As we’ve noted before, there’s an ongoing debate about the individual mandate in both the House and Senate bills. Here are the main criticisms:

− From conservatives: government should not require you to buy a product.

− From some liberals (e.g., Democracy for America, run by Howard Dean and his brother Jim): government should not require you to buy a for-profit insurance company product (since no public option is also available.)

− From insurance companies and large employers: the financial penalties in both bills for enforcing the mandate are too weak relative to the cost of coverage, encouraging many to waive coverage and then enroll only when the need to use it (driving up costs for everyone). In the Senate bill the penalty is the greater of $750/year or 2% of income. (Note: those with no or low income would get coverage through Medicaid anyway or large premium subsidies.)

But the defenders of the mandate argue that:

− Everyone must contribute to the pool in order to make it affordable.

− If we are going to ban insurance company pre-existing conditions restrictions and recidivism (canceling coverage after enrolled), then the trade-off is preventing individuals from signing up to use coverage when they need care (adverse selection), and paying only briefly into a system that others have funded for them. This is a version of what is known in economics as the “free-rider” problem.

− The penalties need to be small, at least at first, to get people used to the requirement. Plus small penalties still work, as the coverage mandate in Massachusetts has shown (achieving a 96% enrollment level).

− The requirement to get coverage and pay premiums to buy a universally necessary and highly regulated benefit (when you supposedly can afford to) is more like a tax and not a requirement to buy typical optional private product.

− The only other “fair” alternative to thwart the free-rider problem, which is not practical, is to have those who waive coverage sign a voucher that they will not rely on “free” emergency room or other care, funded by others. They only get care to the extent they can pay for it in cash or a loan.

As usual, the distinguished professor Uwe Reinhardt of Princeton notes a sharp contrast here in the attitudinal differences between the US citizens and those of “old Europe” (to borrow Donald Rumsfeld’s memorable phrase) and the Far East. In his blog post in the January 8 New York Times he describes how the universal health care programs in Europe, Canada, Japan, Korea, Australia, and elsewhere include everyone in the insurance pool and use community rating (charging them the same regardless of age, gender or health status). Reinhardt observes (click here):

“Community rating is so acceptable in these countries because citizens there view it not only as part of a larger social contract, but also as a vehicle for life-cycle economic planning.

The vast majority of citizens in these countries view health care as a “social good” that is to be shared on the basis of need by all on roughly equal terms and is to be financed largely on the basis of ability to pay.

By contrast, Americans have never agreed on a shared social ethic that should govern their health system, as the current debate over health reform has made visibly and audibly clear.

Furthermore, younger and healthier people in these countries realize that, but for the grace of God, they might become chronically ill only a few years hence and that, in any event, one day they, too, will be older and sicker. By paying more than their actuarially expected cost for health insurance, young and healthy people in these countries join a club, so to speak, that offers them a valuable call option. That call option allows them to procure at age 55 health insurance at a premium much below their actuarially expected cost.

By contrast, Americans have been taught that health insurance is largely a private consumption item purchased year to year and customized to the individual’s circumstances…. With the exception of Medicare, all health insurance in the United States is basically temporary.

Curiously, however, although Americans often flatter themselves with the image of being self-reliant, rugged individualists, they actually tend to rely more than citizens in many other countries on government-run health insurance and pensions in their old age, or when they fall on hard times. It is what makes the creature called “American” so perplexing in the eyes of foreigners.”