Last Friday, former Vermont Governor Howard Dean said something rather astounding on MSNBC. Dean said that the individual mandate, the controversial provision in the Patient Protection and Affordable Care Act that requires people to maintain health coverage, won’t survive long enough to kick in by 2014. A court decision or political opposition will strip this provision from the law by then, he predicted. This was not the surprising part. A collection of states is already trying to block the individual mandate in the courts on the grounds that it’s unconstitutional. And there’s no doubt the individual mandate is very unpopular, making it politically popular to oppose it.
What Dean said that was surprising is that he believes the individual mandate is unnecessary. Huh? Health care policy experts and economists spent a large chunk of their time in the past year explaining that the individual mandate is an essential part of reform. Without it, they said, people will wait until they have an expensive medical condition to buy insurance. Since under the new law, insurers won’t be able to charge sick people more, this will drive prices up for everyone and lead to an insurance death spiral. (Since insurance rates will go up and up for healthy people, they will stay out of the system until they’re sick. Eventually, the only people buying insurance are sick people, driving the rates up and up even more until the system collapses.)
Dean, however, said that the mandate “has no effect on the bill” and pointed to his own state of Vermont as proof that an individual mandate isn’t essential. Before we take a look at Vermont, it’s worth remembering that Dean is not a fan of the health reform legislation that finally emerged from Congress. At one point, he said the law wasn’t worth passing without a public option and Dean hates insurance companies more than just about anybody and believes they stand to benefit far more than many Americans from the new law.
But back to Vermont. The state does not have an individual mandate and Dean holds it up as proof that one isn’t needed. About 10% of Vermont’s population is currently uninsured. That’s significantly less than the national rate of 15%, but still far higher than the 5% rate in Massachusetts, where residents must have health insurance or pay a fine. (This is similar to how a national individual mandate would work.)
Dean cited another part of Vermont health insurance law that’s better policy than the national law – in that state, insurers can only vary insurance premiums by 20%. In practice, this means insurers can charge sick people only 20% more than healthy people. The national law allows insurers to vary premiums by 300% based on age, a proxy for health status. On the surface, Vermont’s regulation sounds better for consumers. But dig a little deeper and you realize that such a narrow restriction on price variation means that healthier people pay more. Vermont’s law makes insurance more expensive and doesn’t blunt that effect by pulling everyone – including health people – into the system. (One group of Americans who now stay out of the insurance system in droves is the young and healthy – the new reform law makes a huge effort to get these people in.)
There are no good state-by-state statistics on insurance costs in the individual market – products vary widely by state and insurer so they’re hard to compare. But the national average for an individual policy is about $3,600 and BlueCross BlueShield of Vermont’s cheapest plan that includes a $10,000 deductible and $17,000 annual limit on in-network out-of-pocket spending – not exactly a gold-plated policy – costs $3,900 per year. A plan with a $3,500 deductible and a $9,500 limit on in-network cash costs rings up at $6,900 per year.
I asked Dean about Vermont’s insurance market before I had a chance to check out its prices. He admitted another downside to the state’s regulatory apparatus – there are very few insurance companies selling coverage in the individual market. “We don’t have as many insurers as we would like,” he said.
So could the national health reform law work without an individual mandate? Well, it couldn’t be simply eliminated without some major pitfalls – like skyrocketing premiums – although there are some viable alternatives that have been batted around the health policy world. One would allow people to buy health insurance at affordable standardized prices only during strict open enrollment periods. In this scenario, you wouldn’t be legally bound to get insurance, but if you got sick in 11 months of the year and wanted to sign up for insurance, your premiums could be astronomically higher. This would provide a strong incentive for people to get insurance, without a mandate. Jon Walker at the progressive outlet Fire Dog Lake offers some other suggestions that could be palatable to liberals here.