Monday, March 22, 2010

Insurance Mandates - Weak Link?

I see the mandates in the health care bill as the weak link for two reasons. First, most immediately, I believe that compelling an individual, through the use of fines, and potentially jail time, to purchase health insurance should be found unconstitutional. A 9th amendment argument could be made, and that seems most fruitful to me. Regardless of the success of such a lawsuit, it would also provide a vehicle to ridicule the administration's position and continue to erode public support for this bill. We might reasonably ask what limit does the constitution place on the Congress if the mandate is allowed to stand. This might hopefully change the terms of debate about the commerce clause. Also from the Volokh Conspiracy on the merits of this approach:
We should also remember that litigation is likely to center on the bill’s mandate requiring individuals to purchase health insurance even if they prefer not to. This is one of the least popular elements of the bill, a fact that would give the courts further political cover. Eliminating the individual mandate might eventually destabilize other parts of the bill. Without the mandate, insurance companies might start lobbying for repeal of other elements of the plan (since the bill would no longer be a huge bonanza that gives them many additional customers). If the ban on excluding coverage of preexisting conditions is maintained, the elimination of the mandate would incentivize citizens to wait until they get sick to purchase insurance. It’s unlikely that such a system could persist for long.

As a symbolic matter, I think someone is going to end up in jail for not paying the fines involved with the insurance mandates. This will also rally support for repeal, as the true Stalinist nature of this bill is clearly brought home by images of someone behind bars.
Dang, now I need a loan for bail AND the money to buy health insurance.

Professor Perry and others have pointed out the other weakness of the mandates; the fines are too small to prevent the bad behavior of individuals opting out of health insurance until they are sick. Then their pre-existing condition won't prevent them from opting back in just in time to be covered.
Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs--a chronic condition or a condition that requires surgery--they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.
Interestingly enough, this might have the opposite effect than intended. Specifically, if millions of Americans drop their health care insurance as well as employers, who only face a $2000 per year fine, then a new market place for cash only medical services might develop. This could conceivably start a process to wean the public from third party payer, once they began to see how convenient and inexpensive it could actually be. See Carpe Diem for a post on Retail Health Clinics.

I note that the subsidies don't kick in until 2014, so we should keep brainstorming the strategy for roll back. Incremental roll back is probably more feasible, but I am no expert.


  1. Dude, the weak links are the cities and states who are insolvent, but are still flopping around on the floor in the process of dying. The weak links are the Treasuries where Japan has a mountain that they will soon start selling.

    Court cases? Legislative changes? You'd better get going and right away. This thing could get out of control in a hurry.

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  3. B-Daddy, need to be careful on this one. As employers dump their employee health plan there will be a huge cry for the government to do something (it's a pattern, you see).

    This gives the government an opportunity to throw single-payer out there as an option to cover the millions of people who've been dumped by their evil employers.
    This is how it's going to happen.

  4. I think that in any 2400 page bill there is going to be a cornucopia of unintended consequences. This thing is going to be gamed in all kinds of ways.

  5. What is the constitutionality of the Social Security Tax?

    I understand the false premise of comparison to auto insurance, but I see the comparison to FICA closer. I see them writing the language differently to draw a closer comparison. Why the need to mandate the separate tax, just increase the revinue elsewhere and be done with the mandate.


  6. Dean,
    I agree with you about the temptation to go to single payer as employers dump health care. But will employers really drop it? They offered health care without penalties to attract a certain work force, so why would they suddenly drop it? I know I might be contradicting my own article somewhat, but this is a discussion. Alternatively, it behooves us to start dismantling this Obamanation before there is another Democrat majority.

    I don't hold much hope for the court challenge, partly for reasons you mention. Even if successful, the Congress could easily get the same result as a fine by changing the language of the bill to provide a tax credit if you purchase health insurance or it is provided to you, and jack up rates so that the net result is the same as if you had a fine, but now it's a rebate to everyone with insurance. So basically I think I am agreeing with you.