It’s long been accepted as a given in health care policy circles that if the government is going to force insurers to offer coverage to those with pre-existing conditions, they’re also going to have to require that everybody purchase insurance. Without a mandate, you end up with the infamous “death spiral” — healthy people forgo purchasing coverage because they know they can wait until they get sick, leaving insurers with sicker beneficiaries, which drives up premiums and causes more healthy people to exit the market, and so on.
In the wake of yesterday’s court decision declaring the mandate unconstitutional, liberals have begun to discuss strategies in the event that this aspect of the law gets overturned by the Supreme Court. Both Ezra Klein and Brian Beutler have weighed in, saying there would be ways to modify the mandate. Each of them pointed toward this proposal by Paul Starr for an “opt out” provision. The idea would be that any uninsured American could choose to opt out of the mandate, but only after agreeing to forgo federal subsidies to purchase insurance on government-run exchanges for five years, during which time they would not be guaranteed coverage were they to get a pre-existing condition.
The problem with this proposal — setting aside any legal or ideological issues — is that I don’t see how it would do much to solve the “death spiral” problem. The mandate is mostly aimed at making sure that healthy individuals join the risk pool to offset the cost of covering those with pre-existing conditions. If the “opt out” were simply added to the existing law, this group would now have three choices: A) “opt out” and maintain the status quo B) pay small penalty, which guarantees you the ability to purchase insurance if you get sick or C) shell out thousands of dollars a year on premiums. I think it’s fair to assume that most people in this group would choose either A or B, since the first option woud leave them no better or worse off, and the second option would promise them greater protection for a small fee.
Starr himself anticipated this criticism in a NY Times op-ed, to which he responded: “The more sensible approach would be to provide a five-year opt-out without penalties and, after a transitional period, to set stiffer annual fines for those who want to keep open the alternative of buying guaranteed coverage at any time.”
The problem is that to change the incentive structure, you’d really have to make the fines approach the actual cost of insurance. And even if you did that, healthy people would still be able to choose the status quo, which most of them are still likely to do — or at least enough of them so as to still cause the “death spiral.” This is especially true for those making over $43,320, who would not qualify for any government subsidies anyway. And keep in mind that as the Congressional Budget Office has explained, premiums are going to shoot up for those in the individual market not receiving government subsidies, because the national health care law is imposing all sorts of requirements on what benefits insurers must cover.
The individual mandate is one of the most unpopular elements of the health care law, and Democrats would have jumped at the chance to remove it if there was a viable alternative. But there’s a reason why they kept it in, and why President Obama, who strongly opposed the mandate during the campaign season, had to embrace it. The bottom line is that ObamaCare — particularly the guaranteed coverage for those with pre-existing conditions — unravels in the absence of a mandate.