Paul Starr, writing in The American Prospect, has proposed an alternative to PPACA’s individual mandate.
The rationale for the mandate is that it is necessary to carry out the other reforms of insurance that the public overwhelmingly approves — in particular, ending pre-existing-condition exclusions by insurance companies. If legislation banned those exclusions without a mandate, healthy people would rationally refuse to buy coverage until they got sick, and the entire insurance system would break down. The mandate is designed to deter people from opportunistically dipping into the insurance funds when they are sick and refusing to contribute when they are healthy.
What Starr doesn’t mention is that many analysts believe that the mandate is too weak to actually achieve this goal. But that’s forgivable, as he offers an approach that could prove more effective.
But Congress could address this problem more directly. The law could give people a right to opt out of the mandate if they signed a form agreeing that they could not opt in for the following five years. In other words, instead of paying a fine, they would forgo a potential benefit. For five years they would become ineligible for federal subsidies for health insurance and, if they did buy coverage, no insurer would have to cover a pre-existing condition of theirs.
My guess is that this would present administrative headaches, but it certainly has a straightforward appeal. Rather than pay a fine for failing to purchase coverage, all that happens is that you won’t receive the benefits that flow from participating in the system.
This small fix doesn’t suddenly make PPACA workable. We’d still be far better off with a public reinsurance program that protected against catastrophic expenditures and expenses relating to chronic illness, or the approach recommended by Thomas Miller and James Capretta:
A better alternative, and one much less disruptive to current policyholders, would be to provide adequate and sustainable funding of high-risk pools. Today, most–but not all–states have subsidized high-risk pools that are intended to reduce premiums in the individual marketplace for people with expensive preexisting conditions. They are the most common way for states to comply with HIPAA’s requirement that workers leaving group plans have access to the individual market.
Unfortunately, these pools haven’t worked well, largely because they have invited a mismatch between funding and demand. State and federal subsidies for high-risk pools have been meager relative to the size of the problem they are intended to address, and insurers have been able to steer applicants toward the pools with impunity. Politicians tend to prefer rate restrictions and hidden subsidies to more transparent and straightforward funding for high-risk pools, because the former measures are off-budget and seemingly costless to taxpayers. In truth, that approach backfires, imposing heavy burdens on a very narrow base of private purchasers in the individual market.
Does the highlighted text sound familiar? It should Miller and Capretta propose more generous funding for high-risk pools, with eligibility rules determined by a neutral third party.
But for now, we have to assume that PPACA will survive, which is why incremental fixes merit our attention.