People are quite accepting of the idea that choices have consequences and that choices are often unavoidable and irreversible. That’s why so many people like to bandy about the saying “You can’t have your cake and eat it, too!” Yet, with health insurance, that’s exactly what people seem to be longing for. They don’t want the government telling them what to do (e.g., requiring everyone to buy health insurance), but they also want health insurance when they need it, lest they be unable to afford a trip to the doctor or hospital. Americans are being confronted with an inescapable “either/or” proposition, all the while clamoring for a “both/and” solution that simply doesn’t exist. Let me put it into the starkest of terms. Forget politics and the courts for a minute and just join me in a simple thought experiment.
Congress passes, and the President signs, a law that forbids health insurers from denying people coverage on the basis of pre-existing conditions. As a result, people with pre-existing conditions are happy, because they can now purchase health insurance, which they couldn’t previously do in many cases without taking out a home equity loan. At the same time, people without pre-existing conditions are happy, because they no longer have to purchase health insurance while they are healthy. Why waste the money? Instead, they can simply wait until they get sick and buy insurance then, when they need it. After all, the insurance company is powerless to prevent such behavior, thanks to the new law.
Pretend for a moment, that you are the CEO of a major health insurance company. Suddenly you find yourself insuring only sick people. All the healthy ones don’t need your product, and there is no incentive for them to purchase it until they fall ill. Ordinarily, you combated this problem by denying coverage to sick people–or by charging them much higher premiums. Congress won’t let you deny coverage any more. What do you do? Your options are simple: Keep premiums low and pay out enormous claims, or raise premiums dramatically in hopes of generating a net profit after paying out enormous claims. It’s not rocket science. Under this scenario, health insurance costs would skyrocket, quickly becoming unaffordable for all but the wealthiest Americans.
If only there was some way to ensure that people didn’t wait until they got sick to purchase insurance. Enter the individual mandate. By requiring everyone to purchase insurance coverage, the insurance companies no longer face a scenario where all their beneficiaries are sick and costly. In fact, the number of healthy insured persons will go up, and that should actually steer things in the opposite direction, helping to spread risk and bring premium costs down on average.
In the end, we are left with three options:
- Return to the status quo. Under this approach, most of the sick who truly need it will be unable to afford health insurance. Our system will remain fragmented and costs will continue to rise.
- Ban pre-existing condition exclusions without an individual mandate. Under this approach, people won’t buy health insurance until they get sick. As a result, health insurance costs will rise even faster than they have in the past, the number of uninsured persons would grow dramatically, and the health insurance system as we know it would face significant contraction if not collapse.
- Ban pre-existing condition exclusions with an individual mandate. Under this approach, everyone would be covered and health insurance costs would not increase at such alarming rates. In fact, they might even decrease.
Maybe it’s just me, but door number 3 seems like a pretty clear winner. It’s only when politics and the legal system get involved that such economic commonsense gets confused. As most of the courts thus far have ruled that the individual mandate is severable (meaning the mandate can be ruled unconstitutional while the rest of the law remains intact), door number 1 seems firmly closed. Fundamentally at issue is whether the decision not to buy health insurance is an economic decision affecting interstate commerce. Based on the different outcomes that can be expected depending on the presence or absence of a mandate, I don’t see how a judge worth their salt could determine that the decision not to purchase health insurance isn’t an economic decision. This much is certain: there will be a decision and it will have far-reaching consequences. To wish otherwise is to hope in vain. We must eat our cake, or save it for later. We simply cannot do both.