My latest Health Care News podcast, brought to you by FreedomPub, is with Merrill Matthews, executive director of the Council for Affordable Health Insurance and a resident scholar at the Institute for Policy Innovation, about his latest column on the individual mandate. You can listen to it here or stream it below:
[audio: https://www.heartland.org/bin/media/podcasts/HealthCare/hcnpodcast8.mp3]
When I’m asked on the radio or in person about the biggest problem with President Obama’s health care reform, the answer I usually give isn’t that it’s a recipe for trillions in costs for the American people, that it creates massive new taxes on businesses and entrepeneurs, that it effectively divides us into two Americas, that it squelches innovative programs or that it’s possibly unconstitutional.
My answer is much simpler: it’s a model of health care which is proven not to work, because it assumes consumers will act irrationally.
We’ve seen the proof in Massachusetts. Here’s one report from the Boston Globe:
In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe…
Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins requiring most people to have insurance in 2014, unless federal regulators craft regulations to avoid the pitfall.
The point is, we should always assume consumers will behave rationally, in their own best interest. With the penalties for failing to purchase insurance so low, and with the IRS lacking the power and the ability to properly enforce the mandate, we should expect the exact same thing to happen across the country which happened in the Bay State: people will game the system, and costs will continue to rise. More on that here, here and here.
The entire point of an individual mandate was ensuring that younger, healthier people who don’t currently buy insurance (and make up a significant portion of the uninsured) and whose employers don’t provide it are forced to buy into the insurance market. But if insurers are required to cover you after you get sick, and the penalties are so much cheaper than the insurance costs month to month — a divide which will be even greater by 2014 — there’s no rational reason for these people to enter the market except for small chunks of time, when they will rack up high expenses, and then drop back off. Take the example of one private insurer who reported that from April 2008 to March 2009, a full 40 percent of the individual applicants were covered for less than five months, but ran up bills averaging $2,400 a month.
What’s the left’s response to this obvious policy failing? Well, essentially, they ask consumers to roll back human nature. Think not of yourself or your family, but of the collective!
Ezra and others have argued that doing so would take a cynical customer — someone who would disregard the impact of one’s individual actions on the well-being of others, as well as their own future insurance rates. But unfortunately, I do think that more than a few customers will be tempted to go down that path, since the penalties of not complying with the mandate will be so weak. As a result, supporters of health reform will need to be bolder about emphasizing the moral and civic imperative of buying insurance for those who can afford it — and how collective non-compliance could jack up everyone’s own premiums in the future, as Jonathan Cohn argues.
Maybe they’ve got something there. Harry Reid says the health care law is the “most important thing for the world” — maybe because he believes it will fundamentally change human nature, and make people behave like they do in bad utopian fiction, not how they do in real life?
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