Get Ready for the Obama Individual Mandate 
By John McClaughry

With President Obama's government-run "public option" insurance proposal on the skids in Congress, attention has focused on an even more central part of his sweeping health care plan: the individual mandate.

"Individual mandate" means that every person subject to it must buy a government-approved health insurance policy from a government-regulated insurance carrier. Or else what? Or else they must pay the government a "fee" for not being insured. This "fee", in the most recent Senate bill, amounts to as much as $3,800 a year for a family. If you willfully refuse to pay it, the government has the power to fine you another $25,000 and put you in jail for a year.

Here's a brief tutorial on the issue.

Government (mostly state government) regulates the sale of health insurance policies. Policies must have government-approved coverage and include a host of specific government-mandated terms and benefits.

Many states (including Vermont) require community rating. This means that healthy young people must pay higher premiums to enable the insurance company to pay the health care expenses of their less healthy parents and grandparents.

Many states (including Vermont) require guaranteed issue. This requirement forces the insurance companies to offer coverage to all applicants (except that pre-existing conditions aren't covered until after a waiting period, to discourage people from skipping insurance until they get sick.)

Coverage mandates, community rating, and guaranteed issue drive up the cost of premiums. So many young working people, basically healthy, can't or don't buy coverage. They are the largest component of the uninsured.

When the uninsured do have a health problem, they show up at the emergency room. Federal law requires the hospital to treat them, whether or not they can pay. The hospital factors this uncompensated care into its state-regulated rate structure. This shifts the cost of uncompensated care onto the premiums paid by people with private insurance.

At the same time the two big government insurance programs - Medicare and Medicaid - seriously underpay for those they cover. These underpayments, far larger than non-payments of the uninsured, produce even greater cost shifts to private insurers, making insurance coverage even less affordable for many young workers.

President Obama's solution to this is the individual mandate: "You will buy a government approved insurance policy, or you will be fined/taxed/jailed until you comply."

He also wants to prohibit insurance companies from denying immediate coverage for preexisting conditions. But this is very expensive. The only way to cover such expensive enrollees is to find more people to pay into the insurance pool, who aren't likely to require much treatment - the young and healthy who can't or won't buy insurance.

The insurance companies fear the government will force them to cover expensive pre-existing conditions. Without the premiums paid by young and healthy new enrollees this mandate could put them out of business. So they are strongly in favor of the Obama individual mandate. For them, the individual mandate becomes a pre-emptive government bailout.

What's wrong with this proposal?

In the first place, Congress has no power to force Joe and Betty to buy a product specified by the government, or pay a tax. The taxing power cannot be used to force regulations on Americans, where the federal government has no constitutional power to regulate.

All of the bills in Congress specify that a person can avoid the tax only by buying a government-approved policy. Every special interest - prescription drugs, substance abuse, mental health, in vitro fertilization, pregnancy, abortion - will lobby furiously to make sure the approved policy includes their money making product.

This will of course drive up the cost of that product. President Obama proposes subsidies to people whose incomes are not adequate to pay the inflated premiums, and the taxpayer cost of these subsidies (and resulting deficits) will escalate accordingly. Ending "uncompensated care" will come nowhere close to yielding enough savings to cover these subsidies.

The approved policies will clearly not include the increasingly popular lower cost, high deductible health plans coupled with tax-favored Health Savings Accounts. The House bill doesn't repeal the HSA language, but it imposes an accrual requirement designed to make sure that no such policy can be sold on the government-run monopoly insurance exchange, or qualify for the premium subsidies. Eight million Americans with HSA plans are a significant obstacle to expanding government health care, and the liberals in Congress are eager to eliminate their influence.

Obama's protests to the contrary, his proposed "fee" on the uninsured is a tax. Even some of his own officials and the Congressional Budget Office recognize that fact. It's a clear violation of his firm campaign pledge not to raise taxes on Americans making less than $250,000 a year.

The September 22 Wall Street Journal poll found respondents opposed 57-38 to an individual mandate. There are more reasons than liberty, constitutionality, cost, taxation, jail, corporate welfare, and reverse Robin Hood economics to oppose an individual mandate, but these ought to be enough.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org)