How an insurance mandate could leave many worse off

Here is my NYT column this week and not surprisingly it covers health insurance.  Excerpt:

At this point, it seems more plausible that the cost of health
insurance will keep rising, just as the costs of health care services
have continued to climb. The upshot is that the burdens of mandatory
purchase, the subsidy costs and the associated implicit marginal tax
rates will all increase, eventually to the point of unsustainability.

A further problem is “mandate creep,” which we’ve seen at the state
level, as groups lobby for various types of coverage – whether for acupuncture, alcoholism and fertility treatments, for example, or for chiropractor services or marriage counseling.

There are now about 1,500 insurance mandates among the various states,
and hundreds of others are under consideration. The dynamic at work
here is that the affected groups have a big incentive to push for
mandates, while most other people are unaware of the specific issues
and don’t become involved.

Because mandates don’t stay modest
for long, health insurance would become all the more expensive. The
Obama administration’s cost estimates haven’t considered these
longer-run “political economy” issues.

There is more to the argument and I urge you to read the whole thing.  Do not forget my penultimate paragraph:

We’re often told that America should copy the health care institutions
of Western Europe. Yet we’re failing to copy the single most important
lesson from those systems – namely, to put cost control first. Instead,
we’re putting our foot on the gas pedal and ratcheting up the fiscal
pressures on the system, in the hope that someday, somehow, it will all
work out.

Of course much of this piece also can be taken as a plea for more government-supplied insurance; that debate didn't fit in the 900-word limit.  The more important lesson, for the time being, is that we're on the verging of passing a policy that simply cannot and will not work.


Also, the mandates combined with forced insurance by empoyer will raise the NARU.


The lower cost alternative the fiscal conservatives want is no tax money paying for medical.

It appears that the opponents of health care reform simultaneously predict that it will result in reduced care and rationing ( e.g. myth's about no hip replacements ) and also predict it will result in excess care and spending. They should get their stories straight.

Of course, it is possible to have both waste and shortages at the same time. Our current system is far and away the world champion at this. The U.S. currently has unmatched spending on procedures with benefits of zero or less for health, as well as record numbers of untreated people and ailments,

Judging by the success of countries like Switzerland and the Netherlands, that Tyler references in his column, not to mention programs like the VA hospital system, there's a proven path to improvement. Alas, Tyler quickly rules that out by noting that such a plan would require us to be competent, and we all know that our gov't can't be ever competent, right? So let's not try. Sounds like he's found a nice, universally-applicable argument for his world view.

This article illustrates the rhetorical device of confusion of the middle term: using the term mandate in two different contexts, and implying they are the same so that if one is a mandate, you must be against the other mandate. Don't be mislead.

Here is one context of mandate: mandated purchase of insurance and the marginal tax. However you might approach this issue, the article does not offset the benefit of having mandated insurance. And, the benefit is clear: if there is mandated insurance, carriers can drop pre-existing condition exclusion. Furthermore, from an actuarial standpoint, writing health insurance, as Robert Shiller would say, is like writing fire insurance: less of a need for underwriters and persons to exclude risky populations.

Mandate is used in a different sense when the article talks about benefits. Here, I agree, we have to be watchful about having every Tom, Dick and Harry procedure and quackery included in the benefit package. Serious problem which has been responsible for insurance becoming more expensive and employers going to self-insurance (Erisa) which does not have mandated benefits. Now, this problem can be addressed--by using a cap on expenditures, or by having a non-legislative body serving as a recommender to the legislature so as to weaken the force of medical lobbyist. This is a problem of a mandated benefit, not mandated insurance.

I don't believe Tyler would deliberately use such a tactic. But, readers who wish to exercise there critical thinking skills but are short of them on Sunday Morning reading the NYT were not served well.

Can anyone name me one thing, one institution that is run by the government and done so in an efficient way? Just one example of where the government has shown competence to tackle such an immense project? One would be sufficient. And please, don't say SSI. That is Accounting 101 - it would hard to screw that up, and yet, in the long run, even Social Security is on an unsustainable track.

It seems that those eager for government run healthcare have failed to see that the powers in Washington are not up to the task. There is almost a chorus of those in favor of the "plan" that this time things will be different. Almost like giving a child more responsibility, so that he/she will step up to the plate.

If a large asteroid were headed directly at earth, who would you want working on the solution; Washington bureaucrats or scientists?

Just name me one accomplishment in scope that Washington politicians have done that should give me or anyone confidence that they can or should be allowed to undertake a project so vast.

The problem as I see it is that the republicans who should in theory be more aggressive than the democrats on cost control are so dependent on the votes of the very old that they will attack attempts from the democrats to lower spending. The way that I would expect the debate to go if I was less cynical (and dumber) is that the democrats would want to expand coverage for the poor and the republicans would demand as a concession some sort of spending cuts. Things haven't worked out that way. Instead republicans complain about the costs of increasing coverage, complain about cost controls killing old people and retarded children, complain about rationing, complain that cost controls won't really control costs. Some of these complaints are definitely valid but there's not even factual consistency led alone ideological consistency.

Tyler Cowen doesn't seem to be all that libertarian to me. But as Bryan Caplan has said, his answers usually only satisfy himself, so I doubt he cares if I say so.

Bill writes:

Instead of mandates to buy insurance, how about taxing people who do not have insurance for the cost of covering those who do not have insurance, including themselves.

Mandating insurance is the same as forcing you to pay for what you consume and the costs you would impose on others.

Why should insurance be mandated, or the uninsured by taxed? Why not just charge them for medical procedures, or let charitable contributions pay for them? Lawyers provide pro bono services, as do some doctors. The latter could provide more of this if their incomes weren't being squeezed by state-soviet intervention in medicine and healthcare.

17% of GDP, what other industry controls that much money?

The government spends half of that money already.


The other point about mandatory insurance is that it results in a benefit for everyone: the ability of insurance companies to offer pre-existing exclusion coverage. It also results in lower underwriting costs, because if everyone has to be covered (ie, is in the pool), then the insurer has less to gain from excluding risky people because it can't, and, since everyone is in the pool, the law of large numbers makes it easy to price the pool.

Although were are not here yet, I would argue that if there is a national benefit package--covering all states--you would see more entry into health insurance, as writing health insurance would be like writing fire insurance: you know that if you have a randomly distributed population of x, there well be so many heart attacks, so many y disease, etc. Today what you have is a unique mandated benefit level for each state, you have adverse selection because, since coverage is not mandated, people who are sick are more likely to seek coverage, and thus you have health exams for coverage (unless employee plan) and you have insurance underwriters.

Think about the cost savings; think about possible insurance and finance models. The world is not static. We can do better.

This is what I have a problem with:

"The paradox is this: Reform advocates start with anecdotes about the underprivileged who are uninsured, then turn around and propose something that would **hurt at least some members of that group.**"


"we’re on the verge of enacting a policy that is due to explode, penalizing many of the very people that it was ostensibly designed to help."

1) Few policies have equal impact across all segments of the economy. They needn't be pareto improvements.

2) "Hurt" is a nice equivocating word because in the case of the those who are uninsured, they really are 'hurt' because they may not have access to life saving treatments. In contrast, those who already have health insurance may face a loss of subsidies, but their 'hurt' is entirely different.

3) Your argument on incentives is surely an important one, but such incentives can be structured to minimize their impact. Furthermore, its not like people don't face disincentivizing policies already in terms of tax rates. The real question is how much these policies would change folks actual decision making.

"Yet we’re failing to copy the single most important lesson from those systems — namely, to put cost control first."

Given how long ago most of the Western European countries created universal coverage systems, can you defend that statement at least a bit? At least one example, with some details, of a country that was effectively in a position of "Now that we've got costs under control, let's see about universal coverage."

BTW, are survival rates better in the United States for cancer and heart disease or are they better in Western Europe and Canada? I hear that U.S health care is very very expensive and they get nothing for it. Therefore, the best hospitals, the best medical techniques and the best cancer and heart disease survival rates must be found in the other countries. Im eyes and ears for evidence.


I couldn't find the report on line, but I remember a news article comparing survival rates in a bunch of American and Canadian hospitals for similar diseases.

In general, the American hospitals tended to have a *slightly* better survival rate in a little over 50% of the cases, the Canadian hospitals slightly better in about 30% and the remainder a wash.

If I remember correctly, the intra-hospital differences were larger than the international differences.

In other words, you were more or less getting the same survival rates on both sides of the border. (The hospitals were looking for best practices among themselves - the nationality of the hospital was not of interest to them.)

I suspect the report didn't get much coverage because it failed to demonize either the American or Canadian hospitals, which meant it wasn't much use in the health-care war.

I agree that a mandate would make some people worse off, and some people better off - in an ex-post sense. Just like, ex-post, I would prefer not to have paid for earthquake insurance on my home over the past year, because we didn't experience an earthquake. But given the adverse selection problems in in health insurance markets, I fail to see how there can be a well-functioning market that has some hope of providing "insurance" (in the true, ex-ante sense) without some type of mandate. And why should the government get involved here? - well one argument is that the government cannot commit ex-ante to provide no funding ex-post for medical care for people who don't have insurance. Which of course, includes all the sickest people, if there is no mandate...


Could you provide a cite for he $14,000/yr figure you quote? My impression is that this is not fromthe CBO, but is rather a discredited calculation made by some advocacy group.

"one argument is that the government cannot commit ex-ante to provide no funding ex-post for medical care for people who don't have insurance."

My guess is that the government can safely commit to only providing life-saving medicine (including emergency-room care) and care for catastrophic expenses. Which is why the federal mandate should be restricted to these and to cheap preventive medicine.

Everything else should really not be purchased by insurance in the first place.

I just hope that they do not make my $10,000 deductible policy illegal.

Good article.

I found this paragraph particularly inscrutable: "And mandates also fare better in those nations because of their greater equality of incomes. In other words, it’s less of a stretch to offer poorer people coverage that is roughly comparable to that of the wealthy." I can speculate why it might be true, but it's not clear what you were thinking.

Also, Bill's point about the two things falling under 'mandate' is a worthwhile caution.

Again Tyler does an excellent job of non-ideologically laying out the facts. Maybe it takes a brazen ideologue like myself to see how non-ideological Tyler is being. He's simply stating the facts of the proposal that the promoters conveniently leave out due to their agenda.

"It appears that the opponents of health care reform simultaneously predict that it will result in reduced care and rationing ( e.g. myth's about no hip replacements ) and also predict it will result in excess care and spending. They should get their stories straight."

Funny, this is what the promoters say is happening now. Guess what, they are both right. The question is what incentives will be changed to incentivize what type of medical procedures. Currently, government medicare incentivizes end of life spending that does little good and costs a lot.

The free rider problem is a problem, but if you force young and healthy people into insurance then you are free riding on their backs. He addressed this.

And again, the important thing is that they will ultimately make the only plans that actually do control costs, high-deductible, HSA combo, unqualified because it doesn't cover the procedures often preferred by their politically favored classes.

I'd like to know what people who think the US government can't do anything competantly or efficiently think of the US military, and whether they think it should be replaced by private "terrorism insurance" or similar.

The mandate insurance in the current bill will not be sustainable for a number of economical reasons. First off, I feel the United States can’t look at Europeans health care model because the population is different from ours. The Europeans are just healthier than us. We have more over weight people than in Europe. Since we are less healthy people, we need more health care to keep us alive. Thus, health care for the United States will generally be greater than in Europe. Europe has a very organized system as stated in the article because of the small size and similar salaries. But for America diversity reigns supreme in domestic affairs. America just can’t have the same organization that other states have because of the diversity. To run any business efficiently, organization is key said by Cowen. He is right to prevent runaway cost organization is needed. The insurance mandate might work for a few years but inefficiencies will catch up to the system.
Inefficiencies such as paying for AAA or annual checkups, the name of the game must be control. The article mentions the need for tight control over health care. That is the problem. How do we tightly control a health care system that is massive in size and not unified? Runaway cost I believe can’t be stopped. As more health services are provided because of demand, price will increase. People will demand more because they are paying for it in taxes. I believe private insurance can ease or prevent the runaway cost. Private insurance has an advantage over government insurance because people can choose what coverage they want. If they want more they can pay more. With federal insurance, more means other people must pay more. The insurance mandate can be done but tight control over what is insured must be kept in check.

The health care issues are growing out of control. Its crazy how much we as Americans are being forced to purchase health care. This in not the only problem the tax rates that we are going to be charged are outrageous and shouldn't be enforced. The long-run cost are going to be overwhelming when we consider how much money we are going to be paying over time. I agree that cost control should be one of the highest priorities because without it the economy is just going to get worse and leave families worse off with their struggle to support the needs of their family. For example everyday living such as food, transportation and keeping a roof over their heads. I believe that the health care plan should be looked at more closely so that it would better the average family in the United States because if they keep at this rate then the economy is just going to continue to plummet.

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