Monday, December 20, 2010

Erroneous and Tautological Arguments for The Coercive Health Insurance Mandate

Ezra Klein of the Washington Post has penned an editorial defending a national coercive requirement that individuals purchase over-priced health insurance, by touting the supposed virtues of the recently-adopted Massachusetts plan, which also contains such a mandate. Close inspection reveals that one of Klein's assertions about the Massachusetts plan is erroneous, and two others are mere tautologies.

1. Klein argues that the Massachusetts individual mandate has reduced health insurance premiums "for everybody" in Massachusetts. Here's the full quote:

"The bigger reason [for Massachusett's supposed success] is that the individual mandate - plus the combining of individual and small firms in the same insurance market - brought healthier, younger people into the mix, which brought average premiums down for everybody." (emphases added).

This is false. As Klein himself argues, one point of the Massachusetts law was to force young, healthy individuals who declined to buy insurance to purchase insurance required by the state. Thus, before the law was passed, thousands of citizens in the Bay State were paying health insurance premiums of zero. Now, having been forced to buy a product they don't want, these citizens must pay premiums that are much higher than zero. So, the law did not reduce premiums for "everybody."

2. If pressed, Klein might reply that the individual mandate helped reduce health insurance premiums for individuals that were purchasing health insurance BEFORE passage of the Massachusetts Act. Here is the pertinent quote consistent with that view:

"Like the federal law, the Massachusetts law left most people's health arrangements alone. The exception: people who don't get their coverage through a large employer or a public program. That accounts for most of the uninsured. It's also where the individual mandate is primarily in play and where the "exchanges" - the purchasing markets that put individuals and small businesses in a single pool and force insurers to compete for their business and treat them fairly - really matter.  In Massachusetts, that market has worked better than expected. According to data from America's Health Insurance Plans, the largest health insurer trade group, premiums for that market have fallen by 40 percent since the reforms were put in place. Nationally, those premiums have risen by 14 percent."

This assertion may well be correct, but if so it's beside the point. Indeed, it's a meaningless tautology. By design, the Massachusets plan, like the National Health Care Reform Act, requires a modified form of "community rating," preventing insurance companies from charging individuals with higher risk profiles more than they might charge those who pose lower risks. As a result, low-risk individuals who declined to purchase insurance before such reform must now purchase insurance at rates higher than justified by their risk profile, while high risk individuals receive a state-mandated discount from the premiums they had to pay before the law. (This is why some have argued that the National Health Care Reform Act is a "Bad Deal for Young Adults.") It should be no surprise whatsoever, then, that, after passage of the Massachusetts law, individuals who previously paid cost-justified high premiums because they posed a high risk, now pay lower premiums, because Massachusetts coercively requires other citizens to subsidize their health care.

In the same way, of course, taxing left handers to subsidize the health insurance premiums of right handers will, believe it or not, reduce the premiums paid by right handers!

In other words, Klein has made no argument for Massachusetts-style individual mandate. He has, instead, simply reported the natural consequence of such a mandate when combined with the sort of price controls inherent in community rating.

3. Klein also praises the Massachusetts Act because, he says, it has lowered the proportion of Bay State citizens who are uninsured. Here again, this is not really an argument. Instead, it is a description of the natural consequences of a coercive requirement that citizens take a certain action. After all, Massachusetts requires all citizens who don't have health insurance via their employers or a public program like Medicare or Medicaid to .... purchase health insurance. If they don't, they suffer a penalty. Apparently most citizens of the Bay State follow the law for one reason or the other.