John Edwards' declaration that under his health reform proposal anyone who refuses to sign up for health insurance will be subject to having their wages garnished has led to a blogstorm of often confusing debates.  Under national health reform, should everyone be required to enroll? The Edwards and Clinton plans have mandates insisting that all Americans purchase insurance; the Obama plan has a mandate for children, but not for adults.

New York Times columnist Paul Krugman stirred controversy Friday by defending Edwards, and criticizing Barack Obama: “Under Obama’s health care plan, healthy people could choose not to buy insurance—then sign up for it if they developed health problems later,” Krugman observed. “As a result, people who did the right thing and bought insurance when they were healthy would end up subsidizing those who didn’t sign up for insurance until or unless they needed medical care.”

On Sunday former FCC Commissioner Reed Hundt called Krugman out  here on TPM Cafe in a post headlined “Ease up, Dr. Krugman.” According to Hundt: “The very idea of government mandates directed to individuals evokes a command-and-control model that disturbs citizens who want to enjoy certain freedoms in choosing health care.”  His post (below) is drawing many comments--some on point, some muddying the waters.

After examining that problem--and looking at how requiring insurance solves it-- I’d like to answer a sensible question that observers like the Washington Monthly’s Kevin Drum have raised: Why force people to buy insurance? Why not just tax everyone, put the money in a pool similar to the Medicare Trust Fund, and use it to buy universal insurance?

Begin with one of the most serious inequities in our current system. Today, laws in many states, including California, allow insurance companies to refuse to cover anyone applying for an individual policy who suffers from a “pre-existing condition”--including common conditions such as asthma or pregnancy. As a result, if a person loses her group coverage—either because she changes jobs or because her employer no longer offers health benefits—and then discovers that she’s pregnant, she may find that she is uninsurable.

Moreover, even if you manage to secure coverage, in many states the insurer can jack up your premiums if you become sick and actually begin using your policy. A small business also may find itself penalized if one or more of its employees become seriously ill; in some cases employers have had to cancel insurance for the entire group because they couldn’t afford spiraling premiums.  

In addition, the Los Angeles Times reports (see a 1/08/07 story by Lisa Girion, available by subscription), in states like California private insurers can –and do—refuse to insure entire categories of workers who they deem “too risky” to cover, including roofers, pro athletes, dockworkers, migrant workers and firefighters , even if they are in good health and can afford coverage. The LA Times looked at confidential underwriting guidelines of three health plans: Blue Shield of California, PacifiCare Health Systems Inc. and Health Net Inc. which all said that “actuarially speaking,” certain workers pose too big a risk.

A last resort for people turned away by the private market is a state's high-risk pool, in which the state assumes the financial risk while paying private insurers to administer coverage. But in California, enrollees must lay out as much as one-third of their income on monthly premiums that cost up to $796 (see 12/21/06 story by Lisa Girion, also in the L.A. Times). Meanwhile, annual benefits are capped at just $75,000. If your child is diagnosed with cancer, it’s likely that you’ll run through that $75,000 in less than six months.  Then what do you do?

 In each case, insurers are penalizing people for being sick, or because it seems likely that they might be injured. Those who most need insurance are excluded.  It is one thing to raise car insurance premiums if a driver has a series of accidents (suggesting that he might well be a reckless driver). But most people become sick through no fault of their own, No matter how careful we are, unless we die in an accident, each of us is going to become seriously ill at some point in our lives. We just don’t know when. This is why we all need insurance.

To prevent insurers from shunning the sick, some states, including New York, have passed “community rating laws” which say that insurers must charge everyone in a given community the same price for the same policy, regardless of age or health status. Moreover, insurers are not allowed to hike rates because a business or an individual has made claims.

In states like New York, where community rating applies, no one is left out in the cold.  If an individual wants to apply for a new insurance policy, he does not have to report pre-existing conditions. But he does have to show that he was already insured with another carrier; you cannot just wait until you’re diagnosed and then decide you want coverage.

Insurance in New York is much more expensive than it is in California because the pool includes sick people who would have been excluded in California. (The percent of premiums that insurers pay out to provide care is roughly the same in both states. Insurers don’t make higher profits in New York. If anything, they prefer to operate in states like California where they can hope to avoid patients suffering from serious, debilitating diseases).

If you are young and healthy, you might prefer to live in a state like California, where insurance is cheaper—assuming you don’t mind living in a state where your mother can’t get insurance because she has had breast cancer and your best friend can’t afford insurance because she’s a diabetic.

Progressives believe-- rightly, I think-- that most of us don’t want to live in such a society.  So the three leading Democratic candidates, including Obama, are calling for community rating. Their proposals for reform offer citizens a choice between public sector insurance (that would be much like Medicare) and private sector insurance, and under their plans, both public and private insurers would abide by community rating, insuring everyone in the community, young or old, sick or healthy, at the same price. 

 And to make sure that everyone can afford the price, the government would offer subsidies, based on income. Thus, only upper-income twenty-somethings would wind up paying the full price. The subsidies are key. As The American Prospect’s Paul Starr points out:

“The secret power of the mandate is that it is as much a mandate on government as it is on individuals. It is a mandate on government to make coverage available and affordable. For it would be patently unacceptable to demand that people have coverage and then provide no practical way for many people to get it.” But the government (i.e. taxpayers) will be able to afford those subsidies only if the healthy and wealthy participate in the pool.

Why Insuring Everyone Means That Everyone Must Be Insured

If we want community rating, Edwards and Clinton realize that we also must mandate that everyone sign up. Otherwise, no one would buy insurance until they were sick or elderly; then they would enroll, secure in the knowledge that insurers had to cover them, and couldn’t charge them more.  Meanwhile, the insurance pool would be comprised mainly of people who are expensive to insure, and premiums would skyrocket.

Put simply, mandates are the flip side of community rating. If you want to say insurance must cover everyone—even if they are suffering from a slow, progressive disease like Parkinson’s—then you have to insist that everyone gets into the pool. This is the only way we can afford universal coverage. If you think about it, this is precisely what Medicare does: no one over 65 is excluded, but everyone—even the young and healthy-- must pay the same percentage of their paycheck in Medicare taxes.

In the end, Harvard economist David Cutler, Obama’s health care adviser, agrees that for national health reform to work, we will need to bring everyone in under the tent. But he says that, rather than forcing people to buy insurance, Obama believes “a better approach is to do everything possible to make it affordable and available. When it is, almost everyone will have it.”

 Will everyone sign up? Many young people look in the mirror and feel immortal. Meanwhile, young libertarians just don’t believe that they have a responsibility to help cover others. In Massachusetts, where there is no mandate, over 200,000 of the Commonwealth’s uninsured have refused to sign up. Roughly one-fifth of the refuseniks earn more than $50,000 a year; many are under 35, but choose not to buy coverage even although under the Massachusetts plan,  a 27-year-old can buy insurance for as little as $176 a month.

Cutler’s idealism is sincere. He, like Obama, would prefer to soft-sell reform. But it’s telling that, in the interview with Sentinel Effect last Friday. Cutler went on to acknowledge that: “If there are free riders [people who don’t sign up but expect to receive care if they’re in an accident], Obama is open to mandates.  . . . He hasn’t ruled anything out. It’s a matter of priorities. The fact is the policy differences on the mandate issue aren’t that large at all. Sen. Obama believes they’re an option down the road, if other approaches don’t work.”  [emphasis mine].

In other words it seems that Obama, like Edwards and Clinton, realizes that in the end mandates may well be needed. But right now, Obama is targeting younger voters, and this isn’t what they want to hear.Edwards, on the other hand, says he wants to be honest: “I’m going to tell people what I’m going to do and how I’m going to do it.”

 As a matter of political strategy, I would say that Edwards may be honest to a fault. It’s probably not necessary to talk about “enforcement” now.But if Americans want universal, affordable insurance, they need to understand that, to achieve that goal, everyone must help. Insurance, when it works, is all about spreading risks.

Still, when Edwards talks about enforcing the rule that everyone purchase insurance, people like Reed Hundt become anxious.  “Could an employer fire an employee for not adhering to a mandate?” he asks. “Could the police arrest those who fail by accident, confusion, or even negligence not to sign up? Could a hospital decline to treat those who did not comply with a mandate?”

The answer is ‘No.’ As Paul Krugman explains, “If individuals don’t have insurance, they won’t be penalized, they’ll be automatically enrolled in an insurance plan.  That’s actually a terrific idea,” he adds, “not only would it prevent people from gaming the system [by becoming “free riders”] it would have the side benefit of enrolling people who qualify for S-chip and other government programs, but don’t know it.

”How will the government know whether or not you have insurance?   At TNR, Johnathn Cohn has weighed in with a long discussion of just how many people Obama’s plan might leave uncovered—and suggests that one of Obama’s advisers has information showing that under Edwards’ plan, even more Americans would be left “going naked.”

 I don’t see how this could be the case.  Under Edwards’ plan, every time you come in contact with the government or a health care provider (filing income taxes, enrolling your children in a public school, showing up at an ER or a doctor’s office) you would be asked for your insurance policy number, just as you are routinely asked for your social security number. If you didn’t have one, your name and social security number would be typed into the system, automatically enrolling you in a public sector plan. 

Then, if your income is too high to qualify for a full subsidy, you would be billed for your fair share, either as part of the payroll tax you now pay for Social Security and Medicare, or ( if you are self-employed) through your income taxes. (There are, of course people who don’t earn a salary and don’t file income taxes, but the majority are very poor, and would qualify for the full subsidy anyway).

Forcing Americans to pay their share of health insurance may sound Draconian, but again, this is exactly what Medicare does, and very few people object. Yes, the tax takes a chunk out of their paychecks, but the vast majority feel secure knowing that when they are 65, they can count on receiving health care no matter how sick they are. And there is every reason to believe that a public sector program modeled on Medicare would be just as popular as Medicare itself.

Which brings me to Kevin Drum’s question. In Washington Monthly, he writes: “a Rube Goldberg enforcement program like [Edwards’] does nothing except highlight the absurdity of individual mandate healthcare plans in the first place. If you're really this serious about getting every man, woman, and child in the country enrolled, why go through all this? Why not just do it like Medicare, where the funding mechanism is the existing tax system and everyone is enrolled automatically? It amounts to the same thing and it's cheaper, easier, and less intrusive.”

There are four reasons: First, in the recession we’ll be facing in 2009,  it will be much harder to persuade Congress to pass a tax increase than it will be to persuade legislators that everyone should have  health insurance—just as we now require everyone to sign up for auto insurance.

The second reason is closely connected to the first: many of the taxpayers who elect those Congressmen don’t want to pay taxes into a single Medicare –for-all system. A 2007 poll shows that while 76 percent of Americans favor offering a government subsidized plan to Americans who don’t have employer-based insurance, only 26 percent favor paying more income taxes to expand either Medicare or Medicaid. Seventy-four percent are opposed.  In other words, just as in Massachusetts, everyone favors universal care, but the majority of voters do not want to pay higher taxes to support it. 

Moreover, as I’ve written recently on HealthBeat  the polls also reveal that 80 percent of Americans like the private insurance they have now—or at least they like it better than an unknown alternative. Their main worry is that they will not be able to afford what they have in the future.  They do not want to be told that we are all going to be funneled into a brand new government-funded Medicare-for-All System.  They want the choice of keeping the devil they know (i.e. their private-sector insurance).

Finally, in order to afford universal health care, we will have to be more careful about wasting health care dollars. This means that we can’t cover every pill or product that someone decides to advertise on TV. All three Democratic candidates have called for independent research comparing just how effective new products and procedures are when tested, head to head, with existing products. (This is something that we don’t do now. A new product can win FDA approval simply by showing that it is better than a placebo).

If we have only a public sector plan, everyone will blame “the government” or “socialized medicine” when they are told “No,” their insurance won’t cover the pink pill that is twice as expensive as existing products because medical research says it is no better.

 If we have both public sector and private sector insurance, private insurers will usually follow the public sector’s decisions about what the cover—if they don’t, private insurers will have a very hard time competing on price.  Thus, those who fear “socialized medicine” will begin to understand that even private insurers cannot cover every pill, product or procedure that comes down the pike—at whatever price the manufacturer chooses to charge. Premiums would be unaffordable.

 Over time, if private insurers are forced to compete with public sector insurance on a level playing field (which means that all insurers offer community rating and that all offer benefits that are, at a minimum, as rich and comprehensive as Medicare), I think that the majority of Americans will wind up picking the public sector plan.  The public sector plan should be able to offer better value for our health care dollars because it doesn’t have as many extra expenses: Medicare doesn’t have to return profits to investors; it doesn’t have to advertise and lobby Congress, and it doesn’t pay its executives the seven-digit salaries that for-profit insurers feel they must pay in order to compete with each other. 

 But right now, many Americans are nervous about health insurance. And they don’t trust government. They need time to decide whether they feel more comfortable with for-profit insurance or a public program. In the meantime, we need to ensure that everyone is covered, and that everyone helps weave the safety net. That’s why we need community rating and mandates. It’s all about solidarity.