Fixing the "free rider" problem is not the purpose of the individual mandate 

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Mitt Romney on Thursday joined the Obama administration and its lawyers in advancing the “free rider” argument for the individual mandate. Those who went without health insurance in Massachusetts before he signed the law making it illegal, Romney argued, drove up the costs for everybody else when they showed up at emergency rooms and didn’t pay for the care they received. Forcing them to purchase insurance, Romney argued, was a matter of “personal responsibility.”

While this may be a compelling argument to some, it has little bearing on the actual purpose of the individual mandate.

The biggest problem with the “free rider” argument for the mandate is that it brands everybody who chooses to go without insurance as a free rider. Yet in reality, actual emergencies are pretty rare. Which is why they’re emergencies. For every deadbeat who shows up at the emergency room without insurance, there are many more uninsured individuals who either: a) take the risk of going without insurance and never have to seek emergency care or b) actually pay their bills if they do.

Proponents of the mandate often throw out a parade of horrible stories of people who choose to go uninsured and rack up massive medical bills that everybody else has to pick up. How many times have we heard scenarios along these lines: the daredevil skier who suffers a major head trauma and gets rushed to an emergency room by helicopter, or the twenty-something who thinks he’s invincible but wakes up one morning and discovers a lump that turns out to be a cancerous tumor.

Yet statistically, this sort of thing doesn’t happen very often. Cancer incidence among individuals 25 to 29 was 60.4 people per 100,000, according to data from the U.S. National Institutes of Health. And about that daredevil skier? According to the National Ski Areas Association, serious ski and snowboard injuries occur at the rate of 0.80 per every million visits.

While there are many other such examples we could use, the bottom line is that for every young and healthy person who incurs major medical costs either engaging in reckless behavior or being diagnosed with a terrible illness, there are many more who spend their early years paying out far more in health care premiums than they actually have in medical expenses. I estimate that over the course of my 20s, either directly or through my various employers, I shelled out $40,000-$50,000 in health insurance premiums. At the risk of tempting fate, I’ll note that my combined medical costs during that decade of my life didn’t amount to more than a few hundred dollars.  My experience is much closer to the norm than any of the horror stories that mandate proponents like to trot out.

Even if we use the statistics the Obama administration is citing in court – that there’s $43 billion in uncompensated care each year – it still represents only 1.7 percent of the $2.5 trillion spent nationwide on health care in 2009. In other words, while it looks like a large number, it is certainly not a major contributor to the nation’s health care costs.

Furthermore, it isn’t as if imposing a mandate would bring that uncompensated care number from $43 billion to zero. Quite the opposite, if the Massachusetts experience is any guide. As the Wall Street Journal noted earlier this week, in the post-mandate world in the Bay State:

Uncompensated hospital care rose 5% from 2008 to 2009, and 15% from 2009 to 2010, hitting $475 million (though the state only paid out $405 million). "Avoidable" use of emergency rooms—that is, for routine care like a sore throat—increased 9% between 2004 and 2008.

If the real aim of the mandate were to reduce uncompensated care, there would be plenty of other ways to target that specific problem. One would be to reduce the number of benefit mandates currently imposed on insurance policies. In the current system, a young and healthy individual who isn’t getting insurance through an employer has no reason to spend $5,000 a year on an insurance policy. However, if they had the option to purchase a policy with a high-deductible that would cover their costs in the case of a rare accident or illness, they’d be able to obtain a policy for much cheaper than that. And if we changed the tax code to give individuals the same advantage purchasing insurance on their own as others have when obtaining it through their employers, then the cost would be cheaper still.

Under such a system, there would still no doubt be free riders, but they can be dealt with directly. For instance, if people who can afford insurance go without it, receive emergency care, and refuse to pay, the government can impose much harsher penalties on them than under current law. The mandate is a much blunter instrument, because it goes after all people who go without insurance, even those who never actually become free riders. Their only crime is the potential that they might become free riders.

In reality, the purpose of the mandate is to correct a distortion in the insurance market caused by government policy. Because politicians want to force insurers to cover those with pre-existing conditions, it means skyrocketing health care premiums, which encourages healthier people to drop out of the insurance pool because they may as well wait until they get sick to purchase coverage, and their exit causes premiums to go up even higher. The mandate exists to force healthy individuals into the insurance pool to subsidize sicker individuals, thus preventing this so-called “death spiral.”

In summary, the mandate is not about confronting uncompensated care, because it casts a much wider net than actual free riders by treating everybody who chooses to go without insurance as a deadbeat. And while we can debate ways to treat those with pre-existing conditions, dealing with the issue by forcing millions of people to each pay thousands of dollars more for health care every year than they actually need to is neither fair nor just. And hopefully, the courts will recognize that the federal mandate isn’t constitutional, either.

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Philip Klein

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