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MUSINGS ON MANDATES: The Rhetoric And The Reality

February 7th, 2008

In the wake of the failure of the California health care reforms and the continuing focus on Massachusetts’ reforms, everyone in the American health care policy community seemed to be focused on mandates. They have also been the subject of reporting and opinion pieces for the last two days in the New York Times as the key difference in proposals put forward by Senator Clinton and Senator Obama in getting to universal coverage.

Mandates are not a new idea. We have mandates for all sorts of insurance-related products. Drivers in the U.S. are mandated to have automobile insurance, but the effectiveness of this mandate varies greatly from state to state. Sherry Glied reminds us that passing a mandate by itself does not guarantee universal participation in a program.

Glied’s cautionary findings were meant to introduce some history into the debate on personal mandates obliging individuals to purchase health insurance. The personal mandate is a key feature of the Massachusetts reforms and proved to be a major stumbling block for passage of universal access in California.

Mandates were also a key topic at the National Academy of Social Insurance annual conference last week. Is it necessary for states and/or the federal government to institute a personal mandate requirement (there was little discussion of employer mandates) to get to universal coverage?

Personal mandates to acquire health insurance occupy an interesting space in health care debates. For many economists, mandates and subsidies travel together. Mandates are the obverse side of the coin of subsidy. If you can get the numbers right, and figure out how many people at what price would need a subsidy to afford insurance, you can mandate it. Economists and bureaucrats can solve the technical problem of numbers and price. The political scientists come along to remind the audience that mandates seem to be the opposite of concepts of social solidarity and that both are uniquely and intrinsically tied up with the culture of the place, be it a state like Massachusetts, a city like San Francisco, a country like the Netherlands, or, as Uwe Reinhardt noted in his opening remarks, the U.S. Marine Corps.

At times the political scientists and economists switch sides, but what the focus on mandates does tell us is that mandates live in that messy territory known as policy, nestled uncomfortably between economics and politics.

As we enter into 2008 and the Massachusetts reforms have been up and running for a year, there has already been much discussion of whether the Massachusetts experience is generalizable to other states and the federal government. Could other states craft universal coverage using mandates, subsidies, and “Connectors”? Is this system in some way applicable to the federal government?

To date, 39 states have enacted health coverage reforms in the past two years. The Massachusetts reforms enacted in 2006 have served as a beacon to other states, but they take on added urgency with the failure of the California reforms and the coming presidential election.

There was much enthusiasm at NASI for mandates by economists as diverse as Jonathan Gruber, Eugene Steuerle, and Mark Pauly. If you can create the right conditions, craft the right numbers, and have adequate financing and enforcement, mandates can work.

A note of caution was raised when the discussion moved on to California. It seems that defining the right conditions is harder in practice. Can mandates work in a place with a very different political culture and where additional financing would have to be found to make them viable? Massachusetts had an available pool of federal money and many fewer uninsured residents than California. It also struck at the right moment. The final vote on the California reforms came to pass right after the state realized that it faced more than a $14 billion shortfall due to the subprime mortgage mess and the slowing economy. The conditions of the 2008 economy are very different from 2006 and could well slow down the engine of state reforms as states scramble to balance their budgets in a recessionary economy. However, as Larry Brown pointed out, the political culture of Massachusetts is unique and not directly related to its economy; he suggested that it was blessed by a spirit of comity and civility not replicated in many places. He thought only a handful of states had the political and cultural capital to follow Massachusetts.

The politics of mandates for health insurance are even complicated in international models that were already based on social insurance and adequately funded. Kieke Okma reminded listeners at NASI about the Netherlands’ experience as it transitioned off a system of sickness funds and a concept of social solidarity to a system of managed competition and personal mandates. The Netherlands had higher compliance of about 99% under the old system without mandates. Under the new reforms, compliance has gone down and has become something of a problem for the government.While the numbers are still impressive by a U.S. standard, the Dutch experience raises an interesting question. Do you need mandates to get to universal coverage, or do you need a political culture that supports universal coverage? Can mandates supplant or substitute for a culture of social solidarity? Did Massachusetts achieve its reforms not only because it had the financial wherewithal, but also because it possesses a unique historical and political culture that embraces both concepts of social solidarity and personal individual responsibility? Do other states posses the same or other unique cultural features that would allow them, if they have financing, to move towards universal coverage?

The politics of universal coverage and health care reform in the U.S. and the Netherlands will be featured later this spring in the May/June issue of Health Affairs.

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6 Responses to “MUSINGS ON MANDATES: The Rhetoric And The Reality”

  1. Claudia Says:

    Dear Larry,

    Social insurance is not a euphemism for anything. It is a way of organizing insurance that has its roots in the sickness funds of late 19th century Germany, and was promoted by Otto Von Bismarck, first Chancellor of the German Empire. Indeed, the roots of it can be traced back to the guilds in the Middle Ages. For further information you can consult the National Association for Social Insurance in America, Social insurance is how we Americans organize social security and, incidentally, Medicare.

    Single payer is not the only way to organize a social insurance system. Such a system can also be organized with multiple payers. If history is of any guide, and I could not agree more with you that it is, many social insurance systems are organized with multiple payers. Such the case of Germany, Spain, or France, among others. The reason why any country “chooses” one or the other is partly historical. We know all too well (e.g. Iraq) that institutions are rooted in a cultural and historical milieu, and cannot be built out of hot air or overnight. So the fact that many European countries had guilds was partly the reason why most, albeit not all, have social insurance with multiple payers.

    We Americans have solid foundations for a single payer system, whatever its political feasibility — whatever that may mean. Of course we may choose to ignore it at our peril, as we have done so far with results that are visible to all, and that the World Health Organization keeps on using when it ranks our system lowest in quality among all other industrialized nations, 37 in overall systems performance, and worst, at least in my view, lowest in financial fairness than the United Republic of Tanzania. (we rank 54 to be more precise).

    Another example of our experience and historical roots for a social insurance system of the single payer type is Medicare, which despite the repeated attempts of outsourcing the services to middle-men that keep pillaging it (the New York Times reported yesterday yet another case), does its job. To say that Medicare has problems is to confuse the symptom with the disease. The problems of Medicare reflect systemic problems. Medicare has to foot the bill of the sickest and oldest (hence the most expensive) members of the system, that private insurers have little interest in picking up — granted, with limitations, and depending on the subsidies and the protectionist legislation (Medicare Part D) they can negotiate (it seems that everybody after all has a price). Medicare also needs to deal with the high prices of medical care in our country, partly a result of the perverse incentives of the private sector whose goal is not to provide care but to keep away those who need care and dump them on the private sector.

    I won’t give more examples of the multiple ways in which Medicare has been pillaged by private insurers (who also have deceived patients) because I would be repeating what everybody who reads the papers knows, and I don’t want to insult the intelligence of readers of the blog.

    As to the problems of Medicaid, they are irrelevant to a social insurance system. Medicaid is not social insurance. It is a welfare program, of poor people, with scarcely any political clout, if at all, which is why it is always underfunded, and which is why the British, just to give an example, decided that government charity was not a good way to provide health insurance to their people (their last attempt was prior WWII, with charitable and government funded hospitals for the poor, which failed miserably).

    Finally, as to the solvency of the system that you point out, I am not sure what you mean by “the system”. The 17% of GDP that we pay in medical care comes out of everybody’s pockets, the more the sicker you are. If you collect from every person in the United States an amount of money they can afford (it is a waste of time to demand money that people cannot afford, morality aside), then you have a pile of money going into a “system” and you can use it to provide a decent amount of medical care to whoever needs it at any given moment, assuming that this, and not another one, is the goal.

    In a single payer system, this is easier because you can pool risks, estimate how many people will need what, and use the collective purchasing power to negotiate prices with providers — such the case of the VA, for example. And after all, it is all of us who foot the bill of the monumental private bureaucracy that takes great pains in dividing people up according to eligibility criteria, in marketing, underwriting, etc. to make sure that they never collect less than what they pay for medical care and that they leave enough spare change for CEOs’ salaries, shareholders, and incidentals.

    The idea that the solution to the health care crisis is to put people in the position of having to second guess what their future, or even current, medical needs will be, makes the elementary mistake to assume that medical care is functionally equivalent to designer shoes, and that people can, and should, comparative shop for it. We can shop shop shop for medical care until we drop, but most likely we will drop dead — many Americans do, in fact, and for this reason.

    If we Americans took the trouble to really examine history we would know that there is little reason to believe this approach or similar approaches will work. And if we were open to learning from history, even if it is true that it never repeats itself, we would learn that an American (W.I. Thomas) said, over a century ago, that “what people believe is real, is real in its consequences”. If we keep on repeating, and believing, that certain options are “political non-starters”, the sorry consequences of this belief, assuming that this is the issue, will be real. And so far, we’ve made them real indeed.

    My apologies for the length. On my bad days, I wonder whether real change is possible, and turn to blogging :-(

  2. L Ozeran Says:

    (This may be difficult to follow since my response to Claudia precedes her comments and all of the other relevant discussion that has already occurred follows her comments.)

    To the question at the end of the first paragraph, why mandates? Financial solvency. With a mandate for providing service there must be a mandate to pay for service, otherwise the system becomes insolvent, the direction we are currently heading. We can have mandates for both or mandates for neither, but the current system is unsustainable.

    I do not understand what social insurance means. If that is a euphemism for single payer national insurance, it is not workable in this country. Politically it is a non-starter. More importantly, it also would lead to insolvency if history is a reasonable guide, which it usually is. All you have to do is look at the arbitrary 10% cut in Medicaid reimbursement in California this year due to general budget pressures, despite the fact that Medicaid rates are already about 30% below the cost to provide care. Or you can look at the 10.6% Medicare cut planned for July of this year because the healthcare inflation index which Medicare tracks is not the one used to determine how much to raise payments. Both of these cuts will lead to increasing numbers of payments below the cost to provide care. Imagine if those were the only payments for care and you can see healthcare insolvency within one year’s time under a national system. If you lose money on every patient, you cannot suddenly become profitable by increasing your volume. Your doors must close and you find work in another field.

    Our healthcare crisis has nothing to do with solidarity and everything to do with inadequate payment for the services Americans currently use. That would not be fixed by changing who runs the insurance company. There is more discussion of those factors which could fix our system on my web site and in many places on this health affairs web site.

  3. Claudia Says:

    “If you can create the right conditions, craft the right numbers, and have adequate financing enforcement, mandates can work”. Very well. But why, given the cost and complexity of guaranteeing access to a decent amount of medical care, would one want to add to the layer of complexity (and cost) of “creating the conditions” (subsidies, enforcement) for an individual mandate? For what purpose?

    I would argue that whether one can, in fact, create those conditions is not the point. The point is, if in fact the goal is to guarantee the most and best medical care to the greatest number of people, are there alternatives better than mandates? Why should we assume that mandates are better than social insurance (and banish the latter from the range of options), when there is an enormous amount of evidence in support of the latter, and scarcely any for the former? And when social insurance is supported by an increasing number of Americans, including physicians?

    Why are we not asking whether mandates lower the prices we pay for health services in America as efficiently or more than a social insurance system? For whose sake experts keep drawing epicycles on the board to make the theory of mandates (which, interestingly, gives private insurers a key role in providing a social service) fit the facts?

    This is not to say that America has the “political culture” to support social health insurance, any more than it has the culture to support a mandate (I am not sure how many ordinary citizens in Massachusetts were consulted, however. A few thousands are now asking to be “waived”).

    But presuming that if Americans had a “culture of social solidarity” we would support mandates (and implying that those who do not do not support universal coverage) flies in the face of the evidence of decades of health care reform in Europe. Europeans have for decades had the culture of solidarity that we lack, which has led them to enact reforms premised on the principle of social insurance — not mandates — in order to achieve universal access to medical care.

    It would also imply that the Netherlands, where over 99% of the population had access to decent medical care under the former system of social insurance, and where percentages have fallen under the current individual mandate, overnight lost their sense of solidarity (Not all of it, however. As Brad notes, 45% of the cost of medical care is still covered under social insurance, and all children are covered – period).

    Guaranteed access to a decent amount of medical care is the only meaningful way to talk about universal coverage. After all, we don’t argue that a mandate to buy drivers’ insurance protects us from the financial burden of covering the costs incurred by a car accident – we know all too well that all it does, especially if the policy is “cheap”, is protect us from getting in trouble with the law.

    Ordinary Europeans seem to have been smart enough to not allow themselves to be driven to false options or confused by rhetorical gymnastics — either you are for “universal coverage” (which in the context of current political debates about reform seems to only mean “individual mandates”) or you are not. They have also been smart enough to realize that what matters about any form of universal coverage is that it minimize financial barriers to medical care and allow the system to take advantage of people’s collective purchasing power (drug formularies, fee schedules, global budgets, and so forth). And the fact that they have problems is no evidence against the wisdom of their their fundamental choice about financing through social insurance. And it is certainly no evidence in support of our choices.

    I wonder when our sense of solidarity will finally take center stage and lead the debate about health care reform.

  4. L Ozeran Says:

    As long as we have free care mandated in the emergency room we must have mandates for individuals to pay, otherwise we continue down the path toward insolvency of the healthcare system. To be effective, mandates must have a serious consequence when they are not met. To be effective, mandates can have NO exclusions. To be effective, mandates must be possible to implement.

    The failed California reform initiative incompletely addressed each of these requirements for an effective mandate. The consequences were not tough enough. Exclusions should have been replaced by subsidies (as discussed above). Cost ultimately killed it, not because a system could not be crafted, but because the system the legislators wanted was unaffordable.

    It would have been far better to identify what was affordable and define the minimum health benefit at that level. That minimum health benefit then could have been applied to all Californians, employed, unemployed or incarcerated. Such consistency would have eliminated some perverse incentives which exist today. It may be better to lose your job than keep it if you need Medicaid coverage to treat your cancer. Wouldn’t we rather people chose to remain employed? It may be better to be incarcerated for a crime, if you are unable to get treatment for your HIV. Do we really want to incentivize criminal activity?

    Once a minimum benefit is designed at the affordable level for all, it doesn’t preclude others who can afford more from buying additional coverage or additional care. It is unfortunate that those involved in the reform negotiations were unable to get the majority to agree that something affordable was better than continuing a system which will ultimately be unaffordable for all.

  5. Brad Kirkman-Liff Says:

    Sarah DIne’s summary of Kieke Okma’s description of the Netherlands’ experience as it transitioned in recent years to a system of managed competition and personal mandates leaves out some details that are important to know.

    1) Under both the old and the current system, approximately 45% of health care costs are covered under the “Exceptional Medical Expenses Act”. This is a mandated insurance program paid into by the employer and emplopyee for long-term care, mental retardation and developmental disabilities services, maternal and child health services, and public health services. It represents the kind of “uninsurable” risks that insurers prefer not to cover.

    2) Prior to the 2006 recent reforms, about 60% of the population were in sickness funds, and 35% of the population were in a system of managed competition and personal mandates, with employers contributing approximately ne-half of the cost of the premioum of the plan selected by the employee.

    3) Parents do not have to pay for the coverage of their children in the Netherlands – the risk equalization mechanism operated by a quasi-autonomous organization covers those costs.

    In the Netherlands there is a sense of shared responsibiliy (which some might call “solidarity”) which is reinforced by the mandates. Achieving universal coverage through consumer choice of competing plans requires a recognition of shared responsibility on the part of all parties. Mandates is not sufficient.

  6. Rob Cunningham Says:

    From the moment the deal was struck in Massachusetts, I have admired the policymaking coup of an individual mandate that seemed to satisfy the demands of both personal and social responsibility. As a jackleg student of the insurance business, I appreciate the importance of inclusive risk pools. As a perennial spectator at the great game of politics, I found the elegant sublimation of conflicting worldviews to be irresistable.

    More recently, though, it has become a little troubling to witness the further politicization of actuarial science in the fencing over mandates between the Clinton and Obama camps. The Krugman and Brooks columns cited by my colleague Sarah Dine had the vivid but disjointed quality of a wonk’s wierd dream. Why these exaggerated fulminations? Are we really doomed to another political stalemate over a mere shibboleth?

    Sarah is right in suggesting that the California state Senate’s January decision puts the mandate question in proper perspective. It’s about the money. Coverage costs have to be balanced against the state’s ability to subsidize for either voluntary or mandatory schemes to be viable. You can’t do either unless you can keep costs within the state’s ability to pay. So mandates should really be a second-order design question that can’t even be intelligently discussed until budget parameters are established, at the state or federal level.

    Isn’t that the lesson of Clinton 42 — don’t force the details in advance? Leave yourself some flexibility to solve problems as they arise. The M word itself might eventually denote any number of policy options. What about a mandate for catastrophic coverage only, to mitigate the free-rider problem without creating a big target for opportunistic political opponents? A helmet law, essentially, that could be tied to a reinsurance pool. Or subsidies and incentives for chronic patients to prepay for predicatable needs. If you force a mandate for full coverage, you can quickly drive the price of reform out of reach. Do we really want the goal of universal coverage to be defined as buying everyone into a system that we can’t afford in the first place? Cut the problem down to size, isolate it, then attack. It seems like mandates should be one of the last issues to address, not the first.

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