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Was the Mandate a Mistake?

The individual mandate is the most unpopular element of health care reform. It has also made the new law vulnerable to a court challenge, however weak that challenge may seem. So were President Obama and his allies mistaken to include a mandate in the law?

Paul Starr thinks so. In an article from the latest edition of TNR, Paul argues that Obama and the Democrats could have chosen an alternative to the individual mandate – one that would have achieved the same policy goals, but without the political liabilities. 

Paul is a friend, a mentor, and a highly respected authority on health care policy. He wrote The Social Transformation of American Medicine, the seminal text on health care in America. He also was a key architect of Bill Clinton's ill-fated health care plan, which I still think was a well-conceived proposal. His articles are always worth reading and this one is no exception. But I still think Obama and his allies did the right thing.

Let’s start by reviewing why a mandate is necessary – and how it will work in the new law. The idea behind the mandate is pretty straightforward: If you’re going to require that insurers sell policies to all comers, and at the same price, then you have to make sure everybody gets insurance. Otherwise, some people are likely to game the system. Particularly if they are young and healthy, they may not buy insurance until they get sick or have an accident. If that happens frequently, insurers will have to jack up rates or stop offering coverage altogether. This process is called “adverse selection” and it could unravel the insurance market.

Paul understands and agrees with that basic logic. It’s the specific design of the mandate to which he objects. Under the Affordable Care Act, people with the economic means to pay for health care must obtain insurance or pay a modest fee to the government. (The government subsidizes the purchase for people who can’t afford the full price of a policy; it also exempts people with religious objections to formalized medical care.) Paul suggests that, instead of imposing this requirement, the government could simply have offered everybody a choice: People could opt to refuse insurance, but only if they were willing to relinquish the benefits and protections of the new law for a fixed period of time: For example, they would not be guaranteed coverage if they had pre-existing conditions. (An alternative would be to charge people late-enrollment fees.)

Such a policy, Paul says, would not have raised the same objections, politically or constitutionally. And it might work just as well, he says. As proof, he points to Medicare Parts B and D, the programs that cover outpatient services and prescription drugs. Those programs operate with similarly structured "soft" mandates. (That's my term, not his.) And while Paul concedes a soft mandate in the Affordable Care Act would not work perfectly, he argues that the mandate already in the law will not be perfect, either. In fact, he says, it’s extremely weak – the financial penalties are small, enforcement is limited to withholding tax rebates – and unlikely to do much good.

It’s true that soft mandates work for the Medicare population. But does that lesson apply to the population that the Affordable Care Act's mandate targets? There's good reason to doubt it. Senior citizens are far more likely than younger Americans to anticipate medical risks. They aren’t the ones likely to avoid buying insurance when it’s available to them. Conversely, we do have one example of a hard mandate at work in the U.S. It comes from Massachusetts, which imposed a similar requirement as part of the reforms Mitt Romney signed while governor. The Massachusetts system has reduced the state’s uninsurance rate from around 10 percent to around 3 percent (or less, depending on which estimate you believe).

Paul wonders whether this example tells us much, since even the 10 percent rate was relatively low by American standards -- and since the Massachusetts mandate had the enthusiastic backing of both the political and business establishments. But the fact that the uninsurance rate in Massachusetts was just 10 percent may very well prove the opposite point, since it's likely that 10 percent consisted disproportionately of the young, healthy people who tend not to sign up for health care even when it's available. 

Paul doubts that other states will promote the mandate as strongly as Massachusetts did. That's probably true, at least in more conservative parts of the country. I don't imagine officials in Texas will enlist the Dallas Cowboys in a public relations campaign, as officials in Massachusetts did with the Boston Red Sox. But the federal government will be promoting the new law, as will foundations and well-funded advocacy groups that are already working on outreach efforts. And in more liberal parts of the country, states can be counted upon to promote the law just as strongly as Massachusetts did. (Maryland residents: Get ready to hear from the Orioles. Or maybe the Ravens...)

Of course, what I think matters a lot less than what the Congressional Budget Office thinks. But the CBO happens to see things the same way. The CBO doesn't assume that the mandate will work perfectly: It realizes, as Paul says, that the relatively weak financial consequences of the federal mandate mean that many young, healthy people will continue to eschew coverage, even after the new law has taken effect. Even so, CBO and other forecasters believe that the mandate makes a difference, encouraging many more people to sign up for insurance. Their judgment reflects more than guesswork: It's also a product of economic modeling that is based on data, compiled over decades, on how people respond to financial incentives for health care.

Jonathan Gruber, the MIT economist, summarized the prevailing wisdom in a paper published by the Center for American Progress. Here is his conclusion:

Modeling the impact of fundamental health reform is a balancing act between leaning
on what is known and modeling what we need to know. In the case of the new health
reform law, that balancing act was greatly assisted by the experience of Massachusetts,
which provides a great case study of the world with reformed insurance markets and an
individual mandate. Once we move away from the individual mandate, our estimates
become considerably more uncertain.

Nevertheless, several lessons are clear from the exercises described in this paper. First,
no alternative to the individual mandate can cover more than two-thirds as many
uninsured as the Affordable Care Act does as passed by Congress and enacted into law.
Second, no alternative to the mandate saves much money—even removing the mandate
altogether, which cuts the number of uninsured covered by 50 percent to 75 percent but
only reduces government spending by 25 percent to 30 percent. Strikingly, broad and
aggressive auto-enrollment, which I estimate to cover two-thirds as many uninsured as
the mandate, costs just as much because the coverage comes almost exclusively through
auto-enrollment into public insurance. Finally, any alternative imposes much higher
costs on those buying insurance in the new health insurance exchanges as the healthiest
opt out and the less healthy face increased premiums.

Could Gruber, CBO, and the forecasters be wrong? Sure. Paul is absolutely right when he says CBO estimates have created a "false sense of certainty" over how the mandate will work out. Projections are never that precise. But they are the best predictions we have, based on available information.

(As a practical matter, by the way, heeding the CBO was pretty much a political prerequisite for passing legislation. Paul is right when he says CBO effectively shut down the debate over the mandate by deeming it essential to achieving near-universal coverage.)

One other point. The mandate itself is obviously unpopular. But is that the reason the law as a whole generates so much opposition? Paul implies as much, although he doesn't exactly blame Democrats for that: He points out that the issue raised little controversy during the debate over the law and notes, sympathetically, that the lack of opposition "lulled Democrats into thinking the mandate was politically safe."

But I'm not sure the political landscape would look much different if Democrats had opted for a policy that looked more like the one Paul now proposes. Yes, the mandate has hurt at the margins, on the left as well as the right. Plenty of liberals don’t like the idea of being forced to buy a private insurance policy – although, to be clear, that's not precisely what the mandate would do. But the more vocal opponents of health care reform are upset about much more than the mandate.

Many conservatives are unhappy that the law will, in effect, use their tax dollars to subsidize medical care for other people. Many seniors are angry that the law reduces spending on Medicare, in order to finance the expansion of insurance coverage. And even many non-elderly, non-conservative Americans are upset that Obama and his allies spent so much time trying to pass health care reform, when, they believe, he could have been doing more to bolster the economy. 

Imagine, for a moment, that the Affordable Care Act did not include a mandate. Would any of these people be substantially more enthusiastic about health care reform today? I doubt it. 

Political or legal circumstances may yet compel lawmakers who support the Affordable Care Act to find an alternative to the mandate. If so, I hope they will give Paul's arguments -- and ideas -- serious consideration, particularly if Paul can find more evidence that his alternatives really will work. But the best evidence we have suggests that the architects of the Affordable Care Act got it right.

Note: I tweaked the language and added a bit more to the political discussion at the end, just to clarify what Paul had written.