Code Red: Two Economists Examine the U.S. Healthcare System

January 4, 2010

The Health Insurance Mandate

Filed under: Health insurance,Health Reform,Uncategorized,Uninsured — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 1:56 pm

Two news stories about the proposed health insurance mandate caught my attention this weekend. The Wall Street Journal ran an opinion piece questioning the constitutionality of the mandate. The author argued that Congress cannot mandate that Americans purchase anything. I will leave that one to the lawyers. The Chicago Tribune ran a front page article stating that neither liberals nor conservatives like the mandate. Liberals think it is too expensive for low income folks and conservatives think it violates free market principles. This is ideologically-driven nonsense. Of all the aspects of health reform that are worth debating, this is not one of them.

To understand why the mandate makes sense, bear in mind that sick people in America do receive health care regardless of ability to pay. Doctors and hospitals usually treat first and ask questions (about insurance) later. Okay, sometimes providers ask questions first but enough of them treat patients that no one (well, almost no one) who is uninsured is left on the street to die.
There just isn’t enough charity out there to cover all the costs of the uninsured, so the rest of us feel the pinch.

Conservatives who oppose insurance mandates need to answer the following questions: Are you going to mandate that providers stop treating the uninsured? Or are you going to mandate charity? If neither, then the uninsured are going to receive care and free ride on the rest of us. Government has every right to act on the behalf of the majority and limit the free riding. Look at it this way. Conservatives endorse the right of the government to raise taxes to pay for the national defense, lest those who do not want to pay their share free ride on the rest of us. Just as the national defense protects all of us, so do our medical providers. The parallel to health care is close to exact.

What about the liberals who think that the mandate is too costly? Providing health insurance without some means-tested contribution is just another form of wealth redistribution, and this at a time when all levels of government are looking to raise marginal tax rates on the wealthy just to balance budgets. Why don’t the liberals just tell us how much redistribution they want?

A means-tested insurance mandate will limit free riding and permit a politically negotiated level of wealth redistribution. It ought to be a central component of any market-based health reform.

2 Comments

  1. Good post David. As one wholly opposed to the mandate, I agree that the idea behind the mandate (prevent free-riding in the health care system) is a fair-minded one. Unfortuntately, the mandate itself is an incredibly regressive and unconstitutional way to achieve that goal.

    The choice you put to conservatives opposed to the mandate is also fair. The solution is through a series of changes. First, you empower medical providers to require cash up front, traditional insurance, enrollment in government health programs (VA, Medicaid, Medicare), or the posting of a bond prior to receiving care. That’s a lot of options for anyone, and any truly indigent person would be taken care of by Medicaid. Those not eligible for government programs but without traditional insurance would be able to pay on a fee-for-service basis, or to post a bond. The bond option isn’t really available today, but that’s mostly because anyone can get medical care without showing any ability to pay at your average hospital. That would change if a bonding option was necessary for uninsured Americans to get treated. Since that bond would only be intended to cover the specific treatment sought, the required payment would be at a considerable discount to traditional insurance, but not so low to encourage routine use of the option.

    If the individual is receiving emergency care, obviously there won’t be an opportunity to address payment before care is received. In this case, for uninsured indigents, hospitals should be allowed to administratively enroll them in Medicaid. You might argue that this is the same as an insurance mandate, but this is different in two ways. First, it is the hospital, not the government, that is taking the action as a condition of providing care. Second, the states could implement this requirement, and the general police power of the states is much more well-suited to such a requirement. This simple rule would protect the hospital from a large fraction of uncompensated emergency treatment cases. For the uninsured that are not indigent but can’t pay their emergency bills (college students, the unemployed without COBRA, etc.), I’d recommend that the government establish a “one-strike-and-you’re-out” risk pool, which would serve to pay for the emergency care costs only (not follow-on expenses when the individual is capable of making his/her own health decisions). The risk pool would pay on two conditions: 1) the individual agrees to pay over time a means-tested proportion of his care expenses at a subsidized interest rate and 2) the individual obtains basic health care insurance (high-deductible, no bells and whistles) and maintains it for a period of five years. This system protects the medical provider from the risk of nonpayment, it creates a constitutional means for requiring the uninsured-by-choice to pay their bills, and it limits the government’s liability to a smaller set of health transactions.

    If an uninsured individual doesn’t want to avail himself of the risk pool, he must pay his bills out of his pocket. For those who don’t, Congress should create a much more streamlined and powerful means of collections for health care providers. Such a system, which could operate out of the same Magistrate Court system that hears most Medicare appeals today, would empower health providers to recover their own money, rather than take the financial hit and pass the cost onto paying customers. It’s not as if hospitals WANT to raise costs on paying customers — it’s just that the transaction costs of recovering the funds through current channels are far too high to make it worthwhile. Reduce the transaction costs and those incentives would change, benefiting the rest of us that don’t try to free-ride the system.

    This system only works if guaranteed issue is also mandated, since an individual exiting the emergency room may not be able to obtain coverage under the current system. But since guaranteed issue is a given in every health reform bill I’ve seen, I don’t consider it too controversial.

    Note that none of these changes restrict one’s liberty to choose how to pay for health care — so long as one doesn’t put others on the hook for health care. Once the uninsured individual does that, his liberty is constrained, but in a manageable and humane way. Why take an unconstitutional, coercive route when you can reach the same result without dramatically increasing costs for the insured population and still get the doctors paid?

    Comment by Marque — January 8, 2010 @ 10:35 pm

  2. […] by Marque My general interest in the debate surrounding the health insurance mandate led me to a post written by David Dranove of the blog Code Red the other day.  While David is generally supportive […]

    Pingback by Avoiding Free-Riding Without a Health Insurance Mandate « Marque’s Letters — January 12, 2010 @ 3:29 pm


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