post by Paul Kelleher
The individual mandate is said to be required in a system that seeks near-universal coverage through private insurance. A lot of people speak as if there is just one reason or rationale for why a mandate is needed. But in fact there seem to be three separate reasons, and depending on which weighs with you, different policies may be called for.
1. Preventing free riding. Here's narrator Cokie Roberts in that nice Kaiser Family Foundation video on the ACA:
You might say, "If I can’t be turned down or charged more if I’m sick, why not just wait until I get sick or injured to buy insurance at all?" Not so fast, buddy. See, with few exceptions, people will be required to have insurance, or to pay a special tax.
The thing is, Avik Roy and Paul Starr are correct that if it's free riding one wants to prevent, then an individual mandate is not necessarily the answer. We could impose a waiting period of significant length for those who forego coverage. That way, if they get sick, they are not allowed to take advantage of coverage that exists only because others paid higher premiums while one stood healthy on the sidelines.
2. Refusing to "Let Him Die." If the Roy/Starr solution to free riding is adopted, however, a society's enforcement of the waiting period would mean that some people who forewent coverage will avoidably deteriorate or die while they are trapped inside the waiting period. Many would not like that, and the individual mandate is one way to make sure the state and its citizens do not have to say "Sorry, but no" to these individuals.
3. Ensuring that the healthy cross-subsidize the sick. The third distinct reason for the mandate is to force the healthy into risk pools with the sick, so that their premium dollars are available to pay for the care of the sick. True, the healthy get coverage out of this arrangement, but they are no longer permitted to forgo insurance--even if society is in theory willing to tolerate a waiting period. This is because their premium dollars are needed to reduce the premiums for everyone else who remains in the risk pool. If this is your reason for the mandate, you'll likely have to couple it with support for a robust minimum plan, to prevent the healthy from satisfying the mandate with a bare-bones plan that only healthy people would want in the first place.
Are there other reasons besides these? Am I wrong to say these are distinct reasons? I'd be glad to hear what you think.
UPDATE: Brendan Saloner offers two more reasons in the first comment below.
UPDATE II: In a post today, Aaron Carroll describes a very intriguing and potentially surprising additional reason.