You may have noticed that several states, most notably Massachusetts, have enacted or are trying to enact laws that require all state residents to obtain health insurance coverage. These laws are commonly referred to as insurance mandates, and have been passed in an effort to reform the healthcare system.
Why Enact Insurance Mandates?
The theory behind insurance mandates is that they expand the risk pool, thereby reducing costs for everyone.
There are some people who simply will not voluntarily purchase health insurance. These people tend to be low-risk, healthy individuals who don't think they need it--or at least don't think the money they would spend on it would get them much. Healthy young men, for example, are more likely than other demographic groups to decide against buying insurance.
Health insurance risk pools rely on the fact that some members will be healthy, low-risk individuals who will offset the high costs incurred by less healthy members. If fewer healthy, low-risk individuals sign up for insurance, then the pool members must assume a larger part of the burden of the high-risk pool members. This drives up costs for everyone in the pool.
Sometimes, the costs go up so high that the people remaining in the pool struggle to afford the premiums. Some of the healthier members may decide to take their chances and leave the pool, which drives the costs up even further for those remaining. The insurance industry often refers to this as the "death spiral," where costs escalate so far out of control that nobody can afford to pay for insurance.
How Would Insurance Mandates Help?
Insurance mandates would reduce the chances of an insurance "death spiral" by forcing everybody, including extremely healthy, low-risk individuals, to buy insurance. This ensures a large, diverse risk pool. The costs incurred by sick members can be distributed amongst a larger group of people, so the financial consequences suffered by each individual pool member are lower.
What Are Some Drawbacks To Insurance Mandates?
Some healthy, low-risk individuals will resist the idea of spending any of their money on health insurance, especially if they do not visit a doctor regularly and are rarely sick. A state that wishes to employ an individual insurance mandate may have difficulty enforcing compliance without also enacting an appropriate penalty for failure to comply.
Furthermore, some people may wish to buy insurance, but simply cannot afford it. The state would need to either subsidize the cost of premiums for individuals with lower incomes, work with the insurance industry to develop policies with lower premiums, or both.
Insurance policies with lower premiums almost always have reduced benefits--for example, higher deductibles and copays or benefit caps on certain healthcare services. This leaves the patient exposed to high liability in the event of a serious accident or illness. Sometimes, patients with these limited benefit policies are unaware of how little coverage they actually have.
How Will Insurance Mandates Affect Me?
Massachusetts is the only state which has already enacted legislation requiring individual residents to buy health insurance. All residents must have had some kind of coverage by July 1, 2007. If their policy does not include prescription drug coverage, they must switch to one that does by January 1, 2009.
Other states, including California, are looking into enacting an insurance mandate but have not done so yet. Perhaps they are waiting to see how well the Massachusetts mandate works before finalizing their own plan.
