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Is an individual mandate necessary to attain universal coverage?


What’s Behind It?

An individual mandate—which requires that people carry a minimum level of health insurance—is being implemented in Massachusetts and is a cornerstone of Governor Schwarzenegger’s health reform proposal for California.

The Governor’s plan posits that if everyone has insurance, financial risk will be spread more evenly, the cost shift will dissipate, and insurance premiums will become more affordable over time. Governor Schwarzenegger has closely linked the individual mandate with the principle of “shared responsibility.”

Unlike the Governor’s proposal, the leading legislative proposal, AB 8, does not include an individual mandate. Proponents of AB 8 suggest that a mandate would be unfair to Californians with low or modest incomes, who may be unable to afford coverage. Against this backdrop, it’s worth reviewing the relationship between individual mandates and universal coverage.


The Broader Picture

Research and experience show that the concepts “voluntary” and “universal” are at odds.

  • Some people don’t see the need for health insurance and won’t buy it voluntarily. In a 1998 study, non-poor uninsured Californians were asked why they had not purchased health insurance. Although 75 percent cited cost, nearly half also cited their relatively good health. Individuals may not see insurance as a good value if they don’t believe they are likely to get sick and need medical care. As long as healthy people can opt out of coverage, it will be difficult for the health insurers to offer coverage for the sicker, higher-risk people at sustainable prices.

  • Of those who believe they need insurance, some struggle to afford it. Research shows a weak correlation between the price of insurance and the number of people enrolled; even when the price of insurance drops dramatically, large numbers of uninsured don’t enroll. For example, one study found that a 50 percent subsidy for coverage would reduce the number of uninsured families by just 4 to 8 percent.

  • When enrollment is voluntary, even free publicly sponsored programs are often undersubscribed. More than 700,000 of California’s 6.6 million uninsured are eligible for, but not enrolled in, Medi-Cal or Healthy Families, even though these programs are available for free or low cost. The voluntary nature of these programs, when combined with complex eligibility rules and burdensome application processes, does not encourage enrollment. Conversely, experience with Medicare Part A shows that virtually universal coverage can be achieved when people are automatically enrolled or when enrolling is easy and the advantages are clear.

Requiring  that employers offer an individual mandate—sometimes suggested as an alternative to an individual mandate—is unlikely to result in universal coverage. More than half a million Californians work part time, almost 5 percent of Californians are unemployed at a given time, and others don’t work at all. Relying solely on employer-sponsored insurance as the means for expanding coverage would leave out many Californians. And employees would still have to be required to accept, or “take up” coverage, to avoid the pitfalls described above.

Truly universal programs, in this country and elsewhere, rely on an implicit individual mandate. For example, unemployment and disability insurance rely on financing schemes—taxes—to impose a de facto mandate. These programs are financed through payroll taxes. Workers cannot opt out of paying taxes to support these programs and they are automatically eligible for benefits. Following this same model, a single-payer health care system relies on an implicit individual mandate—everyone must pay taxes to support a system that in turn covers all those in need medical care.

The Bottom Line

It will be difficult, if not impossible, to achieve universal coverage without imposing mandates on individuals. However, an individual mandate, while necessary to achieve universal coverage, is not sufficient to ensure that outcome. Imposing a mandate raises important questions about autonomy, fairness, choice and affordability. Insofar as coverage remains unaffordable, it may be both impractical and unfair to require people to buy it, especially if health care costs continue to rise and individuals are left to shoulder the burden. The debate over coverage is not just about the number of people covered, but also about balancing a range of competing individual and public policy priorities.

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