American Journal of Law & Medicine

Oil and water: mixing individual mandates, fragmented markets, and health reform.

ABSTRACT

The 2010 federal health insurance reform act includes an individual mandate that will require Americans to carry health insurance. This article argues that even if the mandate were to catalyze universal health insurance coverage, it will fall short on some of the policy objectives many hope to achieve through a mandate if implemented in a fragmented insurance market. To uncover this problem, this article sets forth a novel framework that disentangles three different policy objectives the individual mandate can serve. Namely, supporters of the mandate might hope for it to: (1)facilitate greater health and financial security for the uninsured ("paternalism"); (2) eliminate inefficiencies in health care delivery and financing ("efficiency"); and/or (3) require the healthy to buy insurance to help fund medical care for the sick ("health redistribution"). Health redistribution--the primary focus of this article--is a shifting of wealth from the healthy to the sick through the mechanism of risk pooling. Many see health redistribution as a means to enable all Americans to more equitably access medical care on the basis of need, rather than on the basis of ability or willingness to pay.

Drawing on evidence from the implementation of an individual mandate in Massachusetts's health reform in 2006, this article reveals that the fragmented American health insurance market will thwart the mandate's ability to achieve these objectives--in particular the goal of health redistribution. Fragmentation is an atomization of the insurance market into numerous risk pools that has been driven by market competition and regulation. It prevents Americans from sharing broadly in the risk of poor health and, in doing so, entrenches a system where access to medical care remains tied to ability to pay and individualized characteristics. The final section of this article examines how various policies, including some in the new law (e.g., insurance regulation and exchanges) and others not (e.g., expanded public insurance), can reduce fragmentation so that the mandate can successfully serve all desired objectives and in the process gain greater legitimacy over time.

I. INTRODUCTION

Driving the 2009-2010 federal health reform debate has been a widely-shared desire to address the problem of an estimated 46 million uninsured Americans. (1) At the heart of the newly enacted federal health insurance reform legislation ("Health Reform Law") is an "individual mandate," which will attempt to address this problem by requiring Americans to carry health insurance. (2)

The individual mandate has been held up as the "American" way to achieve universal coverage, where every citizen can choose her own insurance, and commercial insurers can compete for profit. By laying claims to coverage, choice, and competition, the mandate has garnered a strong and diverse set of supporters. Hillary Clinton and John Edwards championed the individual mandate during the 2008 Democratic primary race. Former Governor of Massachusetts Mitt Romney, a Republican, proposed it as a key element of the Commonwealth's health reform, which was enacted into law by an overwhelmingly Democratic legislature in 2006. (3) The health insurance industry, historically resistant to national reform, has supported an individual mandate and has even offered concessions in return for inclusion of the mandate in legislation.

Much attention by scholars, think tanks, and the media on the individual mandate has focused on whether the mandate can achieve the goal of insuring all Americans and at what cost. (4) Proponents of the mandate argue a mandate is necessary to achieve universal coverage. (5) Opponents say it is a very expensive way to pursue only modest gains in coverage at an unacceptable insult to individual autonomy. (6)

Yet, there is no clear expression of, or consensus as to, why we would want to increase coverage through an individual mandate. What would we hope to accomplish by requiring every American carry health insurance?

I suggest in this article that there are three primary reasons that drive support for the individual mandate. First, some people are worried about the wellbeing of the uninsured themselves, motivated by the uninsured individual whose cancer or heart disease will go undiagnosed and lead to premature death or, if diagnosed, will cause him to choose between his financial and physical wellbeing because of the high costs of his medical care. Validating such concerns, a recent report by Harvard researchers reports lack of health insurance is associated with 45,000 deaths a year in the United States. (7)

Alternatively, some are interested in their own bottom line, angry that the uninsured don't "pay their share," making insurance more expensive for everyone else. Their support for the mandate is animated by the stories of the 28 year-old who decided he was healthy enough to "go bare" without insurance coverage and then has a mountain biking accident that results in tens of thousands of dollars of emergency room care he can't afford.

Others struggle morally with the fact that nearly 1/5 of all Americans lack insurance, particularly if they are poor or sick, and what such a reality says about us as a nation of people. (8)( They want to ensure that we create a system that enables all members of their community--locally and nationally--to have equitable access to good medical care when in need.

In this article, I contend that by failing to look closely at these different objectives and what it would take to achieve them, policy debates about the individual mandate have obscured the fact that even if the mandate were to lead to 100 percent coverage, it could fail to achieve what many people envision and hope it to do. By untangling the different policy objectives supporters intend an individual mandate to serve, it becomes clear that the mandate will face serious barriers to success in our current "fragmented" health insurance markets, by which I mean insurance markets that divide people and groups up on the basis of risk.

This article tells the story of the individual mandate and fragmentation in three parts. First, it sets forth a novel framework to examine the three objectives an individual mandate can serve--which I characterize as paternalism, efficiency, and health redistribution--that each justify use of a mandate for some of its supporters. Second, it brings past research on fragmentation of health insurance markets, often discussed within the realm of economics, into the legal and policy debate to define and shine a light on the critical problems fragmentation will cause for implementation of a mandate, particularly with respect to the goal of health redistribution. (9) Finally, it considers how policy solutions, including prohibition of risk selection in the private market or creation of public insurance alternatives, could ameliorate fragmentation and perhaps in doing so also enhance the long-term political legitimacy of an individual mandate.

As context for this story of the challenges the individual mandate will face in a fragmented market, Part II describes how the individual mandate differs from the policy approaches other industrialized countries have taken toward the goal of universal coverage. It also explores the mechanism by which the individual mandate works and how it can affect the uninsured as both consumers of insurance and (for some) as "financiers," who will pay more for premiums than they consume in care and thus help finance medical care for others. This second influence supports the mandate's ability to affect distributive goals.

Part III detangles how an individual mandate can serve three different policy objectives. It describes how some support the mandate for paternalistic reasons; their objective is that all Americans have insurance that protects them from poor health and financial insecurity. Others, including many of the health economists defining the health reform policy elements, see the mandate as a tool to reduce inefficient use of care by the uninsured or to promote more efficient health insurance markets by addressing the problem of adverse selection. Finally--and the primary focus of this paper--some support the mandate for redistributive reasons so that the risk of poor health is shouldered more equally by all Americans.

The mandate promotes such redistribution by requiring the uninsured who have arguably rationally opted out of the insurance market (because they are healthy and unlikely to need medical care) to buy health insurance nonetheless to finance care for those sicker or less lucky than themselves. When the healthy and the sick pool risk, it creates a redistribution of wealth from the healthy to the sick, which I call "health redistribution" in contrast to "income redistribution," whereby wealthy are taxed to provide health care for the poor (e.g., in Medicaid).

Advocates of expanding health insurance coverage, in general, and of the individual mandate, in particular, have explored political, pragmatic, and moral benefits of health redistribution that I discuss in Part III.C below. They argue, for example, that health redistribution enhances the political feasibility of funding subsidies for insurance coverage for the poor and sick, by facilitating subsidies within the bounds of a defined program and among a broader base, thus avoiding the sharp division between haves and have-nots created by income tax-based subsidies. (10) Scholars also have argued health redistribution might address distributive justice concerns with less labor distortion than an income tax might. (11) Effective health redistribution might also unlock greater insurance market efficiency by reducing practices of medical underwriting and risk selection.

Finally, I show that some scholars see health redistribution as a means to institutionalize a more solidaristic regime of health insurance in the U.S., where access to health care can be divorced from market forces or individual wealth. (12) In other words, for some, implementing an individual mandate would be tantamount to asking Americans to act collectively so that everyone --rich, poor, sick, or healthy--can access medical care when in need, regardless of income or health status. This notion of health solidarity has deep roots in health care provision historically in the U.S., through mutual aid societies and religious organizations, and is a central attribute of health care in all other advanced nations. (13) I explore whether a mandate that affects health redistribution might indeed not only institutionalize a more solidaristic form of insurance but, perhaps in the long term, help to generate popular and political support for a more solidaristic system of insurance. (14)

Yet, in Part IV, I contend that the individual mandate will not be able to realize such benefits that rely upon its ability to promote health redistribution if it is implemented in a fragmented health insurance market. Fragmentation is an atomization of the health insurance market into numerous risk pools--a complex process that has been fueled by private market competition and exacerbated by regulation in both intentional and unintentional ways. Commercial insurers' profit relies upon their ability to segment people into groups of predictable or similar risk and price according to risk or to select out good risks (i.e., cherry picking). To better manage risk and profit, insurers have carved up the insurance market into submarkets--large group, small group, and individual. Risk is not pooled among these three markets. This means that if healthy individuals are disproportionately insured in one market and sick in another, they don't share in risk and medical costs. Furthermore, in the individual market (and somewhat the small group market), risk pooling may be limited among individual insureds to the extent insurers are permitted under state law to design premiums and coverage based on projections of individual risk. (15) One often examined driver of fragmentation, for example, is risk classification and selection practices used by private insurers. (16) By creating such crevasses that limit the scope of risk pooling, fragmentation makes it impossible to distribute costs of poor health broadly among both healthy and sick, even as the mandate compels more healthy people join risk pools.

Channeling an individual mandate through this fragmented insurance infrastructure may prove counterproductive. First, for some, the purpose of compelling the healthy to buy insurance is in part so they help fund care for the sick. Participation by healthy Americans is futile when the healthy and sick don't pool risk with each other. Further, if poorer and sicker Americans must bear more of the cost of their own risk, they may have a harder time affording necessary medical care--a result antithetical to what many hope to achieve with an individual mandate.

To illustrate this story of the thorny interplay between the individual mandate and fragmented markets, this article draws from evidence from the 2006 health reform in Massachusetts that requires most Massachusetts residents over 18 to carry health insurance. (17) The Massachusetts individual mandate significantly increased insurance coverage levels in the state (18) and has been increasingly popular, (19) yet simultaneously exhibits the challenges an individual mandate will face if implemented in a fragmented insurance market. Although Massachusetts has made some strides to address fragmentation, implementing many of the same policies that are included in the federal Health Reform Law, remaining fragmentation contributes to problems such as exemption of some residents from the mandate on "affordability" grounds and variable quality of coverage among the insured. (20)

Fragmentation is not an easy problem to fix. The most elegant solution may be a single payer system designed to completely eliminate fragmentation. However, a single payer model has not been contemplated as part of current federal reform efforts, and most would say is politically unlikely in the near term. Thus, while recognizing its benefits, I focus in Part V on evaluating solutions that may prove more politically feasible in the near term because of compatibility with preservation of private insurance markets. I consider both elements that have been enacted as part of the Health Reform Law (e.g., regulation of private insurers and creation of exchanges for the sale of insurance) and also elements that are not part of this initial reform but could be pursued, consistent with the shape of the new Law, over the coming years to further address fragmentation as the law is implemented. Finally, I posit whether softening the current, finely-drawn boundaries of insurance markets and programs might not only reduce fragmentation but begin to shape a broader public and political interest in programs that rely upon health redistribution to increase equitable access to medical care.

II. THE INDIVIDUAL MANDATE, THE UNINSURED, AND INSURANCE

A. MODELS OF UNIVERSAL COVERAGE AND THE INDIVIDUAL MANDATE

Most industrialized countries treat health insurance as social insurance, where people contribute toward financing based on ability to pay, where risk of poor health is pooled broadly, and where access to care is provided on the basis of need. (21) It is often remarked that many of these countries achieve health outcomes equal to or better than the United States at lower costs per person. (22)

These countries have relied upon several different models to achieve universal coverage, which differ based upon the role of public and private entities in the financing, purchasing, and delivery of care. For example, in some countries, the government finances health care through tax revenue. Such a model might leave the production of the medical care primarily to a mix of public and private entities (e.g., Canada, United States Medicare). Or in system of socialized medicine, such as in the British National Health Service or the Veterans Administration in the United States, the government both finances care and also controls the delivery of care (i.e., owns hospitals and pays physician salaries). (23) Government-financed and owned medical care is often called a Beveridge system, after Lord Beveridge, who designed the British health system after World War II. (24)

A competing model of social insurance system relies not on the state but rather upon highly-regulated private entities (for-profit and non-profit) to administer compulsory health insurance; these entities are sometimes called sickness funds and are often organized by profession, region, or religion and funded through targeted funding, often separate from general tax revenue. (25) Origins of this model of health insurance are often attributed to Germany, which legislated mandatory (for some), state-supervised sickness funds in 1883, under Chancellor Otto von Bismark, to seize power from Marxist-influenced labor unions. (26) But its roots reach back further to medieval guilds, churches, and, later, unions that collectivized financing of medical care for members. (27) Although this model of social insurance often incorporates individual choice of provider and sickness funds, it differs from commercial insurance in that it is designed to achieve social ends and, in particular, to be redistributive in nature (across ages, health status, income, and individuals and families). (28) Richard Saltman describes this model as "the administrative embodiment of a set of values deeply rooted in the society as a whole ... and grounded in the historically generated principles of collective responsibility and social solidarity." (29) In many systems that follow this model, the government still plays an active role in financing, by determining premium costs and providing subsidies for the poor, even if purchasing is delegated to insurers or sickness funds. More recently, some countries--including Germany, the Netherlands, and Switzerland--have introduced some level of competition between funds or insurers for enrollees. (30) Even though the competition occurs within a highly regulated environment to preserve the goals of social insurance, (31) some are concerned that competition has led to rising costs and increased risk selection and might undermine the foundation of social insurance within these countries' systems. (32)

Current discussions of reform in the United States have not seriously considered a centrally-financed insurance model (often referred to as "single payer"). In fact, even mention of such an approach has historically proven to be a political lightning rod in the United States, provoking claims of "socialized medicine" (often inaccurate since centralized financing can exist with private delivery of medical care) and anti-reform media that quickly quashes reform efforts. (33)

Instead, 2009 reform efforts and the resultant Health Reform Law envision using government mandates to achieve universal coverage without fundamentally restructuring the existing payment and delivery systems. The proposed reform does not fundamentally change the primarily private delivery of health care and mix of public and private financing (34) The government's overarching role in reform is simply as a catalyst. The contemplated approach would create a system that looks more like that in Germany, Switzerland, or the Netherlands, where participation is compulsory, and insurance is administered by private entities and funded through a mix of public and private sources. Yet the United States is building on a framework of actuarially-rated commercial insurance, whose end goal is profit, rather than on a system of social insurance directed toward the goals of collective benefit and universal access to care. This contradiction complicates the use of the mandate in the U.S., as explored below.

There are several different types of mandates that the government could rely on to expand coverage. One such mandate could require all employers provide or subsidize insurance coverage for employees; currently, U.S. employers have no such obligation. (35) This type of "employer mandate" was included in the Clinton reform proposals, is part of the Massachusetts health reform of 2006, and is included in a light version in the Health Reform Law.

Alternately, the government might mandate that insurers include certain people or conditions within their health plans (a "mandated benefit"). While I will discuss the impact of both of these types of mandates in Part IV below, neither of these is the primary subject of this article.

The focus of this article is the "individual mandate" that requires Americans to carry health insurance and is a cornerstone of the Health Reform Law. (36) Individual mandates can be distinguished from other mandates such as employer mandates or insurer mandates based upon their mechanism for compliance--individual action. We have seen individual mandates that require drivers hold motor vehicle insurance, parents vaccinate children against contagious diseases, motorists wear seatbelts, and 18-year-old men register for the draft. A legal mandate compels each individual to use his or her own resources (money and/or time) in a way he or she might not without government intervention. In the case of health insurance, the individual mandate will require Americans to navigate the current patchwork of public and private coverage options to obtain coverage.

The individual mandate is intriguing in part because it blurs distinctions between social and commercial insurance. The defining characteristic of this approach to expanding coverage by individual mandate is that it largely leaves the current structures of the commercial insurance market intact, while requiring more people to participate in it. (37) Yet, the mandate is intended to achieve policy goals typically pursued through social insurance. Ensuing conflict between the policy goals of the mandate and commercial health insurance forms much of the basis of discussion in Part III below about impediments fragmentation pose for the individual mandate.

B. THE FRAGMENTED AMERICAN HEALTH INSURANCE MARKET

The individual mandate will channel the uninsured into what has become a fragmented American health insurance market. Fragmentation is a word often used to characterize American health care, describing the decentralization of decision makers, payers, providers, or regulation. (38) In this article, I use the term fragmented to describe the splintering of insurance markets into smaller parts to divide people and groups up on the basis of risk. Insurance markets have become atomized into smaller sub-markets in the name of managing and avoiding risk. This process of insurance market fragmentation has reduced the breadth of risk pooling and lays the groundwork for inequities among markets and insureds. I provide a brief overview of the end result here. In Part IV, I examine in greater depth how fragmentation has occurred, through both competition and regulation, and why it creates critical problems for the individual mandate.

The primary divide in American health insurance is between public and private insurance with public insurance often covering more high-risk enrollees. (39) Roughly 100 million Americans have publically-subsidized insurance, including the elderly, poor, disabled, and veterans, each group in a discrete public program. (40) Public health insurance mimics some goals of social insurance and accounts for nearly 50 percent of all health spending in the country but is by no measure a cohesive system. (41)

Medicaid, which is the largest program, currently insures about 61 million low-income or disabled beneficiaries through both state and federal funds. (42) Medicare covers 45 million elderly or disabled. (43) Other public programs provide benefits for children whose families' incomes are too high for Medicaid (State Children's Health Insurance Program, "SCHIP"), American Indians and Alaskan Natives (Indian Health Services, ""is") and the military and veterans ("CHAMPUS" and "TRICARE").

The rest of the insured (~150 million) are covered by private insurance, which is divided loosely into three markets--large group (which is itself divided into fully and self-funded insurance, as described below), small group, and individual. Health insurance is sold differently in each of these three markets, and, for the most part, carriers who sell insurance operate in only one of these three markets. (44) Furthermore, as discussed below, the health insurance market is regulated at the state level, and the number and type of carriers differ state-by-state.

The majority of privately insured Americans still obtain their health insurance coverage through an employer, even as the prominence of employer-sponsored insurance ("ESI") declines. (45) ESI is carved up into large group and small group insurance (2-50 employees). Large group plans can be "fully insured," where an insurer bears risk under the plan. This means that an employer pays the insurer premiums, and if medical costs for the year exceed premiums, the insurer is at risk for such losses. (46) In contrast, some large employers have "self-funded" plans, where they bear the risk themselves. (47) They create a reserve for medical claims, design and administer a coverage plan, with the help, usually, of an insurer as a third-party administrator ("TPA"), and then pay for medical losses under the plan out of the reserve.

The frequency of self-funded health plans has increased dramatically over the past two decades, so that now 55 percent of covered workers (over 30 percent of the total non-elderly population) are members of self-funded plans, for reasons discussed in Part IV below. (48) Each self-funded plan acts as an isolated risk pool, extracting its members from larger insurance risk pools.

A small, but not insignificant, number of people (6-7 percent of the nonelderly) obtain insurance directly through the individual market, which is typically considered more unstable and more expensive dollar-per-dollar, as discussed further in Part IV. (49)

The remaining 16-17 percent of the total non-elderly population is uninsured. (50) Under an individual mandate, the uninsured could seek coverage through any of these sub-markets, as they have done in Massachusetts following the 2006 reform. (51)

C. THE UNINSURED AS CONSUMERS AND FINANCIERS

The individual mandate could inject into this fragmented market some 46 million uninsured, and in doing so it will influence these uninsured in two ways. (52) The first influence, which has been well-explored, is that the mandate converts all uninsured to policyholders (or consumers) of insurance. The second, less-examined influence is that the mandate causes some uninsured to pay more for insurance than they spend in care. By so doing, it converts them into "financiers" of others' care, which is critical to the mandate's ability to achieve redistributive objectives and to promote solidarity.

An understanding of why people are uninsured helps bring these two distinct influences to light. (53) Many of the uninsured are lower-income workers for whom insurance is arguably "unaffordable" or unattainable. (54) Over 60 percent of the uninsured earn less than 200 percent of the Federal Poverty Level (FPL). (55) An estimated 25 percent of the uninsured qualify for Medicaid or SCHIP but have not enrolled. (56) Some, eligible for insurance through the individual market, may have previously been rejected for coverage. (57) For this part of the population, the concern is making insurance policies accessible and almost certainly subsidizing the purchase of such policies.

Yet as many as a third of the uninsured could in theory afford to buy insurance but are nonetheless uninsured. Studies estimate as many as 17 million uninsured Americans are such "voluntary opt-outs." (58) This segment of the uninsured is growing faster than the low-income uninsured. (59)

These voluntary opt-outs have made a decision not to purchase insurance, presumably because they perceive the cost to be higher than the benefits. (60) Their choice may reflect a legitimate trade-off between health insurance and other needs they deem more important (relatively high costs). For others, it may be rooted in a perception that they don't need insurance (relatively low benefits). For the young uninsured, this way of thinking prompted the nickname "invincibles." If invincibles are seen as making an irrational decision not to purchase insurance, paternalism may be a particularly important reason for a mandate, as discussed below. But many voluntary opt-outs could rationally decline insurance because premiums exceed the value of insurance to them individually, in which case paternalism cannot argue for compelling them to buy insurance.

Considering this dichotomy of uninsured (involuntary vs. voluntary), we can see how the mandate influences the uninsured in two distinct ways--first as potential consumers and second as potential financiers of health care.

First, the mandate, by definition, attempts to convert each of the 46 million uninsured from a non-consumer into a consumer of health insurance; this fact underlies strong insurance industry support of both the mandate and also of high penalties for noncompliance. (61) This goal is simply that everyone carries health insurance, regardless of the form of insurance or who pays for it. A non-consumer might become a consumer by enrolling in coverage available through a public source (e.g., Medicare or Medicaid), if eligible, through an employer's health plan, or on their own in the individual market. Further, they might pay for all, part, or none of the cost of their plan, depending on what level of public or employer subsidies is available.

Second, and importantly, for a subset of the uninsured population, the government also compels them to be financiers of health care. While this aspect of the mandate has gone largely unexamined, it is critically important to redistributive objectives for the mandate as discussed in Part II.

When the mandate compels the 17 million voluntary opt-outs to buy insurance, they not only become consumers of health insurance, many will also become financiers of health care for others. Many voluntary opt-outs currently make decision not to buy health insurance based on low expected medical costs, at least in the short-term. To the extent their expectations are correct, when the mandate requires them to buy insurance, many are likely to pay premiums in an amount greater than what they consume in care (plus administrative expenses and profit). (62) When this occurs, some part of their premium payment will pay for someone else's medical expenses. Mandating these uninsured, the "financiers," to purchase insurance cannot be for paternalist reasons because such purchase is in fact not in their own individual best interest. Rather, as explained in Part III, the mandate's influence over the financiers is central to redistributive objectives and can, by promoting redistribution, also unlock greater insurance market efficiency.

Any surplus that the voluntary opt-outs pay in premiums over expenses is the contribution they make as financiers of health care. Because they are healthy (rich in terms of the resource of health), they are compelled to bankroll care for people sicker than themselves. This investment may pay back in a year when they are sick and consume more care than what they pay in premiums, or it may not.

While I use the term "financier" to describe these net contributors, I do so with a sense of irony and caution. Economist Jon Gruber notes that we understand very little about this population. (63) Yet, it is clear that we would not consider many "financiers" rich. They are often young and just beginning their careers or at an income level where the cost of insurance deters purchase, raising questions about the fairness of compelling them to finance others' care, as addressed in Part III.

In addition, while it is easiest to conceptualize the financiers as a static population, they are ever-changing and difficult to identify. The population of financiers will shift over time; someone may be a financier in one year and a beneficiary of other financiers in another as he ages or if he experiences, for any number of reasons, an increased risk of poor health. The point of using the term financier is to recognize explicitly that in health financing, every year some people can reasonably anticipate being net contributors, subsidizing other peoples' premiums and medical care. The mandate does not differentiate financiers from non-financiers. It simply requires that someone participate both in the years that he expects to be a net contributor as well as when he is likely to be a net beneficiary.

There are no good estimates on the dollar amount that financiers' premiums might provide to subsidize others' care. And in fact, it is quite difficult to measure this moving target, which depends on the design and range of plans available for purchase and how much premiums are allowed to vary based upon individual characteristics. The more financiers have access to plans that are priced based upon their expected low risk (i.e., low cost, high deductible health plans), the less surplus they will pay in premiums above expenditures. This calculus also depends on whether opt-outs use more care once insured because they are able to access necessary care or because they become cost-insensitive once insurance pays for care--a phenomenon referred to as moral hazard. (64)

Nonetheless, I offer a conservative ballpark estimate, based upon the world of insurance pre-reform and intended for illustrative purposes only, to suggest that their contribution is significant. Let us assume that under an individual mandate the voluntary opt-outs will buy insurance and pay premiums on average of $4000 per person, per year. (65) This means 17 million people newly insured would pay on average $4000 per person, or nearly $70 billion in premium revenue. They will of course incur some expenses to pay for medical care, overhead, and insurer profit. Yet virtually half of the population experiences essentially no medical care costs in any one year. (66) Presumably, many voluntary opt-outs fall into this category for the reasons discussed above. Even if we assume conservatively that half of the newly insured population's premiums go toward expenses, there would still be an over $35 billion infusion of financing into risk pools. While this estimate is extremely rough, it illustrates the potential of voluntary opt-outs as financiers. While insufficient to fund the entire cost of covering the uninsured (estimates are about $100-150 billion per year (67)), this surplus could nevertheless be quite significant.

Thus, in summary, the individual mandate is a tool to compel the heterogeneous population of uninsured into existing insurance markets and, in the process, will compel all to be consumers of insurance and a subset also to be financiers of others' medical care.

III. PATERNALISM, EFFICIENCY, AND HEALTH REDISTRIBUTION

By compelling the 46 million uninsured to carry insurance, the individual mandate can serve three primary types of policy objectives that I will characterize as paternalism, efficiency, and health redistribution. (68) Failure to clearly identify and consider each of these three types of objectives independently in policy discussions has obscured the fact that the individual mandate will face critical problems in achieving certain objectives, particularly health redistribution. Support for the mandate is rooted in all three objectives (although not all supporters care about all objectives), as reflected in legislative records in Massachusetts (69) and in proposals for a mandate as part of national reform. (70)

While different, these objectives are often not completely distinct. Rather, they are interrelated, interdependent, and undoubtedly blur at times. For example, an individual mandate would serve paternalistic and efficiency ends simultaneously if it compels people to behave in their own best interest and in doing so results in greater efficiency. In fact, some scholars argue that efficiency gains provide justification for paternalistic action. (71) Similarly, a law such as compulsory vaccination may result in an efficient outcome, protect the vaccinated individual himself, and more equally distribute the cost of preventing disease.

The purpose of disaggregating these three objectives with respect to the individual mandate is not to argue that they are completely distinct. Rather, it is to expose where the mandate will most likely fall short--in particular on redistributive aims--if implemented in a fragmented health insurance market.

A. PATERNALISM

Paternalism motivates law based on a belief that the government knows what is best for an individual and, thus, will compel the individual to act in a particular way for his or her "own good." (72) In doing so, policymakers substitute their own preferences for an individual's actuated preference. Because paternalistic mandates attempt to compel individuals to make choices that are in their own best interest, the paternalistic objective of the mandate should only apply to uninsured who are in fact making an irrational decision to be uninsured at a particular point in time. (73)

There is a long history of mandates motivated by paternalism. Mandatory use of seatbelts aims to protect drivers and passengers in a car from injury. Mandatory waiting periods on contracts intend to protect someone from agreeing in haste or under pressure to something that he will later regret. Even mandates that are intended primarily to serve other objectives may be partially motivated by paternalism. Compulsory vaccinations, while perhaps primarily intended to promote herd immunity (an efficiency goal), a]so serve to prevent an individual from being vulnerable, herself, to contracting polio or measles. …

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