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August 12, 2011

The Individual Mandate to Buy Health Insurance

by Anne Paddock
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Few topics spark strong opinions like health insurance – and the individual mandate to require the uninsured to purchase health insurance is at the center of the controversy.  In 2010 before the Obama administration in conjunction with Congress and the Senate overhauled the US healthcare system, there were estimates of 40-50 million of uninsured Americans which equates to approximately 15% of the population.  

The US government insures the poor (Medicaid), the aged (Medicare), employees and dependents of the military (Tricare), veterans (VA), and families whose income is too high to qualify for Medicaid but too modest to afford private sector health insurance (CHIP).  The rest of the population obtains health insurance through employment, as a dependent, or directly from a health insurance provider. With the knowledge all of us get sick throughout our lives and most of us will require extensive medical treatment when we do get very ill, why are millions of Americans uninsured? A combination of reasons but primarily because the health insurance costs are deemed too expensive, people don’t think they will get sick in the near future and therefore don’t want to spend money on health insurance, or because the insurers deny coverage to people with pre-existing conditions (which they can no longer do).

Insurance exists to protect individuals, families, and the public by spreading out the risk and not overburdening a person or a group.  If you use the analogy that home insurance is required to protect those that have an interest (i.e. the owner and the mortgage holder), than health insurance should be required to protect the individual and the taxpayers. The same truth rings true with car insurance.  Most states require owners of vehicles to have auto insurance to protect themselves, other drivers, and the taxpayers from the costs associated with extensive repairs, replacement, and medical costs which could be lifelong. We don’t like the government telling us we have to buy car insurance but we do because it protects us and others.

The healthcare reform (signed into law in March, 2010) included an individual mandate that requires residents to purchase health insurance or be financially penalized. Before this mandate was passed, the 40-50 million uninsured that got sick would either do nothing, go to a private provider and pay the bill or go to a public hospital emergency room or health care provider where they could not be turned away because laws dictate that if the hospital or provider receives government funds, the provider must treat the patient. 

Whether it was an emergency visit or a chronic condition, the healthcare provider typically ate the cost which generally means the taxpayers paid the bill. 

The uninsured (those that do not fall into the government categories) should be required to purchase a basic health insurance policy because it is their personal responsibility. Ideally, the policy should cover the health care costs if they get sick eliminating (or drastically reducing) the burden on the taxpayers.  People don’t like anyone telling them what to do or how to spend their money and some even think nothing will happen to them (really) but when something does happen, they want to be treated and in a civilized country, the sick should be treated. But, healthcare is a two-way street:  if doing right entails treating the sick, the flip side of requiring everyone to purchase a basic health insurance policy goes hand in hand.  We all have to subscribe to a system where we take personal responsibility for ourselves and only when that fails, should we turn to others.

No country has an ideal healthcare program but the program in Switzerland is worth reviewing.  In 1994, Switzerland passed a national law requiring insurance companies to offer a basic health insurance to everyone regardless of age or medical condition.  The coverage is specifically defined and universal throughout the country (the 26 cantons which are similar to our states) to ensure a defined standard of healthcare available to everyone. Insurers are not allowed to make a profit on this basic insurance but they can on supplemental health insurance policies, which many Swiss opt to purchase.

All residents are required to pay the insurance premiums for the basic plan, up to 8% of their personal income. If the premium is higher than the 8%, the government gives the insured a cash subsidy to pay the additional premiums in trying to achieve some sort of fairness among income levels.  The insured still pay a portion of their treatment, except for pregnancy which is exempt.  According to Wikipedia, the average monthly cost for an adult over the age of 26 is approximately $350 while the cost for a child up to age 18 is about $85 and for a young adult between 19-25, the monthly cost is approximately $300.  Clearly the young subsidize the health costs of the elderly since actuary tables show the middle-aged and the elderly have higher healthcare costs. The rates for the basic insurance do vary though depending on the deductible chosen by the insured so there is a degree of personal choice. The insured also has full freedom of choice among the healthcare providers.

The World Factbook publishes life expectancies and the most recent information indicates the average life expectancy in Switzerland is 79 years for men and 84 years for women. Contrast Switzerland with the United States, where the average life expectancy is 75 years for men and 81 years for women. Americans spend an average of $7,300 per person annually on healthcare (including insurance) compared to the Swiss who spend an average of $4,500 per person, according to OECD Health Data.  In other words, Americans spend more for healthcare (less for health insurance but more for actual healthcare because our healthcare costs are higher…in part, to cover the healthcare costs of the uninsured) than the Swiss but don’t live as long.

There is no absolute best solution to health care but we need to strive towards a more equitable system where we all share the risks and the costs.  The mandate to require individuals to have health insurance is just one small piece of the puzzle that is better for the country as a whole.

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