. These policies will keep health care providers from shifting the cost of the uninsured back onto the insured. The problem is that not everyone accesses health care in the same way or at the same rate. As such you could have individuals in rural and sub-urban areas subsidizing those in urban areas, or vice-versa. The poor could subsidize the non-poor. So on and so forth.
I have to say these are some fairly decent arguments against individual mandates. I’m not totally convinced that they are useless, but then again my vision of individual mandates is very different than what Hillary Clinton is offering. Overall I find her health care plan to be…severly lacking.