Klein on the Individual Health Insurance Mandate

Ezra Klein has a blog post entitled, “Why Health Insurance Isn’t Like Auto Insurance,” but it’s really about why a health insurance mandate isn’t like an auto insurance mandate. Megan McArdle has some relevant reactions here, but I have a few more.

1) You Can Drive Without Swiping Your Auto Insurance: This is the most obvious, and most important, difference. If your car required proof of insurance to start, more people would be insured. But it doesn't. Cops don't even ask for insurance when they pull you over. The only time insurance is relevant is when you're in an accident.

Health insurance mandates, by contrast, make proof of insurance a prerequisite to using the system. To see a doctor, you do have to swipe your insurance card. To enter a hospital, you do need to show proof of insurance. If you can't, you'll be enrolled in the basic plan. This alone will reduce noncompliance dramatically, because compliance will be necessary to use the health system. Auto insurance, by contrast, is not necessary to use a car. In the Edwards plan, you'll need to enter your policy number on your tax form.

Under a health insurance mandate, will doctors be required to deny you care if you fail to enroll in a health insurance plan? Will emergency rooms turn you away if you have no insurance card? Right now, public ERs are legally prohibited from turning people away, and that’s part of the reason we have free-riders (and free-riding is, of course, the main problem the mandate is supposed to solve). I seriously doubt we have the political will to deny care to people who haven’t complied with the mandate, because if we did, then free-riding would already be a non-issue. (It’s actually not a big issue, as I’ve argued before, but it is nonetheless the leading justification for mandated insurance.)

As for automatically enrolling people in the “basic plan,” how will they be paid for? If automatic enrollees are automatically covered by state subsidies, then it’s clearly not the mandate that’s doing the work of increasing coverage, it’s the subsidy.

2) Car accidents are less likely than flus: Everybody reading this has been to the doctor. Most reading this have never been in a car accident. People are not unaware of the relative rarity of those events. It's easy to skip car insurance under the theory that you will not need it. It will be harder to skip health insurance under the theory that you will not need it.

In other words, the mandate is self-enforcing because people know they need insurance anyway. If that were true, then they’d be buying health insurance right now, without the mandate. The problem, of course, is that some people can’t afford it, and others don’t believe they need it. “Wait, of course they need it! Everyone gets the flu, right?” But the flu isn’t what breaks the bank. You don’t really need insurance to get the care you need for the flu. You need health insurance for major health expenditures – which are about as likely for many people as a car accident.

3) We do not subsidize auto insurance: At least so far as I know. By contrast, all of the major Democrats, including Obama, subsidize health insurance to 300 percent or 400 percent of the poverty line. If lower income folks were given help on auto insurance, more would purchase it. As it is, they will be given help on health insurance, and so more will purchase it.

So once again, it’s not the mandate doing the work, it’s the subsidy. You could keep the subsidy and ditch the mandate, and Ezra’s argument would still work. Subsidies aren’t a terrible idea, but let’s not pretend they “solve” the free-rider problem. We just end up paying for the free-riders in a different way.

This isn't rocket science. It's also one of the useful things about a mandate: The very fact of its universality means a hue and a cry will go up if the government doesn't ensure affordability. Thus, the government has to ensure affordability, or publicly dismantle its mandate. My hunch is it will do the former.

Ahh, so here’s the reason to support a mandate: it won’t actually make healthcare or health insurance any more affordable, but it will get people good and pissed off, and so they’ll demand that politicians do something. Like what? Well, that’s the whole healthcare debate, isn’t it? If we really knew the answer to that question and could agree upon it, then we’d do that instead and forgo the mandate.

In any case, people are already angry that healthcare isn’t more affordable. How will the mandate add to their anger? If we started fining people or throwing them in jail for failure to buy health insurance, I’ll bet that would get them mighty steamed. Is that what the mandate advocates have in mind? Because otherwise, I suspect their attitude won’t change much.

The model of political behavior here is really just incredibly naïve. The idea is that if the people create a ruckus, then politicians will not merely do something, but do something smart. Good luck.

For a better model of political behavior, look to public choice theory. The mandate will create a huge incentive for special interests to make sure the “basic plan” covers everything possible, and that will tend to increase premiums. The anger about that might well create greater momentum toward implementing a single-payer system – which is what Ezra wants anyway. So in that sense, Klein’s argument makes sense, but only in a things-must-get-worse-to-get-better kind of way, and only if you actually think single-payer is a good idea.