Why Shouldn't You Just Pay the Individual Mandate?

By Ezra Klein, The Washington Post

28 December 13

ast night I was on Lawrence O'Donnell's show responding to an op-ed written by Carl Gibson, a 26-year-old, healthy young man, about why he intends to pay the individual mandate rather than buy insurance. A few thoughts.

1. For Gibson, as for many others, it comes down to cost. The plans that makes sense for him cost about $150 a month. Atop that, they come with a $2,000-$5,000 deductible. "That's roughly 15 percent of my income that comes out of pocket before my health insurance even kicks in," he writes.


2. Compared to that, Gibson writes, paying the mandate seems like a steal. "Does it make more fiscal sense to pay $3,800 to $6,800 a year to have health insurance and see a doctor when [something] happens, or to pay $300 to be uninsured and hope for the best?"


3. Gibson is latching onto something very real in the law: The mandate is a great deal. He doesn't even mention the best part: If he pays the mandate and then he does get sick, he can still buy insurance at the same price as when he was healthy when the next open enrollment period rolls around! Paying the mandate is basically purchasing an option to buy health insurance at a reasonable rate in the future, even if you get sick between now and then.


4. So why would anyone not pay the mandate? A few reasons. First, people actually want health insurance. After all, there's no individual mandate right now, but lots of people pay lots of money to buy insurance, even when that insurance has high deductibles. Second, the mandate gets pretty steep, pretty quick. By 2016, it's 2.5 percent of income over the tax filing threshold ($10,000 for an individual, $20,000 for a family). So if you're making $40,000, that's $750 you're spending — and you're paying it knowing that if you get sick, you have no protection. Third, people tend to follow the rules.


5. And then, of course, there's the big reason: You might get sick! Gibson's argument is that he's young and healthy. The most he's ever spent on health care is $6,000 for a back surgery in 2011. That's great! But as they say, past performance is no guarantee of future results. Sometimes you get hit by a bus, or you find a lump, or your wife gets pregnant. And then what? You'll wait 10 months for the next open enrollment period? Most people don't buy insurance because they expect to need it. They buy insurance in case they need it.


6. We have some evidence on this. Paying mandate is also cheaper than buying insurance in Massachusetts, but almost no one pays it.


7. It's a mistake to think of yourself as having a fixed relationship to the health-care system. Gibson sees himself as young and healthy and he doesn't see a reason to buy insurance until he's old and sick. But no one stays young and healthy forever. If all the young and healthy people pay the mandate, there won't be a health-care system there to protect them when they're old and sick.


8. Towards the end, Gibson's article takes an odd turn into single-payer advocacy. In a sense, I agree: Compared to the system we have, an idealized single-payer system would be vastly superior. But single payer still costs money! And it's a worse deal for people like Gibson. Obamacare lets him pay a third as much as older Americans, and he can buy a high-deductible plan that lowers his premiums further because he doesn't expect to use much health care. In a single-payer system like Gibson is outlining, those gradations aren't there. Young and healthy people get a much worse deal. And there's no mandate for people who really feel they can't afford insurance. If we could somehow enact a single-payer system at Canada's cost structure, it's true everyone would be paying less, but there's little reason to think that's possible.


9. The macro question raised by Gibson's op-ed is whether the political controversy around Obamacare will lead people to act differently than they have with similar mandates in the past and go without health care in huge, market-destabilizing numbers. As of yet, there's not much evidence of it. But it could happen. Then the political system will face a choice: Let premiums rise for older, sicker people or raise the penalty on the mandate.