Today’s Health Care Refresher: Here’s Why We Need the Individual Mandate

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We haven’t done this for a while, but with all the anti-Obamacare agitprop about to go into high gear, it’s worth reprising the reason that Obamacare includes the hated individual mandate. Here’s the nickel explanation of the “death spiral” that occurs if you want to make sure that everyone can get health insurance, even those with preexisting conditions:

  1. Obamacare requires insurance companies to sell coverage to all comers, even those with preexisting conditions. This is called “guaranteed issue.”
  2. For this to be workable, the price of insurance has to be about the same for everyone. Otherwise insurance companies will simply set prices high enough to exclude anyone with a preexisting condition. This is called “community rating.”
  3. If you do this, the sickest people will all queue up for insurance. Healthy people won’t bother. They’ll just wait until they get sick and then sign up.
  4. But insurance companies depend on the law of averages: they need a large pool of customers, figuring that only a certain percentage will get sick each year. If their customer base is made up almost entirely of sick people, they’ll quickly go out of business. This is the death spiral.
  5. The answer is to make sure that insurance companies continue to have a broad pool of customers, some of whom are healthy and some fraction of whom will get sick.
  6. The only way to do this effectively is to require that everyone buy health insurance. This is the “individual mandate.”
  7. Poor people can’t afford this, so you have to provide tax credits to help them out. These are the “subsidies.”

This is just the Cliff’s Notes version, in case anyone needs a reminder of why the individual mandate is part of Obamacare. There’s more to the law than just this, of course. There are rules that mandate coverage levels, since otherwise insurance companies could exclude certain expensive preexisting conditions. There are new programs meant to lower the growth of health care prices. There’s an expansion of Medicaid for the very poorest. There’s an end to “mini-med” policies.

But the core of the law is (1) guaranteed issue, (2) community rating, (3) individual mandate, and (4) subsidies for low-income families. Everybody loves #1—even conservatives usually claim to support it—but it’s impossible to have it without all the other stuff. The individual mandate follows as inescapably as morning follows the dawn. If you support the idea of requiring insurance companies to cover people with preexisting conditions, then you also have to support the individual mandate. There’s no way around it.


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