Argument: Mandates counteract insurers denying coverage to the unhealthy


Linda J. Blumberg, Ph.D., and John Holahan, Ph.D. “The Individual Mandate — An Affordable and Fair Approach to Achieving Universal Coverage.” The New England Journal of Medicine. July 2, 2009: “Voluntary insurance markets have led to a system centered on segmenting health risk instead of one whose primary mission is ensuring affordable access to necessary and efficiently provided high-quality medical services. But the past need not be prologue. The orientation of our system and the distorted incentives that it creates can be changed. A vital component of such a change would be bringing all U.S. residents into our health insurance system through an individual mandate.

Health insurers engage in many practices that make it difficult for people with health problems to obtain and maintain their coverage; they do so for the express purpose of protecting themselves from the potentially enormous financial consequences of adverse selection. Adverse selection entails the disproportionate enrollment in insurance plans of people with higher-than-average health risk. There is a natural tendency for such selection to occur, because people prefer to pay for coverage only when they think they will need health care services. Insurance pools cannot be stable over time, nor can insurers remain financially viable, if people enroll only when their costs are expected to be high. Consequently, insurers create, and regulators permit, structured barriers against such behavior, including such policies as exclusion periods for coverage of preexisting conditions, benefit riders that permanently exclude particular types of care, higher premium rates or cost-sharing requirements for people with health problems, and outright denials of coverage.

If we required that every person obtain at least a minimum package of health insurance benefits — that is, issued a so-called individual mandate — we would eliminate adverse selection, and these barriers would become unnecessary and, in fact, indefensible. Remove them, and being in bad health would no longer prevent people from obtaining adequate coverage. But allow some opportunity for people to remain uninsured, and the straightforward argument for removing the barriers quickly evaporates. At that point, the only mechanism for creating equity in the health insurance system regardless of health status would be government subsidization of the cost of adequate, guaranteed coverage using a revenue source unrelated to the decision to buy coverage (e.g., income surtax, sales tax, or other general revenue base). Because any guaranteed source of coverage in a nonuniversal system would attract a high-average-cost population, the amount of new government revenue required for subsidizing the “excess” risk in this way would be very large.”

The Kansas City star reported in September of 2009: “To achieve universal coverage, an individual mandate is necessary to spread the risk pool, insurance companies say. It is considered the only way to insure that young, healthy people buy in and that people don’t game the system by opting in and out as their health needs occur.”[1]

Julie Rovner, NPR health policy correspondent, said in September of 2009 on NPR: “Well, you know, one of the most popular elements of all of these bills, popular on a bipartisan basis, is the idea of what we call the insurance reforms, to make it harder for insurers to turn people down if they have pre-existing conditions, particularly.

What the insurers will say, and with good reason, is that if they have to sell to everybody, they don’t want people to be able to wait until they’re sick to buy insurance.

So the idea is that the need to have everybody in the insurance pool, the sick and the healthy, and also the people can’t wait until they’re sick to get insurance. Hence, you get this individual mandate – so that everybody will have to have insurance, it will be easier for the insurers to spread that risk so that they can afford to sell to everybody who’s sick or not. That’s where you get the idea of this individual mandate.”[2]