Friday, February 15, 2008


The nominee for the Democratic Party will be Barrack Obama or Hilary Clinton. Each proposes an insurance-based National Health Care Proposal. Tax incentives would attempt to provide people with lower cost insurance. Both proposals will retain the grossly inefficient core of private health insurance, since both candidates recognize that the insurance lobby will swamp the more rational and lower cost single payer alternative.

There is one key difference, however. The Clinton plan has a mandate that requires all Americans to purchase health insurance. The Obama plan doesn’t. And that makes all the difference. Scare tactic mongers of the right decry the mandate. However, we will ignore the right, as its only purpose is to defeat any Democratic health proposal.

Let’s see what the sensible middle and the sensible left have to say about the mandate.

1. The mandate is necessary to keep premiums lower and prevent the well-understood insurance phenomena of “free riders” and “adverse selection”. Here’s how it works. People, especially younger people and middle-aged people in relatively good health avoid buying health insurance until they foresee the need for it. Why spend money on insurance when we are healthy when we can wait until we are sick and then buy it? Rational economic action.

Insurers are up on that racket, however. The phenomenon of buying insurance only when required is called “adverse selection”. In other words, the insurance risk pool of people that are about to get sick is an adverse selection of poor insurance risks. For risk-pooled insurance to maintain affordable premiums, the pool must contain a broad pool of insureds. Some young, some healthy, some ill. Without that broad risk pool, premiums would be prohibitively expensive.

To combat this adverse selection, insurance policies adopt strategies such as limits on “pre-existing conditions”. If someone, previously uninsured, develops diabetes at age 35, the insurer will exclude coverage for diabetes. Sounds harsh, but keeps premiums lower and somewhat more affordable.

The “free rider” phenomenon works a little differently, but is still an example of insureds trying to game the insurer. This is a situation where an insured knows that he can obtain full coverage at anytime in the future. But to save a few bucks, he holds off until the point when he requires services. Pre-existing condition exclusions make free-riding hard to do. But it can be accomplished. Here is how and likely when:

The US adopts a national health insurance system, similar to the one proposed by Barrack Obama. The government subsidizes private health insurance plans for individuals. You do not have to buy it, however. It is not mandated that you obtain coverage. However, to make such coverage affordable for the average American, the federal government, through tax revenues (where else) heavily subsidizes the coverage.

Without a mandate, many people would free ride, hold off on buying coverage until they foresee a need for it, then swooping in and pay an artificially lower price for ongoing coverage.

These reasons, adverse selection, and the proliferation of free riders, is the reason a mandate is required. Required, but probably politically unfeasible.

2. Mandated insurance violates a “core American principle” of individual liberty and forces people of limited-means to spend their meager funds on health insurance. The first sentence will be parroted by the right wing that opposes any expansion of coverage, and the libertarian-leaning center and left. “Darn it, you just can’t tell “Muricans’ what to do.” Funny, though, how individual liberty rarely gets balanced with individual responsibility.

Others will attack mandates which require enforcement through punitive means such as penalties, individual tax levies, and perhaps garnishment as heavy-handed and an additional burden upon the poor.

But without mandates, the model implodes. Economist Paul Krugman of The New York Times parses the analysis well:

It’s easy to see how the Clinton plan could end up being eviscerated, it’s hard to see how the hole in the Obama plan can be repaired. Why? Because Mr. Obama... has sabotaged his own prospects.

You see, the Obama campaign has demonized the idea of mandates — most recently in a scare-tactics mailer sent to voters that bears a striking resemblance to the “Harry and Louise” ads run by the insurance lobby in 1993, ads that helped undermine our last chance at getting universal health care.

If Mr. Obama gets to the White House and tries to achieve universal coverage, he’ll find that it can’t be done without mandates — but if he tries to institute mandates, the enemies of reform will use his own words against him.

If you combine the economic analysis with these political realities, here’s what I think it says: If Mrs. Clinton gets the Democratic nomination, there is some chance — nobody knows how big — that we’ll get universal health care in the next administration. If Mr. Obama gets the nomination, it just won’t happen.

The Author sees it even more cynically. Mandates are the leverage point that the right will use to derail any attempt at expansion of healthcare coverage. As an example, former presidential candidate and New Mexico Governor Bill Richardson has proposed a universal healthcare bill for the state of New Mexico. It contains individual mandates and requires deadbeat businesses that do not provide health care coverage to their workers to pay into a state fund to subsidize individual coverage.

Guess what? The mandate requirement was gutted, despite the fact that small businesses, small insurers, and the American Medical system want to eviscerate employer-based coverage and force individuals to go out to the snake pit of the individual insurance market. Oh, and the deadbeat small businesses managed to kill the requirement that they address their own individual failures to purchase health care coverage for their workers.


Fear and greed are the main motivators of politicians. Will an action damage them or reward them? Will their lobbyists reward them if they kill national healthcare, or will their constituents vote them out of office if they do not enact healthcare reform? The equation is that simple.

And in an American political system awash in political bribes (donations masked as bribes contributed by wealthy special interests), greed wins every time.