Why Economic Conservatives Should Support the Individual Mandate in Health Care

Although many conservatives are gnashing their teeth about the Supreme Court's upholding the individual mandate, had it not been upheld, their worst nightmares would have occurred: government would have required hundreds of billions in additional taxes to pay for the health care of the sick.

Why We Need an Individual Mandate

Health care expenditures roughly follow Pareto's Law: 20 percent of users spend 80 percent of the money. If the healthy 80 percent do not buy health insurance, the sick 20 percent will not be able to afford it. In 2009, the average expenses of the sick enrolled in State high-risk pools ranged from $8,000 to $24,000. Even the top 10 percent of taxpayers, with incomes over $110,000, could barely afford these sums.

Sick people are insured presently because 40 percent of them are in Medicare and 97 percent of the rest are covered by employers or Medicaid .The healthy people in these insurance pools subsidize the costs of the sick ones. But many employers, weary of uncontrolled and unpredictable health care costs, will likely soon switch to a pension-like defined contribution system, cashing out employees with the value of employer-sponsored insurance -- $4,500 in 2011. Absent the requirement that healthy people buy insurance, it is likely that the individual insurance market will consist primarily of sick people. They will have $4,500 to buy a policy with average expenses of up to $24,00. Good luck with that one.

Absent an individual mandate, instead of buying their own insurance, most of the sick will qualify for subsidized coverage either in the public health insurance exchanges created under health care reform or in Medicaid. Staggering sums, hundreds of billions, in additional tax revenues will be required to support them.

Further, government payment for sick people's health care expenses will diminish the massive venture capital investment needed for developing genomically -- derived therapies. We stand at the brink of a revolution in medicine which may well replace current barbaric therapies (painful, invasive surgery; radiation; and chemotherapy for cancer, for example) withdrugs which can palliate and perhaps cure genetically -- linked diseases. But, like most new technologies, these are hugely expensive to develop, and, initially, to manufacture. Remember the prices of the first cell phones? Savvy privateequity investors will be leery of funding this sector when the primary customer for its products is a government. They all know that the UK, with its government-controlled National Health Service, buys expensive cancer drugs at rates like those of far smaller and poorer nations.

Why an Individual Mandate Is Feasible

Some also claim that enforcing the individual mandate is infeasible, but Switzerland's 97% enrollment rate for its version of the individual mandate indicates its feasibility. The Swiss achieve this compliance through straight forward techniques: tax filings indicate whether health insurance was purchased (it is tax-deductible there); the canton buys health insurance for the uninsured and bills them; and welshers are sued under laws that allow confiscations of property.

Some may view the Swiss as more law-abiding than we, but a 2011 cross-country analysis of the percentage of the GDP in the shadow economy found the U.S. to have the lowest percentage.

Fiscal conservatives have plenty of reasons to deplore other aspects of the health care reform legislation. By expanding coverage, it will add trillions to our already bloated, uncompetitive health care system and the cost -- controls in the legislation are either worrisome (as, for example, with the Independent Payment Advisory Board, which allows a handful of people, rather than the American public, to cap health care expenses), or unrealistic, relying on a rearrangement of the deck chairs of the Titanic, the present U.S. health care delivery system, to control costs.

But the individual mandate deserves economic conservatives' support, not their dissention.

Regina E. Herzlinger, the Nancy McPherson Professor of Business Administration, Harvard Business School, is the author of the "Market-Driven Health Care" and "Who Killed Health Care?" and the editor of "Consumer-Driven Health Care." Currently she is working on three texts and casebooks based on the course Innovating in Health Care, which she teaches at Harvard Business School.