Will people comply with health-insurance mandate?

Now that the Senate appears to be on its way to imposing the very first federal mandate in American history for residents to buy insurance, a number of questions will need to be answered.  We’ve already done more exploration on the issue of constitutionality than Congress has bothered to do, but compliance and enforcement have not received enough attention.  Enforcement will come through the IRS under the current plan, as the IRS is the single most knowledgeable federal agency on health-care issues and insurance coverage probity … nah, I’m just kidding.  They’re the government agency with the best experience in kneecapping, which is why the Democrats decided to hand them even more power over our lives.

But what about compliance?  Nick Gillespie points to an interesting argument offered by the Obama administration on this point, reported by USA Today, that says that a natural compunction to do what’s right will ensure compliance:

White House budget director Peter Orszag says penalty size isn’t the only factor in determining whether people buy coverage. He predicts the mandate will help create societal expectations that everyone gets health insurance, just as most people feel obligated to buckle their seat belts.

He points to Massachusetts, which in 2007 became the first state to require that most residents have insurance. Since then, the percentage of uninsured has declined to 4% from about 7%.

The Massachusetts penalty for failing to buy insurance this year is $1,068 — about half the cost of the lowest annual premium. About 96% of tax filers in the state in 2008 reported they had coverage; only 1% paid a penalty.

The non-partisan Congressional Budget Office, which assesses the impact of legislation, says the number of people opting to pay the penalty instead of buying coverage would be “limited.”

Others aren’t so sanguine.

“Engineering social norms is hard,” says Jeffrey Munn, a principal with the consulting firm Hewitt in Washington. “We may need to temper our expectations around what an individual mandate can actually accomplish.”

A recent CBO report provides a few examples of Americans who don’t follow existing mandates:

• Most states have required seat belt use for about two decades, yet 18% of Americans still don’t buckle up.
• Schools have required children to get immunized for chickenpox since the 1990s, but 15% don’t get vaccinated.
• Nearly all states require drivers to buy car insurance, but 15% don’t comply.

Let’s put those numbers in perspective. At the moment, we have an uninsured rate of 13%, which includes illegal immigrants and millions who opt to pay cash rather than buy comprehensive coverage. Only about 14 million people don’t have insurance because of financial inability to pay (rather than a choice to use their money for other purposes). In other words, we already have better compliance on insurance without a mandate than we do on these existing mandates.

The people who don’t buy insurance do so because it costs more than it’s worth.  That will still be true after the mandate passes.  As Nick explains in his blog post at Reason, the penalties don’t really change that calculus much:

So what percentage of Americans won’t buy mandated insurance? It’s not clear, though it seems a no-brainer that if the penalty is only $95, many won’t, at least at first. And the non-compliants (a term with Philip K. Dickian resonance and one that I’m sure will become common parlance if and when the current miscarriage of health care reform passes) will be concentrated among the relatively young and healthy, precisely the demographic that the government wants to pull into the pool to lower costs and raise revenues. But that’s OK, because we have ways of making them work, right?

The mandates will both increase the participation in the pool of higher-risk patients and increase demand for services from providers.  That will have the same effect nationally as we have seen in Massachusetts and Maine, which is to make insurance premiums much more costly, wait times for services lengthen, and eventually put providers and insurers out of business if they can’t raise prices to meet those conditions.  Even with higher penalties imposed by the IRS, many of these non-compliants will still resist the notion of subsidizing cheaper prices for higher-risk people when they could handle their own costs without third-party payers.

Oh, and don’t forget the side benefit of making a vast new class of criminals out of people who only want to be responsible for their own costs, and not everyone else’s.  We should be asking Congress why they want to sic the IRS on such people, rather than make it easier for everyone else to handle their medical care in the same efficient manner with some real reform based on eliminating third-party payers from the system altogether.

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