Monday, December 13, 2010

The Individual Mandate Re-Visited

Such a boring title. But that's what happened today:

A federal judge in Virginia ruled Monday that the individual mandate contained in the health care law passed by Congress and signed by President Barack Obama this year is unconstitutional.

Judge Henry E. Hudson found in favor of Virginia Attorney General Ken Cuccinelli, who brought this suit separately from the other state attorney generals suing the federal government over the law. Hudson was the first judge to rule against the law. Two other judges ruled in favor of the law, bringing the Obama administration's record thus far to 2-1. At least 13 other suits against the health care law have been dismissed on jurisdiction or standing issues.

Hudson ruled that there where "no compelling exigencies in this case" because the individual mandate doesn't take effect until 2013. Therefore, he said his ruling was declarative and not injunctive, which means it will be reviewed either by the appellate court or by the Supreme Court.
I am not going to write about the legal or the political aspects of this, though both are certainly interesting. Instead, I want to return to the economic aspects and all this as an example of why compromises sometimes really don't work.

To give a parable, you cannot combine a horse and a car to get something that goes at a speed between the two, especially if you do it by cutting them both in half first. But that is what happened with the health care reform, during those long and tedious months of compromises. We started with a car, though not a great car, and slowly we added bits of horse to it, until the final result pleased fewer people than one might have expected.

Translate this story into the terms of the health care reform and what do you get? A final combination between a plan that would have all Americans covered with perhaps a single payer financing model and a plan that would leave the system pretty much as it was. This combination is that half-car-half-horse I talked about, especially if the individual mandate is removed.

Why? Consider another crucial aspect of the health care reform proposal: Getting rid of the pre-existing conditions as an excuse for refusing a customer further insurance. What happens if we keep that but do not allow the individual mandate which requires all people to have health insurance?

It creates an incentive for healthy people to carry only minimal coverage for routine care UNTIL they get sick. Once pre-existing conditions cannot be used to deny coverage, why bother paying for expensive insurance until one needs it?

Not all consumers would think this way but some, perhaps many, would. And the outcome would be a system of insurance which could not fund itself. Hence the initial need for the individual mandate. That it also made the whole deal sweeter for the health insurers is obvious, and also a consequence of an earlier compromise or progressive failure in not getting a public option into the package.

So what happens now? If this ruling is retained, pre-existing conditions will come back as a valid reason for denying someone coverage or for making them pay more for that coverage.