Becker and Posner's Problematic Prescription

Richard Posner and Gary Becker both endorse requiring individuals/families to purchase private health insurance, as a potential alternative to our current healthcare woes:

“As a matter of economic principle (and I think social justice as well), Medicare should be abolished. Then the principal government medical-payment program would be Medicaid, a means-based system of social insurance that is part of the safety net for the indigent. … The nonpoor could be required to purchase health insurance in order to prevent them from free riding on family or charitable institutions in the event they needed a medical treatment that they could not afford to pay for.” (Posner, emphasis added)

“Another way to cut excessive use of medical care is to end the free riding by the approximately 40 million uninsured individuals who receive cheap care at emergency rooms of all hospitals, and as in-patients in public hospitals. To prevent that, everyone should be required to buy at young ages private catastrophic medical insurance that can be automatically extended. Medicaid would cover the poor who cannot afford to pay for this insurance (I cannot address the many problems of Medicaid here).” (Becker, emphasis added)

As compared to the status quo, this proposal might indeed be superior – and it’s certainly better than adopting a single-payer system. That said, some potentially severe unintended consequences could result from mandatory health insurance.

First, if you’re going to mandate something, you have to define it. Congress or the state legislatures will have to specify a minimum benefits package that a health insurance policy must cover in order to qualify. It’s not plausible to believe this package can be defined in an apolitical way. There simply does not exist an objective medical definition of “necessary care,” especially since most conditions can be treated in different ways and patients have heterogeneous needs. The lack of an objective definition will open an aperture for lobbying. Each medical specialty, from dermatology to psychiatry to acupuncture, will pressure the legislature to include their services in the package. And then they will lobby to require first-dollar (or near first-dollar) coverage for those procedures.

Think it won’t happen? Think again: the states already require a boatload of benefits to be included in any health insurance plan. Here’s Virginia’s list of mandated benefits, for instance. Other states’ mandated benefits are even more extensive (and silly – some even require coverage for hair transplants). We’ve also seen the recent inclusion of Viagra under Medicare. Requiring people to buy such insurance would only intensify the lobbying incentives.

The expansion of the “minimum” benefits package will, of course, drive up insurance premiums. As a result, an increasing number of people who could have afforded a more stripped-down package will find themselves unable to afford the bloated package. Two effects will follow. (1) More and more people will have to rely on Medicaid instead. (2) To the extent Medicaid is unavailable, many will simply go uninsured. (Just because you mandate something doesn’t mean people will actually do it. California requires people to buy minimum liability auto insurance, but approximately 40% of California drivers are uninsured.)

The combination of these effects will, of course, fuel demands for further intervention to cure “market failure” in the healthcare industry. Protestations that the ill effects are in fact due to government failure will, naturally, go unheeded. In the long run, the individual mandate might strengthen the demand for a single-payer system instead of weakening it.

I’m no psychic, so I can’t be sure all of these effects will occur. Maybe the benefits package will somehow be defined in a way that’s resistant to political pressures. But everything I know about the operation of our political system tells me otherwise, and that makes me extremely wary about Becker and Posner’s plan. Economically, it might be better than the present system, but politically it might be substantially worse.