Individual Mandates: Expensive Policy Failure And Bonanza For Insurers And Market Stakeholders

We've been here before. With much fanfare, health insurance mandates were enacted by Massachusetts in 2006 and touted by many as an effective model to reform health care. After three years' experience, here is what the "Massachusetts Miracle" tells us about mandates and their costs.

• Only about one-half of the previously uninsured now have some coverage.
• The public "Connector" established to implement the program has added another layer of 4 to 5 percent overhead without enough leverage to rein in costs of private insurers.
• As health insurance and out-of-pocket health care costs take up 15 percent or more of their family income, many people still forgo needed care because of costs.
• The State has had to exclude many people from the program, the cost of subsidies (for those earning up to three times the federal poverty level) are much higher than anticipated, and the costs of health care continue to soar out of control (Massachusetts pays one-third more per person than the national average).
• In its budget crisis since the Fall of 2008, in order to keep the program going, the State has had to cut safety net programs, including providers, emergency rooms, primary care, and chronic mental health services; and coverage of legal immigrants will soon be eliminated.
• In order to try to get a handle on soaring costs and overutilization of health care, the State is now considering a plan to radically change how providers and hospitals are paid, eliminating the customary fee-for-service system and replacing it with some kind of risk-adjusted global payments.

Mandates are not a new idea. They have been tried in a number of other states, including California, Oregon, Pennsylvania and Maine. The results in Maine are no better than they are in Massachusetts. As a state with a large rural, poor and elderly population and an economy based on small business, employer-based insurance coverage is limited. The State enacted a law in 2003 with the goal of covering all 130,000 uninsured residents by this year. It has also failed:
• The plan now covers only a small fraction of the target population.
• The State had to cap enrollment due to financing problems.
• Most private insurers have left the state, and the dominant insurer has priced coverage in the individual market beyond the reach of most uninsured.

So we already know that mandates don't work as well as their supporters claim. They have not resulted in universal coverage in any state. They are complex, very expensive, not sustainable, and have unforeseen unintended consequences.

Yet an individual mandate that requires all, or nearly all, uninsured Americans to purchase health insurance is a basic part of all the proposals now being developed in Congress. Government subsidies will be provided for people below specified federal poverty levels, and those who still cannot afford insurance will be exempted. Under the House bill, a family of four earning less than about $88,000 a year won't have to pay insurance premiums that take up more than 11 percent of their income. Individuals will be penalized by fines if they do not have at least a minimal level of coverage. The current House and Senate bills vary a bit on the penalties (eg. 2.5 percent of adjusted gross income over $18,700 for a couple in the House version and up to $750 a year a person a year in the Senate version). Many other details lurk in the fine print.

The basic goal of a 2009 health care reform package is to address the problem of 46 million Americans without health insurance through a combined mandate on individuals and employers. The current House bill will cost $1 trillion over 10 years, but will still leave 36 million Americans uninsured, according to the CBO.

Based upon the poor performance of mandates in all states in which they have been tried, why is it that policy makers, politicians, and most stakeholders still support the concept of mandates? The basic answer, of course, is money. Insurers see nearly 50 million new enrollees, many subsidized by the government. The drug industry sees new profits for its products. Hospitals and physicians foresee many previously uninsured patients becoming insured. And many legislators benefit from corporate money flowing into their future campaign war chests.

Based on substantial experience at the state level, we can anticipate that "reforms" based on mandates will be very expensive (for both patients and taxpayers), add even more bureaucracy and complexity than we now have, fail to control costs and still not provide much additional access to care. In sum, if enacted as these bills are shaping up, these "reforms" will be policy failures but another bonanza for the medical-industrial complex. In the next post, we will look at the other mandate -- the employer-based mandate -- to ask whether that makes any sense.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press. Buy John Geyman's Books at: