The Individual Mandate Is Weak. It’s Also Hard to Enforce

by Veronique de Rugy

Ezra Klein has a nice-looking two-minute video over at Vox explaining why Obamacare has a mandate and why it is great. The video is worth watching — it’s a good explanation of what it sets out to explain.

But it’s also a good illustration of what facts look like after they go through the filter of ideology (even if the filter is supposed to be as light as possible). It fails to mention that many healthy and younger people are going to be paying more in order for sicker and older people to pay lower premiums than they did before — which is why the mandate will still be significantly less costly than the insurance Obamacare offers them. It doesn’t mention that in addition to the premium hike on some people, the government will be also be paying some large premium subsidies at a high cost to the country’s finances. The video pretty much makes it sounds as if there is no cost associated with the mandate or the “benefits” some will derive from its existence. The video also probably over-estimates the selection bias in the insurance market (conscientious people tend to buy insurance and also tend to be the ones taking better care of themselves — with no mandate at all).  

Over at the Federalist, Greg Scandlen has a very good piece about what he thinks is misleading about the video. For instance, he writes:

Mr. Klein gets most of his explanation about right, with one big exception. He says that a family making $80,000 a year will (eventually) be penalized $2,000 for failing to buy coverage — “less money than health insurance will usually cost you, but you don’t get anything for that money,” he says. Uh, that’s understating things quite a bit. A family insurance policy costs $16,351 according to the most recent employer benefits survey from the Kaiser Family Foundation.

So, right off the bat Mr. Klein’s explanation fails. He is asserting that of course the mandate will be effective since people will have to pay more or less the same whether they’re insured or not, so they might as well get covered and get some value for the money.

That might be true except for two things. A family that does not get covered will save $14,351 to use for other things. That is a whole lot of money for most people. 

Scandlen goes on to make an even more important point: Mandates are impossible (or extremely hard) to enforce so very few people will actually pay the $2,000 (or other high amounts they may be faced with). 

Plus, even the $2,000 penalty will be impossible to collect. It can be collected only through seizing a family’s tax refund. It is easy enough to avoid having a refund if the family adjusts its withholding at the start of the year so it doesn’t overpay its taxes. …

First, as we indicated above mandates are impossible to enforce. It isn’t just in health insurance. Auto insurance is mandated in almost every state, but the rate of non-compliance is about 14 percent nationally and in many states the rate of non-insurance for auto (which is mandated) is even higher than for health (which is not). Similarly, with other mandates — child support, helmet laws, seat belt laws, even taxes. Non-compliance is always about 15 percent, even when there are severe penalties such as jail time for violation.

There’s also a huge political cost to enforcing punishing penalties or taxes — they require very intrusive enforcement mechanisms, for one, which is why many states don’t effectively enforce the auto-insurance mandate. It is also probably why the administration keeps delaying the employer-mandate. Its impact and the cost of enforcing it will be politically high. 

This raises an interesting question:. If the mandate can’t be enforced and (as Klein didn’t mention) many aspects of the law increase premiums significantly for younger and healthier Americans who might have bought insurance otherwise, wouldn’t this dramatically increase the risk of a death spiral? Logically, it would. (This is the time for me to tell you to read this story about how premiums are expected to soar next year in certain places — which could be having their own death spirals.)

Scandlen has also a good section about the misleading narrative about the mandate success in Massachusetts. He notes:

Mr. Klein wraps up his argument by saying that it worked in Massachusetts. Maybe, but Massachusetts is not like anywhere else in the United States. Health care costs there are 36% higher than the national average, and that state had only 9.5 percent of its population uninsured before the mandate went into effect. Now it has come down to about 5 percent. Many of the previously uninsured likely hopped across the borders to Connecticut and New Hampshire (just an hour’s drive from Boston). Plus, the waiting times to see a doctor in Boston is about double that of any other major city in the United States (see here).

California, to take one big example, is nothing at all like that. California has 21% uninsured and half the number of doctors as Massachusetts. And it has no nearby New Hampshire to receive those people who choose to remain uninsured.

The whole thing is here.