Commentary

Should Everyone Be Required to Have Health Insurance?

When Washington begins penalizing people for not purchasing health insurance in 2014, it will mark the first time in history the federal government has required nearly all Americans to buy a private product as a condition of lawful residence in the U.S. No part of the health-care law is less popular, or more essential to preventing it from crumbling like a house of cards, than this individual mandate.

Even if the mandate were popular and constitutional, it would still be a bad idea. It will increase premiums, cost shifting and government rationing, while promoting irresponsibility. Indeed, its entire purpose is to enable supporters to avoid responsibility for their decisions.

Let’s start with premiums. The mandate will increase premiums for households who currently do not purchase coverage, and tens of millions more (including at least half of employer-sponsored plans) who will have to purchase additional coverage to satisfy the mandate. A study issued by the left-leaning Commonwealth Fund estimates the law has already increased premiums 1.8% on average. That will rise as the mandate takes full effect. Some of the increase will reflect the cost of additional coverage—but if consumers valued that coverage, they would have bought it already.

Magnified Effects

True, the law will force insurers to reduce premiums for the sick, and the mandate will magnify that effect. But those same government price controls will increase premiums for healthier customers—and the mandate will magnify that effect, too. (Economist Jonathan Gruber, one of the law’s biggest proponents, projects that for some who buy policies in the individual market, premiums will more than double.) At best, those two effects cancel each other out. But these provisions also create incentives for healthy people to drop coverage, driving average premiums higher still.

Then there’s how a mandate leads to government rationing. Like President Obama, ex-Massachusetts Gov. Mitt Romney tied a mandate to subsidies that help people buy the mandatory coverage. The higher-than-projected cost of those subsidies, plus the premium increases caused by the mandate, are leading desperate state officials to reduce those costs by rationing care.

Officials have imposed price controls on premiums, which force insurers to limit services. They are pushing price controls on providers, which could exacerbate Massachusetts’ already long waits for care. And they hope to impose Canadian-style “payment reforms” that would financially reward providers for limiting services. (An early experiment has delivered zero savings and in some cases increased spending, yet it may still be denying care to people.)

Though supporters claim the mandate will reduce cost shifting from uninsured free riders to the insured, the latter will see no savings. Researchers at the left-leaning Urban Institute estimate that in 2008, such cost shifting amounted to just $56 billion, or 2% of total health spending, and increased premiums by “at most 1.7 percent.” For comparison, the Dartmouth Institute for Health Policy and Clinical Practice estimates we waste more than 14 times that amount on unnecessary care. More important, the Commonwealth Fund study shows the federal law has already increased premiums by more than the mandate could reduce them by eliminating free riding.

The federal law actually promotes free riding and cost shifting. My colleague Victoria Payne and I calculated that individuals could save up to $3,000 a year—and families of four could save as much as $8,000—by dropping their health insurance, paying the penalty, and waiting until they are sick to purchase coverage. Massachusetts reported a nearly fivefold increase in such free riding after its mandate took effect. The federal law also offers $1 trillion in subsidies to tens of millions of Americans—shifting $1 trillion of the cost of their health care to taxpayers.

Personal Responsibility

The mandate’s greatest pretense is the idea that it promotes personal responsibility. If that were the goal, Congress need only have enhanced the courts’ ability to collect medical debts. Supporters instead demanded a mandate precisely because it lets them avoid responsibility for their decisions.

Here’s how. The federal law promotes irresponsibility by allowing healthy people to wait until they get sick to buy coverage. It creates that free-rider problem, which has been known to make insurance markets collapse. Supporters of the law could have taken personal responsibility for this instability they introduced into the market—say, by volunteering to pay the free riders’ premiums. Instead, they imposed a mandate, which attempts to stabilize the market by depriving others of their money and freedom.

Forcing others to bear the costs of your decisions is the opposite of personal responsibility. It is selfishness, not altruism.

The mandate is not a conservative or free-market idea. Some Republicans who were for it are now against it, just as some Democrats once against it are now for it. A majority of conservatives and the overwhelming majority of libertarians always opposed it. It’s snake oil, no matter who prescribes it.

Free markets—which no living American has seen in health care—would make health care better, more affordable, and more secure. The mandate makes such progress impossible.

If the public understood the rest of the health-care overhaul as well as it does the mandate, the law would already be history.

Michael F. Cannon is director of health policy studies at the Cato Institute.