The Individual Mandate and Personal Responsibility

I don’t know why I haven’t seen Philip Klein’s argument about the individual mandate anywhere else–it’s a pretty damned good argument:

Mitt Romney on Thursday joined the Obama administration and its lawyers in advancing the “free rider” argument for the individual mandate. Those who went without health insurance in Massachusetts before he signed the law making it illegal, Romney argued, drove up the costs for everybody else when they showed up at emergency rooms and didn’t pay for the care they received. Forcing them to purchase insurance, Romney argued, was a matter of “personal responsibility.”

While this may be a compelling argument to some, it has little bearing on the actual purpose of the individual mandate.

The biggest problem with the “free rider” argument for the mandate is that it brands everybody who chooses to go without insurance as a free rider. Yet in reality, actual emergencies are pretty rare. Which is why they’re emergencies. For every deadbeat who shows up at the emergency room without insurance, there are many more uninsured individuals who either: a) take the risk of going without insurance and never have to seek emergency care or b) actually pay their bills if they do.

Of course, the last part here raises empirical questions that a researcher would have to (and should, in my opinion) take up, as the answers bear somewhat directly on the way we view the problems with our health care system in America.

But intuitively, Klein is right on the money. There is no free rider problem in the market for health insurance–there is a free rider problem in the market for health care, and how big that free rider problem is, as I said, an empirical question. If you wanted to use blunt instruments of public policy to realize some true efficiency gains in our health care system, Congress should pass a law requiring people to pay for the actual care they consume on pain of taxes/fees/imprisonment/whatever-the-Obama-Administration’s-latest-argument-is. I know, I know; that would be mean-spirited, hate the poor, slaughter puppies, etc.

“But George, when people have insurance, they can pay for their care, thereby eliminating the free rider problem.” Only in part–people pay about 15% of the actual care they consume, thanks to third party payment systems like private and government insurance schemes, and it is unclear at best to what extent our third party payer system solves more problems than it creates.

We talk about the adverse selection “death spiral” like it’s a bad thing, and I’ll be the first to admit that it’s very sad when people die. But health insurance, just like blackjack insurance that promises a 2-to-1 payoff, is a sucker bet. It simply isn’t rational, especially as a risk-based prices increase for people who represent low risks. I suspect this is why Krugman, Yglesias, et al. (pretty much everyone I’ve read on the left) makes the single payer argument using moral language–insurance as it’s currently constructed just doesn’t make economic sense.

I’m with Arnold Kling–let’s get rid of our current conception of health insurance.