The Risks and Benefits of Individual Health Insurance Mandates

[ProSense]

Universal Coverage One Head at a Time — The Risks and Benefits of Individual Health Insurance Mandates

Sherry A. Glied, Ph.D.

The health insurance reform enacted in Massachusetts in 2006 and the proposals of the leading Democratic presidential candidates seek to achieve universal health insurance coverage while relying primarily on private insurance. Achieving universality is a challenge in any system that assigns insurance coverage, whether private or public, to identifiable individuals. The difficulties of finding, enrolling, and accounting for all eligible participants escalate when most of the financing for coverage is expected to come from premiums paid directly to multiple insurers rather than from funds collected centrally by the government through taxation. To address this problem, some reform models incorporate an individual mandate, a legal requirement that every person obtain insurance coverage. The Massachusetts health plan mandates coverage for both adults and children, as Senator Hillary Clinton's proposed plan would do nationally; Senator Barack Obama's plan would require parents to obtain coverage for their children.

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Achieving universal coverage is more important as a means of improving the functioning of the insurance market. A fundamental problem in health insurance is that people know much more about their own health than insurers do. Prospective purchasers can — and do — use this information when making decisions to obtain or retain coverage. Insurers respond to this behavior by aggressively seeking out healthier purchasers and discouraging the enrollment of those who seem likely to require costly medical care. This inevitable response drives up the costs of marketing and underwriting coverage, which are substantial components of the very high administrative costs of insurance purchased in the nongroup market. Compelling everyone — whether healthy or sick — to participate in the insurance market may diminish the use of these wasteful insurer tactics. Mandated participation may also make it easier for insurance regulators to limit the extent to which sicker people pay higher premiums by reducing the risk that healthy people will be driven out of the market. Proponents of an individual mandate hope that such a policy would help to reduce the administrative costs of health insurance in the United States to the considerably lower levels found in other private-insurance–based universal systems.

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The individual mandate offers new options, but it also introduces risks. The mandate is in many respects analogous to a tax. It requires people to make payments for something whether they want it or not. One important concern is that the government will provide insufficient funds for the subsidies intended to accompany the mandate. In that case, the mandate will act as a very regressive tax, penalizing uninsured people who genuinely cannot afford to buy coverage. This concern has led Massachusetts to create a hardship exemption for its mandate — an escape clause that effectively undoes the mandate if subsidies are insufficient. The ease with which it is possible to lift the mandate if the legislature fails to appropriate funds may make the individual mandate a rather rickety form of universal coverage.

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A final concern about mandates relates to their administration. Like taxes, a mandate requires enforcement if it is to be effective. Compliance with taxes, as well as with other mandates in current operation, is never perfect. It varies with the rules and procedures governing enforcement.3 The nature of insurance makes a health insurance mandate particularly tough to enforce. Taxes can be collected retroactively, but to be effective, an insurance mandate should be in place at the beginning of an insurance term, ensuring that people have coverage when an adverse event occurs. Developing a system to promptly identify and penalize scofflaws will take effort and ingenuity, particularly in our diverse and mobile country. It may require a degree of intrusiveness and bureaucracy that some will find unpalatable. If subsidies are generous and benefits valued, voluntary participation will be high and enforcement problems will be manageable. If subsidies are insufficient or benefits inappropriate, the mandate will be very difficult to enforce and draconian in effect. The risks associated with individual mandates suggest that they are no panacea.

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Dr. Glied is a professor and chair of the Department of Health Policy and Management, Mailman School of Public Health, Columbia University, New York.

Good news for Obama:

National Union Hospital Healthcare Employees District 1199c Endorses Senator Obama

PHILADELPHIA, April 2, 2008 /PRNewswire-USNewswire/ -- Henry Nicholas, president of the 150,000-member National Union of Hospital and Health Care Employees AFSCME, AFL-CIO, announced today that his 16000-plus members of the Philadelphia local affiliate 1199C, its retirees and members of the United Child Care Union across Pennsylvania will support Senator Barack Obama in the April 22 Democratic primary.]We need change, Nicholas told delegates and guests at the Pennsylvania AFL-CIO Constitutional Convention in Philadelphia, as he introduced Obama as the candidate that will raise the labor movement to new heights and the candidate who has been on the picket lines, not talking about it, but walking on the picket lines with workers fighting for the right to have a union.

Noting that 8000 workers lost jobs in Pennsylvania in February and that is the wrong way, Nicholas told the packed auditorium. Those of us in the labor movement have a duty to be the social conscience for those who cant help themselves. Who will look out for those who are not middle class? he asked.

In announcing the endorsement, Nicholas said, If we in the labor movement rise to the occasion and latch on to this new movement thats putting everybody together, we will have given birth to a new labor movement in America and we need that. I stand here this morning to cast my lot - to put my organization the hospital workers solidly behind Barack Obama.

By doing this, theres a message because the entire organized healthcare infrastructure in the Commonwealth of Pennsylvania -- homecare, healthcare and childcare -- is now united behind Barack Obama.

(emphasis added)

[ProSense]

1. No comment? n/t

[OhioChick]

2. Thanks for Posting.

Bookmarked for the a.m.

K&R
:kick:

[eridani]

3. Mandatory insurance in Massachusetts is often much worse than no insurance at all

http://www.pnhp.org/news/2007/september/health_reform_failur.php

Why has progress been so meager? Because most of the promised new coverage is of the “buy it yourself” variety, with scant help offered to the struggling middle class. According to the Census Bureau, only 28 percent of Massachusetts uninsured have incomes low enough to qualify for free coverage. Thirty-four percent more can get partial subsidies - but the premiums and co-payments remain a barrier for many in this near-poor group.

And 244,000 of Massachusetts uninsured get zero assistance –just a stiff fine if they don’t buy coverage. A couple in their late 50s faces a minimum premium of $8,638 annually, for a policy with no drug coverage at all and a $2,000 deductible per person before insurance even kicks in. Such skimpy yet costly coverage is, in many cases, worse than no coverage at all. Illness will still bring crippling medical bills—but the $8,638 annual premium will empty their bank accounts even before the bills start arriving. Little wonder that barely 2 percent of those required to buy such coverage have thus far signed up.

While the middle class sinks, the health reform law has buoyed our state’s wealthiest health institutions. Hospitals like Massachusetts General are reporting record profits and enjoying rate increases tucked into the reform package. Blue Cross and other insurers that lobbied hard for the law stand to gain billions from the reform, which shrinks their contribution to the state’s free care pool and will force hundreds of thousands to purchase their defective products. Meanwhile, new rules for the free care pool will drastically cut funding for the hundreds of thousands who remain uninsured, and for the safety-net hospitals and clinics that care for them. (Disclosure --we’ve practiced for the past 25 years at a public hospital that is currently undergoing massive budget cuts.)

Health reform built on private insurance isn’t working and can’t work; it costs too much and delivers too little. At present, bureaucracy consumes 31 percent of each healthcare dollar. The Connector—the new state agency created to broker coverage under the reform law—is adding another 4.5 percent to the already sky-high overhead charged by private insurers. Administrative costs at Blue Cross are nearly five times higher than Medicare’s and 11 times those in Canada’s single payer system. Single payer reform could save $7.7 billion annually on paperwork and insurance profits in Massachusetts, enough to cover all of the uninsured and to upgrade coverage for the rest of us.

[mrreowwr_kittty]

4. This is what I've been saying.

Mandated private insurance is a boondoggle. Corporate welfare at its utter worst. It's an unfair regressive tax on the middle and working class to subsidize private business.

And it's funny how all these people on DU are defending the mandates by claiming there will be a competing government plan. First off, fat chance on that happening, and second, how is that different from partially privatizing Social Security? I doubt that there'd be much support for offering people the choice to put their SS contributions in private accounts, yet that is exactly the kind of thing they are proposing with a mandated health insurance system.

[BlueIdaho]

5. Wrong "mandates"

The mandate should not be for individuals to buy expensive loophole filled health insurance coverage - the people should mandate that their government provide effective universal medical coverage for all- like the rest of the economically secure civilized nations on this planet.

[ProSense]

6. Why Elizabeth Edwards is Wrong

Why Elizabeth Edwards is Wrong

Excellent diary at Daily Kos.

[mohc]

7. While in general I think mandate is preferrred, I do have concerns

The point of a mandate is not to cover low-income individuals who currently can not afford insurance, the vast majority will opt in to a coverage system if the subsidies are provided to make it affordable. Instead the mandate is there so that everyone participates, specifically low-risk affluent individuals, so the risk is spread among as many people as possible. In a public system this may work out very well, but I am worried about what the market may end up inventing in response to the mandates. The mandate is only going to be able to require everyone to purchase some minimum amount of coverage, coverage that will be in some way inferior to that which a public system would provide. Spreading the risk only helps bring down costs if everyone is largely participating within the same system, and I believe it is possible that there will be some amount of private insurance which will basically be outside the general market. Those individuals that would otherwise simply not purchase insurance without a mandate will be looking for as cheap an option as possible and not really be focused on the quality of coverage. A new extremely substandard coverage option may arise that is extremely cheap but just barely qualifies for the minimum standards required by the mandate. If a substantial portion of those that currently can afford coverage but do not have it opt for such coverage, it really will not serve to lower the costs to the rest of the system. In such a scenario, the mandate is no longer accomplishing its goal of increasing general affordability and is instead simply making those that can afford coverage get substandard coverage.

[tpsbmam]

8. More on the MA plan and mandates.....

(BTW, the CA Nurses Assn has been one of the leaders in the charge for universal, single-payer health care.)

http://www.calnurse.org/media-center/in-the-news/2007/october/page.jsp?itemID=32373019

Massachusetts Mandatory Health Insurance Purchase Law Is No Model for California

.....Coverage in Massachusetts is already much more expensive than promised and insurers, whose premiums are not capped or regulated, have indicated rates will increase again next year.

Download the full analysis of the Massachusetts law, which provides an overview of the cost and status of the Massachusetts’ mandatory purchase requirement, released today by the Foundation for Taxpayer and Consumer Rights (FTCR) at: http://www.consumerwatchdog.org/resources/masshealth.pdf

A proposal modeled on the Massachusetts law announced on Wednesday by Governor Schwarzenegger fails to account for the affordability crisis faced by Massachusetts residents. In fact, a provision of Schwarzenegger's proposal encourages insurance companies to raise rates. Under that proposal, insurers will be allowed to keep 15% of premium revenue for overhead and profit. With no tested regulatory review of where the money is going and whether rate increases are necessary, the cap will encourage insurers to give hospitals and doctors whatever they ask for – at the expense of individuals and the state.

Under the new Massachusetts law, by April 15, 2008, – tax day – residents must prove on their tax returns that they have private health insurance or face financial penalties.

Massachusetts’ law would require citizens to spend up to 10% or more of their incomes on health insurance. Co-pays and deductibles are not included in the 10%. Even at that stiff upper limit, the state estimates that 18% of the uninsured cannot afford insurance at all, including everyone making just over the subsidy cutoff of 300% of the federal poverty level.

“In just over two months, Massachusetts consumers must have health insurance or pay a penalty under the law. They will end up paying more for less health care – an inevitable outcome when individuals are forced to purchase private health insurance and costs are not regulated,” said Carmen Balber of FTCR. “Families with children, older consumers and middle class families are some of the most likely to be lacking health care. They’re also the first to fall through the cracks under Massachusetts’ mandatory private insurance plan because insurers won’t provide an affordable product unless the state controls costs.”

Few middle-income Massachusetts consumers have enrolled in the new mandatory coverage. Only 6% of new enrollees are buying private plans with no subsidy. Most of the remaining 94% of new enrollees are under 150% of the federal poverty level and receiving full subsidies.

“While it is beneficial to provide health care to the working poor, the Massachusetts plan is far from solving the un-affordability of private insurance for middle-income workers,” said Balber. “The plan, with its very small employer penalties, also may encourage employers to steeply reduce or eliminate work-based coverage.”