Why the Individual Mandate Is Important

June 12, 2014
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individual mandateAs a reasonably young and healthy person, freelance social worker Tammy Boudreaux wasn’t a big believer in health insurance. But then she hurt her finger. She paid out of pocket for emergency room care, but then when the finger didn’t get better she realized she’d have to pay a heck of a lot more for additional medical treatment and rehab.

individual mandateAs a reasonably young and healthy person, freelance social worker Tammy Boudreaux wasn’t a big believer in health insurance. But then she hurt her finger. She paid out of pocket for emergency room care, but then when the finger didn’t get better she realized she’d have to pay a heck of a lot more for additional medical treatment and rehab.

Thanks to Obamacare she was able to get reasonably priced health insurance even though she had a pre-existing condition –in her case a finger that was certain to need surgery and therapy. A week after signing up for an Obamacare plan on the exchange she had surgery followed by rehab and other services.

I’m glad Tammy was able to get insurance and that she’s now a proponent of Obamacare. But let’s face it, Blue Cross isn’t going to do so well if everyone is like Tammy, only signing up once they need services. Blue Cross lost money on Tammy right away. If they’re lucky she’ll be profitable a few years down the road if she sticks with Blue Cross and gets and stays healthy.

For insurance to work, there needs to be a broad pool of customers who cost very little to make up for the few who cost a lot. That’s the purpose of the individual mandate, and it’s a good reason for it.

You can’t wait to buy fire insurance until you smell smoke and you can’t get life insurance after you’ve been diagnosed with a terminal illness. As a result people sometimes have losses for which they can’t make a claim. But health insurance is different. As a society we aren’t –and shouldn’t– be willing to tell people “tough luck” if they didn’t buy health insurance. But it’s not fair to health insurers to make them take all sick people who are sure losses without giving them the benefit of more customers who are healthy.

Republicans have been very slow to lay out the “replace” part of “repeal and replace.” One reason is that while it’s easy to get people riled up about the individual mandate, it’s hard to propose a fiscally responsible alternative without shutting people out of the system. The Republican plan of 2014 calls for insurers to accept customers with pre-existing conditions who have maintained “continuous coverage.” In other words, if someone acts like there’s an individual mandate by buying insurance before they need it, they can continue coverage once they get sick. If not they’re shut out. Doesn’t sound like much of an improvement, does it? 

photo credit: watchingfrogsboil via photopin cc

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