Health - Individual Mandates

Excerpted From: State Briefing Book on Health Care

September 23, 1994
W25

Individual Mandates

Almost every state requires automobile drivers to buy auto liability insurance. Many, including some who otherwise advocate free market solutions to health care problems, have argued that health insurance should be mandatory for the same reason: to protect the rest of the population against the costs incurred by those who choose to remain uninsured. However, this argument overlooks the cost of politicizing health insurance, as auto liability insurance has been politicized in such states as California, Massachusetts and New Jersey.

Massachusetts, for example, has the highest automobile insurance premiums in the nation. It also has the highest rate of auto insurance claims. One reason is that Massachusetts subsidizes bad driving through artificially low insurance rates. Under Massachusetts law, insurers are forbidden to base their premiums on age, sex or marital status. Insurers must sell policies to almost any driver, and they cannot charge higher premiums for policies transferred to the state’s high-risk pool. As a result, about 94 percent of young male drivers and 82 percent of young female drivers are in the risk pool. As a proportion of all premiums, policies assigned to the risk pool soared from 23 percent of the market in 1977 to 65 percent in 1989.

If individuals were forced to purchase health insurance just as they are required to purchase auto insurance, health insurance premiums would be determined in the political arena, as are auto insurance premiums. And because health insurance is a far more emotional issue, there would be constant pressure to keep premiums artificially low. Realistically, the government cannot require the purchase of health insurance and leave insurers, providers and state legislators free to increase the price without limit. Mandating health insurance is an open invitation to government regulation of the entire health care system.

"Mandating health insurance is an open invitation to government regulation of the entire health care system."

What’s Wrong With Individual Mandates?

In almost every state people are required to buy auto insurance as a condition for the right to drive. Many " including some who otherwise advocate free market solutions to health care problems " have argued that health insurance should be mandatory, in an analogous way. How well would that work?

Case Study:

Automobile Liability Insurance. Massachusetts has the highest automobile insurance premiums in the nation. It also has the highest rate of auto insurance claims. One reason is that Massachusetts subsidizes bad driving through artificially low insurance rates. Under Massachusetts law, insurers are forbidden to base their premiums on age, sex or marital status. They are required to sell policies to almost any driver and cannot charge higher premiums for policies transferred to the state’s high-risk pool. As a result, about 94 percent of young male drivers and 82 percent of young female drivers are in the risk pool. As a proportion of all premiums, policies assigned to the risk pool soared from 23 percent of the market in 1977 to 65 percent in 1989.

Whereas nationally only about 8.3 percent of auto insurance premiums represent high-risk pool insurance, the Massachusetts risk pool now accounts for one-fifth of all the auto risk pool insurance in the United States. The risk pool invariably loses money, and the deficits are financed by higher premiums charged to other drivers. Overall, there is little relationship between driving behavior and insurance premiums in Massachusetts. Similar problems are occurring in California and New Jersey.

Proposals to Treat Health Insurance Like Auto Liability Insurance.

If individuals were required to purchase health insurance, health insurance prices " like auto liability insurance prices " would be determined in the political arena. Moreover, because health insurance is a far more emotional issue than auto liability insurance, the experience of Massachusetts and other states is only a small indication of the political crisis that would be created.

Opening the Door to National Health Insurance.

Realistically, the federal government cannot require the purchase of health insurance and leave insurers, providers and state legislators free to increase the price without limit. Mandating health insurance is an open invitation to federal regulation of the entire health care system.

Sources: Simon Rottenberg, The Cost of Regulated Pricing: A Critical Analysis of Auto Insurance Premium Rate-Setting in Massachusetts (Boston: Pioneer Institute for Policy Research, 1989); and John C. Goodman and Gerald L. Musgrave, Patient Power: Solving America’s Health Care Crisis (Washington, DC: Cato Institute, 1992).

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