Commentary

Perspectives on an Individual Mandate

This was originally presented at the NFIB Solutions Start Here forum, “Are Individual Mandates the Answer?”, March 19, 2008. Other participants’ perspectives can be viewed here. Video and transcript available here.

Reforming America’s costly, inefficient and often low-quality healthcare sector is a huge undertaking. Anyone considering proposals that would require people to purchase health insurance-a so-called “individual mandate”-should ask themselves a simple question: “What am I trying to accomplish?”

Let’s assume you’re interested in some of the following goals: improving health, saving lives, achieving universal coverage, making coverage more affordable, eliminating free-riding, and promoting personal responsibility. If these are your goals, then supporting an individual mandate is a losing strategy.

If you want to improve people’s health, there is zero evidence that expanding coverage, such as through an individual mandate, would deliver greater health improvements than other strategies. We cannot say, for example, that an individual mandate would improve people’s health more than education or community health centers.

If you want to save lives, the large number of uninsured Americans probably shouldn’t be your first priority. The Institute of Medicine estimates that two to five times as many Americans die from preventable medical errors than from a lack of health insurance.

If you want to achieve universal health insurance coverage, an individual mandate won’t get you there. Evidence from state experiments with individual mandates-Massachusetts, in particular-suggests people will still forgo insurance.

If you want to make health insurance more affordable, an individual mandate would have the opposite effect. Special interests have a way of lobbying legislators until the minimum benefits package is unaffordable.

If you want to eliminate free-riding, an individual mandate won’t get you there either. As noted above, many people still won’t purchase health insurance. Moreover, health insurance doesn’t eliminate free-riding.One-third of uncompensated care in the United States goes to patients who have insurance but don’t pay their share of the bill.

And if you want to promote personal responsibility, an individual mandate would do the opposite. If you want to live in a society that cares for people who cannot afford medical care, there will always be a cost associated with people who take advantage of that generosity. It is part of the price of living in a compassionate society, and right now it comes to less than three percent of medical spending. Forcing others to purchase health insurance via an individual mandate so that you don’t have to pay the costs generated by your own preferences and decisions is the opposite of personal responsibility.

What about goals like making coverage more affordable for small business, minimizing taxes, maintaining the autonomy of the small business owner and keeping small business competitive? Like society as a whole, small business loses with an individual mandate.

As noted above, an individual mandate would make coverage more expensive, as it has in Massachusetts. When government mandates that people purchase health insurance, it must define a minimum set of covered benefits that satisfies that mandate. Immediately, the special interests form a line outside the door where they define the minimum benefits package, and lobby to have their services included. The minimum benefits package grows and premiums rise.

An individual mandate also would increase taxes for small business. Every individual mandate proposal includes new government subsidies to help people comply with the mandate. Someone has to pay for these subsidies-and small businesses should know they are likely targets for tax increases.

Small business should also take note that every time an individual mandate is proposed, it is tied to a mandate on employers. Why? As President Clinton worried in 1993, “[I]f you impose an individual mandate, what is to stop every other employer in America from just dumping his employees or her employees?”

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.

Tax reform and deregulation offer small business a better strategy. Life would be much easier for small business owners and employees if we deregulated health insurance and gave individually purchased coverage the same tax treatment as job-based coverage.

With tax reform, employers who do not offer insurance would no longer be at a disadvantage in the labor market, because their workers would no longer be hit by a tax penalty when they purchase coverage. That type of tax reform would give workers ownership of their healthcare dollars, and their cost-consciousness would eliminate waste, making insurance more affordable for everyone.

Finally, we must let individuals and employers avoid unwanted regulatory costs by purchasing insurance from out-of-state.

Tax reform and deregulation would relieve the burden of health benefits for small businesses. And they have the added benefit of being the right thing to do.