Is the Individual Mandate Necessary?

The primary policy justification for the individual mandate is that it reduces the costs of preventing insurers from denying coverage for preexisting conditions. It reduces, but does not elminate, these costs because the mandate is too small to provide an adequate incentive for healthy uninsured or under-insured to purchase mandated coverage.

This past week Merrill Mathews had an op-ed in the WSJ noting Sen. Ron Wyden’s efforts to allow states to opt out of the individual mandate as early as 2014 and explaining that there are alternative ways of achieving the mandate’s aims.

It is important to understand that the mandate is merely a clumsy way to fix a bigger problem in ObamaCare: the requirement that insurers accept anyone who applies regardless of medical condition.

Congress could mitigate that moral hazard by restricting individuals buying their own coverage—employer-based plans already accept all new employees—with a pre-existing medical condition to obtain or change coverage only during a six-week, annual “open season” enrollment period. Or they could pay an increased premium the longer they wait to get coverage, or both. Those options would not eliminate gaming, but they might reduce it.

If Congress eliminated the mandate, people would not have to buy the government-qualified coverage—unless they wanted government subsidies in the exchanges. That would free up employers and health insurers to offer coverage that employees and consumers want, rather than what the government demands. And if Congress restricted the requirement that insurers accept anyone to those inside exchanges, that would permit the market to function outside the exchange.