There’s a ludicrous new meme emerging from Obamacare opposition: it’s not fair to enforce the individual mandate if the IRS is delaying the employer mandate—and Republicans want to level that playing field (a playing field I wasn’t aware existed). This was a central topic during a Ways and Means hearing on Wednesday morning. Rep. Eric Cantor tweeted about it. Legislative proposals are underway.
Just because “individual mandate” and “employer mandate” sound the same doesn’t mean that they are. Equating the two reaches an impressive new level of political theatre—and demonstrates willful ignorance of the motivations behind each mandate.
The individual mandate isn’t about fairness relative to employers. It’s about this chart. Pulled from the landmark paper on adverse selection by David Cutler and Richard Zeckhauser, this is the graphical representation of the dread insurance “death spiral”.
Adverse selection isn’t an especially difficult concept to grasp. With guaranteed issue (telling insurers they can’t discriminate based on pre-existing conditions), sick people are more likely to sign up for insurance. That makes the risk pool—the group of people an insurer covers—less healthy and more expensive. That causes premiums to rise and healthy people drop out, in a cycle that perpetuates until insurance is woefully out of financial reach. This is a market failure, and requiring individuals to purchase insurance works to correct that failure by keeping the young and healthy in the risk pool.
Sam Baker reports the problem with proposals offered by Republicans so far: they aim to delay the individual mandate, but don’t touch guaranteed issue. That’s exactly the recipe for adverse selection. We’ve seen it before—and we’ve seen it fixed by requiring individuals to obtain coverage. Guaranteed issue was a feature of the Massachusetts nongroup insurance market before the state installed their individual mandate in 2007.
Jonathan Gruber found that the average nongroup health insurance premium in the state fell from $8,537 in 2006 to $5,143 in 2009, a 40 percent reduction during a period in which premiums for similar plans rose by 14 percent nationally. (Source)
Time-limited by definition, a one-year delay to the individual mandate wouldn’t lead to a total unraveling of the market. But it also wouldn’t achieve anything other than higher rates for a year, exacerbating the rate shock phenomenon Obamacare critics seized on last month and creating a climate of pointless uncertainty for insurers across the nation.
Meanwhile, the employer mandate is just nifty accounting. I’m not going to spend a lot of time hashing this out, because a number of smart people have already done so (see here, here, and here). The employer mandate doesn’t serve a real policy purpose—not like how the individual mandate is essential to the solvency of health insurance markets.
The employer mandate is an accounting gimmick that contributes to the deficit-neutrality of the Affordable Care Act, writ large. By requiring large employers to offer affordable coverage to full-time employees, the feds shift costs to them and avoid shelling out subsidies. There are compelling arguments that this is bad policy and should be delayed indefinitely, but those arguments don’t translate to the individual mandate. People are not corporations, and a requirement to carry insurance is different from one to provide insurance. Earth-shattering, I know.
This “fairness” ploy to delay the individual mandate is just that: an opportunistic political maneuver intended to destabilize reform efforts. Perhaps there are other credible arguments for pushing it off until 2015. This is not one of them._____________________________