Individual Mandate Responses

My Business Week op-ed has gotten a number of interesting blog reactions. For now, I’ll just respond to two. First, I think Megan McArdle’s position (responding to Tyler’s question) is fairly representative of free-market-ish types who support individual mandates:

The object, as I see it, is to force the people who care about things like legality to get insurance rather than rolling the dice. The people who don't care about such things will continue costing us some fraction of the small amount that caring for the uninsured currently costs us now. It may only be a slight improvement, but it's still an improvement.

Or to put it even more briefly, “If we can get even just a few free-riders to pay for themselves, that’s still better than nothing.” I sympathize with this perspective, but I think it pays insufficient attention to political dynamics. The argument against the individual mandate is not merely that it will produce relatively small benefits; it’s that it will tend to drive costs up, once special interests have their way with the “minimum” benefits package. Once package-packing sets in, insurance premiums will assuredly rise – and that will exacerbate current problems.

Second, Jonathan Cohn thinks I’ve been somewhat unfair to individual-mandate advocates like Clinton and Edwards, whose reform plans include other components designed to address cost issues:

Where Whitman, and Josh [Patashnik], go awry is in suggesting that individual mandate advocates like Clinton or Edwards pretend otherwise. Both recognize it will take additional money to cover the uninsured, at least over the short term. How do I know that? Because Clinton and Edwards (like Obama) have identified separate funding streams that they would use to finance universal coverage -- starting with the Bush upper-income tax cuts, which they would allow to expire. … And that's not the only additional funding they have in mind. Remember how Whitman chided reformers because they didn't "focus on reducing health-care prices and insurance premiums"? Well, both Clinton and Edwards -- and, again, Obama -- have proposed doing precisely that. The difference is that the Democrats running for president don't attack prices the way Whitman would prefer.

Cohn is right that the candidates have also proposed a variety of other reforms, so they don't expect the mandate to do all the work. Rather than picking on one politician and covering all points of that person’s reform plan, I chose to focus on one popular component (the individual mandate) shared by many different politicians’ plans. It’s certainly worthwhile to consider the many other components of their plans, especially when issues of interdependence loom, but that just wasn’t my goal in this particular piece.

In both the op-ed and the longer piece for Cato Policy Report, on which the op-ed was based, I did briefly address the public subsidies proposed by Clinton and Edwards (which would be financed by the additional tax revenue Cohn mentions). My main point was that such subsidies don’t “solve” the free-rider problem; they just force us to pay for the free-riders in a different way. Subsidies don’t reduce costs, and they reduce prices only to the their recipients. Indeed, the rest of us will probably end up paying more, given the package-packing effect of individual mandate.

In the longer piece, I also addressed a couple of other reforms that often accompany the individual mandate: community rating and employer mandates. Both of these are bad ideas, whether independently or in conjunction with an individual mandate.