Monday, June 22, 2009

Thumbs Up on Health Insurance Mandates

Healthcare has been on my mind quite a bit, as you can see with the previous couple of posts. Another part of the controversy concerns individual mandates. Should the government be able to make people purchase health insurance?

The argument against such mandates is simply that we should allow people the liberty to do what they want. If a person doesn’t want to buy health insurance, and is willing to bear the consequences, then he should be able to have that choice.

The problem is, the consequences don’t affect only the person in question who buys the insurance. If such a person gets in a car accident, and goes to the emergency room, he will be treated. And that treatment will of course be paid for with taxpayer funds.

Moreover, it seems silly to oppose health insurance mandates at the same time you support mandates to buy car insurance, as many politicians do. It would seem that having a healthy population and a cost-effective health care system is at least as compelling a state interest as making sure that someone can pick up the tab after car accidents.

Having individual mandates could also bring down premiums for lots of people. Most of the people who currently have no health insurance are young and not sick. Because there will be a bigger, healthier pool to bear the risk of the sick, each individual will have to pay less in premiums. Right now, we have a serious adverse selection problem. People who are disproportionately old and sick are the ones paying health insurance premiums. Since the pools are more risky, premiums have to rise to compensate insurers for the increased risk. This ends up pricing out the old and sick who can’t keep up with the increasing premiums.

It might seem that making young people pay premiums for services they will not use is unfair. There are a couple of responses to that objection. First, we do this quite a bit under status quo. Drivers who aren’t accident prone and who have never been pulled over or had an accident still have to pay car insurance. Moreover, we make rich people who will not use social security or Medicare pay taxes to support those two programs.

Second, young people will someday be old and sick. That means they will benefit from this arrangement at some point too. There will come a day when they extract more in healthcare costs than they put in; they would be supported by young people when that time comes.

I understand that many young people are also those with disproportionately low incomes since they’re at the bottom of the pay scale at entry-level jobs (their wages will increase with time). To mitigate the hardship a mandate might cause, we should provide means-tested vouchers to help them with the cost of their premiums. Indeed, I expect the final form of legislation regarding healthcare to have such a provision.

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