Are There Alternatives to the Individual Mandate in the Health Reform Law?

By :: January 18th, 2011

Today, the House will begin debating the “Repealing the Job-Killing Health Care Law Act”—the Republican effort to reverse the far-reaching 2010 health measure. As has been widely noted, it is a symbolic vote that will lead nowhere—in part because, despite the GOP rhetoric, the public supports most of the law.

With one exception.

Americans detest the law's individual mandate—the provision that requires everyone to either have insurance or pay a tax. According to a November Kaiser Family Foundation survey, more than two-thirds of those polled said they want Congress to repeal the mandate. By contrast, more than 70 percent would keep the part of the law that bars insurance companies from denying coverage to people who have pre-existing medical conditions. 

And the public isn’t alone in its discomfort. Even Barack Obama opposed the mandate during his presidential campaign. And a growing number of Democratic senators are seeking  an alternative. At the same time, the provision is the subject of a raft of legal challenges, some of which are likely headed to a highly-politicized Supreme Court. 

The problem is that a system that requires insurance companies to sell to all comers but makes it easy for people to delay buying coverage until they are actually ill is a recipe for failure. Risk pools would be overloaded with sick people whose claims would drive up premiums for everyone, forcing out more and more healthy buyers. The insurance biz memorably calls this phenomenon “the death spiral.”

As Health and Human Services Secretary Kathleen Sebelius says,  “Without everyone in the health insurance market, costs will increase, people with pre-existing conditions will continue to be shut out of coverage, and insured Americans will continue paying for those who don't get coverage."

A new study by the Urban Institute’s Health Policy Center concludes that, without the mandate, the new law would cover only 10 million of the uninsured, compared to 28 million under the current design.

In some ways, the mandate represents the worst of all policy worlds. Americans hate it because they can’t stand the idea of being made to get coverage or pay a tax. On the other hand, the initial levy is so low—only $95-a-year—it isn’t much of an incentive to buy insurance. The penalty is supposed to gradually increase to as much as $695 or 2.5 percent of taxable income, but Congress could well bow to the inevitable pressure to block the --let's all say it together-- "job-killing health tax increase.”  

In this environment, both pols and policy analysts are looking for more palatable—and possibly more effective-- alternatives to the mandate. And there may be some.

Health consultant  Bob Laszewski, for instance, suggests dumping the mandate and replacing it with a system that allows consumers to buy insurance with no limits on preexisting conditions--but only when they start a job or are first eligible to buy coverage through an exchange. They can wait to purchase if they choose. But if they do delay, they would not be covered for any pre-existing condition for two years.

Gail Wilensky, a top health advisor to President George H.W. Bush, would charge higher premiums to those who wait to enroll, much as Medicare does today. Of course, both Gail’s and Bob’s plans are taxes too, but they somehow sound more palatable than a mandate.

Lewin Group vice president John Sheils  has a somewhat different idea. He’d create a very limited “open season” each year during which people could enroll. If they failed to sign up in that narrow window, they would have no coverage until the next enrollment period.

We have experience with the individual mandate. Massachusetts, for instance, has one (thanks to former GOP Governor Mitt Romney and the Heritage Foundation), and it seems to work. It is less clear how young people would respond to the Medicare model or other penalties for delaying enrollment.  But given the politics, we may be about to find out.