Many people are concerned about the number of people who lack health insurance in the U.S. There have been proposals for "Universal Health Insurance" to ensure that everyone has health insurance -- either public or private insurance, through a group or as an individual. "National Health Insurance" is one form of universal health insurance in which the private market for insurance is eliminated and the government directly insures everyone. Advocates for national health insurance say that the current public-private sector mix in health insurance is inefficient, unfair, and should be totally replaced by an entirely new public system. Opponents of national health insurance generally say that creation of a government monopoly would be bad for consumers.
Most uninsured Americans work and there are advantages of employer-based group health insurance. Accordingly, some proposals for universal health insurance focus on mandated (employer-based) health insurance -- requiring employers to provide health insurance for their workers. They say -- "Don't scrap 80% of a system which is working to fix 20% which is not working." They assert that an incrementalist approach is much less disruptive than (entirely-public) national health insurance. They propose giving employers the option of either providing health insurance for their workers or paying a tax to fund public health insurance for their workers -- called "Pay or Play".
The following are some arguments for expanding health insurance coverage through employer-based mandates. It builds on the efficiencies of group health insurance. Employers who do not provide health insurance are "free riding" at the expense of employers who do provide health insurance. The health care costs of uninsured workers often show up as bad debts or charity care are ultimately subsidized by higher insurance rates. Employers who provide insurance for their workers complain that they "pay twice" for insurance: once for the costs of their own workers; and once through higher premiums to pay for the uninsured workers of their "free-riding" competitors.
Some workers who choose firms where they get higher wages instead of health insurance are ignorant of the importance of health care insurance, myopic, or intend to "free ride" on the health care system if they get sick. If forcing some people to buy something is the only way to correct large-scale market failure (e.g. via adverse selection in the small firm market), then there might be justification for the "good of the many" outweighing the "bad for the few."
The following are some arguments against employer-based mandates. Mandates can hurt the very people that they are supposed to help. If the cost falls on the employer, then the employer might cut out part-time or low-wage jobs. The result is that the people who you tried to help are no longer uninsured and employed, but rather uninsured and unemployed. At least with straight-forward taxation of the rich to fund insurance for the poor, you can generally be sure that you are helping the poor. With indirect measures, you cannot be sure.
If workers get to keep their jobs but get lower pay to pay in response to the mandated benefits, then one effectively forces them to buy something (with their own money) which they did not buy voluntarily. Some workers may prefer the cash (or what it buys) to health care. Perhaps food or shelter or education is more important to them right now than health care services.
Premiums for small firms are generally 25% to 40% higher than those for big firms due to: lack of economies of scale; lack of clout with insurers; and being too small to gain the benefits of self insurance. Accordingly, "pay or play" proposals are generally accompanied by suggested reforms in the market for small group insurance. Without measures that help small employers get better value for their insurance dollars, mandating small employers to provide benefits could do more harm than good.
Part of the political appeal of mandates is that it allows government to move resources from one place to another without new explicit taxes. This is called "off-budget" financing. For example, suppose that a community government wants to spend more on local schools, but does not want to raise taxes because they are unpopular. One option would be a $100 tax on each family that the government spends on local schools. This involves an increase in the government's budget. An "off-budget" option would be to mandate that each family provides their own children with $100 in textbooks (which the school once had provide). The government's budget stays the same, but the schools now have $100 per family freed up to pay for other things. Government mandates act like a hidden tax, which can be more popular than explicit taxes.
Even if universal health insurance were required, how could the government be sure that an employer offered decent health insurance, not a skimpy coverage which defeats the purpose of the mandate? One approach is to require a minimum dollar amount which the employer must contribute for health insurance premiums. However, basic services could be left out and either workers would be denied basic services or get them free (and leave society holding the bag).
A second approach is to have government mandate specific benefits and/or define a minimum set of basic benefits. Specific mandated benefits are those benefits that must be included in employer-based insurance if the employer offers insurance. Most mandates for specific benefits have been legislated by state governments. Due to federal legislation called ERISA, self-insured employers are exempt from state insurance regulations and, thus, not required to comply with specific mandated benefits required by state governments.
Proposals for universal health insurance have generally involved definition of a basic benefit set to insure that employers do not offer skimpy, cheap policies. The basic benefit set includes the minimum benefits that an employer must provide. Although specific mandated benefits and basic benefit sets are different concepts, they both involve the key question of whether government should be involved in deciding what health insurance should insure.
The following are the main arguments in favor of government setting mandated benefits or defining basic benefit sets. First, it is meaningless for society to decide that everyone has a right to basic health insurance without some definition of what basic health insurance includes. Without definition of basic benefits, universal health insurance is an empty promise. Second, people and/or employers can be ignorant or myopic in their choice of health care benefits, not realizing the importance of coverage for key services until it is too late. Third, choice of benefits fuels adverse selection. Uniformity, or at least a minimum core of basic benefits, will help to prevent adverse selection and possible insurance market failure.
The following are the main arguments against the government setting mandated benefits or defining basic benefit sets. Mandates force workers to have benefits that they (via their employer) would not voluntarily select. This gives them less value for their insurance dollar. If there is strong moral hazard (remember the eyewear example), then the situation is even worse. A related frequent criticism of mandated benefits is that they drive up health care costs. Increased costs can be alright if there are corresponding increases in benefits (consumer welfare). The trouble occurs when consumer are forced to buy something for which they view the cost to be greater than the benefit.
Groups which support inclusion of specific benefits tend to be better organized than the small firms and employees who must pay the tab. Insurance coverage means a lot of money to the provider group whose services will be covered. Not only will better insurance coverage decrease their bad debts, but moral hazard will increase the demand for their services. As is often the case in the political decision-making process, the gain is concentrated and the loss is diffuse.
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