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The Mandate Miscalculation

Obama’s health care blunder—and how to fix it.

Democrats didn’t see it coming: Before the passage of the Affordable Care Act in 2010, neither congressional leaders nor the White House anticipated that one specific provision—the mandate requiring individuals to maintain a minimum level of health insurance—would spark such a ferocious political and legal backlash. Yet, nearly two years later, controversy surrounding the mandate dominates the national conversation about health care reform. The constitutionality of the mandate is the central issue in the legal challenge to the Affordable Care Act, which the Supreme Court will take up this March. And overturning the mandate has provided a rallying cry for Republican opposition to President Obama.

The story of the individual mandate is replete with ironies. Obama spent much of the 2008 primary season denouncing the mandate, which Hillary Clinton supported. At the time, Mitt Romney was strongly identified with the idea, which had been central to the reforms he introduced as governor of Massachusetts. Four years later, Romney may be the nominee of a party that abhors the mandate, while Obama now defends it. Yet perhaps the greatest irony has to do with the mandate’s policy merits. Many liberals assume that universal health care requires an individual mandate; but there are arguably better alternatives. In fact, as the law stands, the mandate may simply not work because it lacks adequate means of enforcement.

For Democrats, then, saving the Affordable Care Act—legally, politically, and practically—could very well mean getting rid of the mandate. And it is not too soon to begin thinking through how—if the opportunity arises after next November—they might accomplish this.

THE INDIVIDUAL MANDATE was not always embraced by liberals. Indeed, the idea originated on the right. In 1989, Stuart Butler of the Heritage Foundation proposed an individual mandate as part of a plan for “assuring affordable health care for all Americans”; two years later, the economist Mark Pauly put forward the idea as part of another health care proposal. Those plans in turn formed the basis of a bill introduced in 1993 by Republican Senator John Chafee of Rhode Island and co-sponsored by then-GOP Minority Leader Bob Dole. At the time, the media often characterized the individual mandate as the conservative alternative to the Democrats’ proposed mandate on employers to pay for a share of health insurance. The Republican proposal was thought to represent a more individualistic, market-friendly approach. Although the 1993 Clinton health plan contained penalties for failing to insure—states could have charged people up to three times unpaid premiums or $5,000, whichever was greater—these penalties were of little significance to the program.

A decade later, personal responsibility was the core of the case for the individual mandate that Governor Romney made in Massachusetts. “It’s the ultimate conservative idea, which is that people have responsibility for their own care, and they don’t look to government ... if they can afford to take care of themselves,” he told reporters when he released his proposal in June 2005.

In the run-up to the 2008 election, many Democrats coalesced around the Massachusetts approach to health care reform in the hope that they could win the same broad support that Romney’s program enjoyed in that state. During the primaries, the health care proposals put forward by Clinton and Obama provided for the establishment of insurance exchanges, subsidies to the poor and near-poor, and other elements of the Massachusetts model. But, while Clinton’s proposal required everyone to maintain a minimum standard of coverage, Obama’s plan required only that parents sign up their children for insurance.

Obama’s stance on the mandate had clear political advantages in the fight for the nomination. It helped to reinforce the idea promoted by his campaign that, despite the preconceptions voters might have about a black candidate, Obama was more of a centrist than Clinton. The contrast on the mandate also fed into commentary tying together the candidates’ personalities and their policies, suggesting that Clinton was controlling and coercive—an uptight, bossy woman—while Obama was cool, relaxed, and easy-going. Obama emphasized the coercive character of the mandate in a January 2008 debate, saying to Clinton: “If they cannot afford it, then the question is: What are you going to do about it? Are you going to fine them? Are you going to garnish their wages?” The next month, an Obama mailer warned: “The way Hillary Clinton’s health care plan covers everyone is to have the government force uninsured people to buy insurance, even if they can’t afford it. ... Punishing families who can’t afford health care to begin with just doesn’t make sense.”

While attacking the mandate, Obama failed to offer any policy that would accomplish the mandate’s purpose: preventing people from opportunistically paying for insurance only when they need it. And, without any alternative, the reforms that Obama favored, such as elimination of preexisting-condition exclusions, would drive up the price of insurance by giving people an incentive to delay purchasing coverage until they were sick. Any system that allows people to buy insurance on the way to the hospital, and then to drop it when they get back home, is bound to be very expensive.

The debates with Clinton during the primaries forced Obama to become better versed in health policy, and they may have even had some influence on his thinking about the mandate. The position of the insurance industry may also have encouraged Obama to change his position. Not long after Obama locked up the nomination, Karen Ignagni, president of America’s Health Insurance Plans—the main lobbyist for the insurance companies—flew to Obama’s campaign headquarters in Chicago to say that the industry would accept a reform plan that included the guaranteed issue of policies with no preexisting-condition exclusions if the legislation also included a mandate that everyone be covered. In other words, the mandate was the price for the industry’s cooperation.

At some point that spring or summer, Obama’s view of the individual mandate apparently changed, though he said nothing publicly about it. At the beginning of July 2008, Neera Tanden, a longtime adviser to Clinton, became the Obama campaign’s policy director for the general election. At a meeting on July 2 in Chicago, as she recalled later in an interview, Tanden wanted to know what Obama thought of the mandate. “I kind of think Hillary was right,” he told her.

The mandate never became a big issue during the general election, and that continued to be the case for Obama’s first year in office. Yet, behind the scenes, the thinking inside Obama’s orbit was clearly shifting. In a little-noticed change, Obama dropped or marginalized his health policy advisers from the campaign and brought in advisers with old Clinton connections. The mandate became the assumed policy in the White House, though Obama did not have to reverse himself publicly on the issue because Congress took the lead on legislation. All the bills that came out of Senate and House committees included a mandate.

Meanwhile, both opponents of health care reform and undecided members of Congress focused on other issues, such as the public option, abortion, and coverage of illegal immigrants. The Blue Dogs, for example, never said they would vote for the legislation only if congressional leaders dropped the individual mandate. Nor did the mandate seem to trouble the Republicans whom Democrats hoped to win over. “I believe that there is a bipartisan consensus to have individual mandates,” Senator Charles Grassley, the Iowa Republican, said in June 2009, while he was still dangling the possibility that he’d vote for the bill. Since it wasn’t a major legislative stumbling block, Democrats may have assumed that the mandate wouldn’t become a political problem—though surveys showed it to be the one distinctly unpopular aspect of the legislation.

EVEN AS DEMOCRATS were lulled into thinking that the mandate was politically safe, they were equally blasé about the possibility that it could be challenged legally. During the congressional debate, legal experts consulted by Democrats all agreed there was no case against the constitutionality of a health insurance mandate—and they were right that there should be no case. Opponents of the law say it is unprecedented for Congress to regulate inactivity as opposed to activity under the interstate commerce clause, but the Constitution provides no basis for that distinction, and many regulations on commerce do, in fact, impose penalties for failing to act. Moreover, those without health insurance scarcely abstain from commerce since they leave billions of dollars of unpaid bills at hospitals and other providers.

The relevant question, though, was not what Democrats believed, but rather what Republican-appointed judges would say. As of the early ’90s, their decision would not have been in doubt. If the 1993 Chafee bill had passed Congress with substantial Republican backing, GOP appointees on the bench would almost certainly have upheld the individual mandate. After all, the mandate’s original purpose was to establish a private substitute for a government program; conservative judges were unlikely to find a form of privatization unconstitutional. At that time, the Supreme Court also set no effective limits on the use of the interstate commerce clause as a basis of federal authority.

But two things have changed since then. Conservatives now see the individual mandate not as a means of shoring up the market but as an unprecedented extension of government, and even justices on the Supreme Court are not immune to influence from shifting conceptual frameworks. Moreover, beginning in 1995, the Court set limits on the application of the commerce clause. That year, it overturned a federal law banning possession of firearms in a school zone on the grounds that there was no substantial relation to commerce, and in 2000 it struck down a law providing a private right of action for victims of gender-motivated violence on the grounds that gender-motivated crimes are not an economic activity and do not substantially affect commerce.

Neither of these decisions applies directly to the mandate; the Court has long held that insurance is an economic activity that Congress has authority to regulate. Nonetheless, the Court’s general movement in restricting use of the commerce clause should have made Democrats wary of resting the mandate’s constitutionality primarily on that basis when they could almost certainly have made the law bulletproof by framing it unambiguously under the taxing power of Congress. In one alternative, for example, the law could have imposed a tax to pay for health care, while providing an offsetting credit to those with insurance. The effect would have been identical to the mandate. To congressional Democrats, however, the use of a tax was politically inconceivable.

WHY WERE DEMOCRATS so determined to make the mandate part of the law in the first place? According to a view popular on the left, the main factor was the insurance industry, which wanted millions of additional customers. There was a grain of truth to this: As Ignagni made clear in Chicago in 2008, the industry did want a mandate, and, in the early stages of the reform battle, Democrats hoped to get the industry’s support. But, in the end, Ignagni’s group refrained from endorsing the Affordable Care Act, and the Big Five commercial insurers poured money into the U.S. Chamber of Commerce to fight it. If insurance-industry pressure were the sole or main impetus, the mandate might not have made it into the final bill.

Instead, the more decisive influence was a policy judgment, widely shared among Democratic advisers, that the mandate was essential to achieve near-universal coverage at a reasonable cost. That judgment reflected a simple comparison of what would happen with and without a mandate, with little consideration of alternative policies that might have achieved the same (or better) results while avoiding a political backlash and legal complications.

The rationale of the mandate is plain. If every year individuals can sign up for a policy without any preexisting-condition exclusions, they may have little reason to pay for coverage while they are healthy. Estimates by the influential MIT economist Jonathan Gruber and by the Congressional Budget Office (CBO) indicated that, without a mandate, the number of people remaining uninsured under the program would rise sharply. According to a 2010 CBO estimate, eliminating the mandate would raise the uninsured population in 2019 by 16 million; in addition, premiums paid by people who buy insurance individually would rise 15 to 20 percent because of adverse selection (that is, sicker people would be more likely to be insured). Those higher premiums would increase the cost of subsidies and reduce the popularity of the program.

But these estimates are highly speculative for one key reason: They assume substantial compliance with a mandate that has no enforcement behind it. Those who do not sign up for insurance are supposed to face a fine; but, if they don’t pay it, the government cannot impose any criminal sanctions, liens on property, or levies on income. The IRS only has one clear method of collection: withholding a tax refund. As Judge Laurence Silberman of the D.C. Court of Appeals wrote in his decision upholding the mandate, “[T]his provision’s success depends ... on voluntary compliance.” The individual mandate, in short, is a mandate only in the sense that a toy gun is a gun. There is no way to fire it, though some people will blink if it is pointed at them.

Even though Senate Democrats chickened out from framing the penalty as a tax, the CBO decided nonetheless that people would respond to it as a tax and that, even without any major sanctions, the law would establish a new social norm leading millions of mostly low-income people to pay for health insurance. The mandate ultimately rests on little more than a hope that individuals will comply with the law because law-abiding citizens generally do comply with laws and perhaps because of an illusion that failing to pay the penalties would bring the same enforcement measures as failing to pay taxes. But a mandate that is widely seen as illegitimate is unlikely to create the social pressures on which these estimates are counting. And it will not take long for people to discover that they can defy the mandate with impunity.

The one state with a mandate hardly offers much guidance. Massachusetts now has near-universal coverage, but, even before its recent reforms, only about 10 percent of its population was uninsured. Romney’s program passed with overwhelming support from both Republicans and Democrats in the state legislature. Business, labor, and the health care industry all backed the law. And, when the mandate went into effect, the agency in charge of the program ran TV ads with stars from the Boston Red Sox saying it was time to get health insurance. In some states today, by contrast, the uninsured represent 20 percent or more of the population, and, instead of elite-led support for the health care legislation, there is elite-led opposition. Under those conditions, open defiance of the mandate will be respectable, and compliance with the mandate may be much lower than the official estimates assume.

WHILE THE Affordable Care Act was being crafted, the CBO effectively shut down debate about the mandate by estimating high compliance with it and dire effects from other options. Perhaps as a result, Congress didn’t consider alternatives that might have worked—and might still.

My preferred alternative has two parts-one to make the law more forgiving, the other to make it more tough-minded. First, the government would allow individuals to opt out of the new insurance system without any penalty; people would do so by signing a form on their tax return acknowledging that they would be ineligible for benefits under the law for a fixed period—say, five years. Second, the government would raise the annual penalties for neither buying insurance nor taking the opt-out.

An individual opt-out would provide an escape valve for people who, rationally or not, see the mandate as a threat. With this added provision, people without coverage through a group or Medicaid would have three basic choices. They could use the new insurance exchanges to buy coverage, receiving subsidies if they qualified. They could take the five-year opt-out. Or they could do neither and pay the annual penalties, though those penalties would be higher, defined as a tax, and backed up with enforceable sanctions.

What if someone took the five-year opt-out and later reconsidered? They could then try to buy health insurance without the subsidies, use of the exchanges, or guaranteed coverage of preexisting conditions. In other words, they would face a market much like the one that existed before the law. I would not advise anyone to opt out. But, if they did, they would be no worse off than they are now.

There are also other alternatives to the mandate, such as raising premiums for individuals who fail to sign up for coverage during the initial open-enrollment period. (Medicare Part D, the prescription-drug program, works that way.) Or the Affordable Care Act could have delegated the responsibility of curbing free riding to the states—giving them an open-ended menu of policies to choose from, which might have included the mandate as well as these other options. A state that followed the example of Massachusetts and enacted a mandate would then do so under state law, eliminating any constitutional challenge that could be brought in federal court. The other advantage of this approach is that the states could experiment with different policies, and the nation could learn from their results. The CBO estimates have created a false sense that we know exactly what the effects of the law’s non-mandatory mandate will be, even though relevant empirical evidence is scant. Letting the states adopt different policies would have been an appropriately modest way to proceed.

TO BE SURE, given the current political climate, Congress is unlikely to revise the Affordable Care Act before November 2012. But that does not mean the subject is moot. Indeed, there are plenty of scenarios under which Democrats could end up needing or wanting to revise the law—and in a strong enough position to renegotiate it.

One scenario for revision begins with Justice Anthony Kennedy and the Supreme Court’s four conservatives overturning the mandate. But the Court may also follow the lead of Judge Brett Kavanaugh of the D.C. Circuit and a three-judge panel of the Fourth Circuit Court of Appeals in Richmond by ducking the issue and ruling that no one can bring suit against the mandate until penalties are due in April 2015. That would throw the question back into the political arena.

Even if the Court upholds the mandate, Democrats in Congress as well as the president may want to change it because of the popular opposition and practical difficulties of carrying out a mandate without effective sanctions. Much would then depend on the exact balance of power after the 2012 election. Assuming Obama wins a second term, Democrats could offer an opt-out from the mandate as one of their principal concessions in a deal with Republicans. The mandate now so embodies what opponents hate about Obamacare that eliminating the mandate in favor of an alternative, while leaving much of the rest of the program intact, would count as a triumph for conservatives. Conceding to them that victory could be a step toward consolidating the real gains under the law.

There is one final possibility: Conservatives may live to regret their opposition to the individual mandate. After all, the mandate began life as a conservative proposal aimed at strengthening the private insurance market. Even today, Republicans want to convert Medicare, which is paid for by mandatory payroll contributions, into a private market—a system that would require purchase of private insurance. If a conservative majority on the Supreme Court or a new Republican Congress and administration kill the mandate, they will indirectly undermine the legitimacy of other conservative ideas about privatized delivery of government benefits. And, years from now, when Democrats finally revive efforts to reform health care, they won’t go down the same road as in 2010. Instead, they may support a tax-financed public insurance system. If history takes that course, conservatives will have made the biggest miscalculation about the mandate. For now, though, Democrats appear to be the ones who miscalculated.

Paul Starr is a professor of sociology and public affairs at Princeton University and the author of Remedy and Reaction: The Peculiar American Struggle Over Health Care ReformThis article appeared in the December 29, 2011, issue of the magazine.