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The size of the individual mandate in the health care bill is very modest, especially compared to the cost of health insurance in America. The penalty is whatever is higher $695 a year or 2.5 percent of income and the law also lacks any enforcement mechanism. Given how modest the actual cost of the individual mandate is, the actual effect it should have on the reform of the health insurance system should be small, regardless the pro-mandate hysterics from the White House.
There are basically two ways in which to assume the individual mandate will work. One I’ll call “economic rationalism,” and the other, “behavior science.”
Economically, it still makes sense to pay the mandate penalty
The economic rationalism purpose of the individual mandate is to make it no longer a good economic decision to “game” the system by waiting to sign up for insurance until you get sick. The problem is that the mandate penalty is too small relative to the cost of premiums; even if the mandate is in place, it would still make economic sense to try to game the system.
An individual making 200 percent of the federal poverty level gets subsidies to pay their personal premiums for the silver plan equal to 6.5 percent of their income. Notice that is more than 2.5% of their income.
For example, under the law, an individual making around $44,000 a year would have health care premiums of $4,500 a year. With no mandate, if they though they were healthy and could “game” the system by not buying insurance, and they would save $4,500. With the mandate penalty of $1,100, the individual would only save $3,500. The critical thing is that “gamers” would still save a lot of money.
If people thought it was a financially rational decision to game the system without an individual mandate, it would still be a financially rational decision with the mandate. I don’t see how it is a smart plan to save $4,500, but not a good idea to save $3,500. Because of the design, it is only for a small group of people right above 133% of FPL where the mandate penalty makes getting insurance a better financial decision.
From this economic rationalism perspective the design of this mandate in this exchange system should do little to nothing to stop strategic delaying of the purchase of insurance. If the mandate penalty were equal to greater than the cost of the cheapest insurance plan, that would be different, but that is not how this law was written.
Behavior science perspective
The other way to look at the individual mandate is from a behavior science perspective, assuming the people are not rational actors working out ways to game the system. From this perspective, a small individual mandate penalty is sufficient because it merely provides that nudge to encourage people to sign up for health insurance. It creates as the social norm that they should buy insurance, and gets those people to sign up who weren’t trying to game the system but just never got around to signing up.
If this is the purpose of the individual mandate, than it is likely a similar result could be achieved, without a financial penalty, through many different methods. A campaign of directly reaching out to people to encourage them to sign up along with other actions should be able to achieve increased purchasing. Having people automatically sign up for one of the three cheapest plans when they fill out their taxes or visit any medical facility unless they go through a time consuming opt-out process could be even more effective.
Most people want health insurance
Fundamentally, I don’t believe that there is a large number of individuals actively trying to “game” our complicated health care system. Even if they were, the penalty is too small to eliminate the financial incentive to try to game the system, so either way this mandate would have little effect.
If the purpose of the mandate is only to provide a behavioral nudge to buy insurance, the loss of it shouldn’t be a major problem. It should be possible to provide others nudges to encourage more people to buy insurance.
At the federal level, we currently have no employer or individual mandates to buy insurance, yet most people have health care. The vast majority of Americans actually want health insurance, and those who currently don’t have it are usually going without because they can’t afford it. I don’t think most people are studying the ins and outs of the incredibly complex health care laws looking for a way to game the system. If this new law makes health care affordable and accessible, they will buy it; if it doesn’t, they won’t, regardless of the small penalty. Even with guaranteed issue, you still won’t to be able to get retroactive insurance after a medical emergency, so the healthy will still have an incentive to be insured.
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It always made more sense to me to automatically enroll the free loaders who request service in a public plan, pay the medical bills, and bill them back premiums for a year plus 20% or so.
“The other way to look at the individual mandate is from a behavior science perspective, assuming the people are not rational actors working out ways to game the system.”
I think you playing into their logic, expecially Paul Krugman’s nasty “free rider” logic, when you repeat–repeatedly!– all of this talk about “gaming the system.”
Look, there IS no “gaming the system” and no “free rider” problem. For example, when a person with assets goes to the emergency room, they get the bill–and unless they declare bankruptcy or otherwise pay it on credit and then default– they have to PAY IT.
And not do they get the bill, but they get a bill several times greater than the amount at which the insurance company would have settled the claim for an insured person. There is already a “free rider” penalty built into the system at the point of care. The uninsured are already paying it RIGHT NOW.
Not having insurance is not something most people with assets really want to do, because if real catastrophe stikes, they get wiped out and then some. They are highly incentivized to buy it. Clearly, if they’re risking insolvency or medical catastrophe, costs are just way out of whack vis a vis incomes.
Cost is the ONLY issue. Just stop and think for a minute before you repeat their nonsense.
In other words–don’t accept their frame(s)!
In other words, the only entity that thinks there is a “free rider” problem is the insurance companies themselves. The uninsured are paying the healthcare providers directly instead of paying them. That makes them “free riders,” ie., an undeveloped market.
Meanwhile, private practices without whole billing and legal departments are so sick of the healthcare finance companies they’ll give you a cash discount. Imagine that–paying healthcare providers for healthcare provision. What a novelty.
I bet that scares the beejeebus out of somebody.
When you don’t make much money, as I have not made much money over the years, you actually sit down with pencil and paper to figure the cost of anything. Because you have to, not because you’re financially astute: you have very limited funds to go around and in all likelihood, you’re not covering everything on time as it is. (For those of you in the know, here, the rotating bill pay tactic wherein you rotate who gets paid late each month so that no one gets stiffed two months in a row. Sure sign of long experience with short money.) So, some people are going to pay the penalty, or even not insure and not pay the penalty, because they will calculate that they have no choice.
And wait till the people who pay find out what their insurance covers and doesn’t and what the bills over and above look like. They’ll have unusable insurance. Hot diggity! Hope and change, people, I say HOPE AND CHANGE.