Two Reasons Why an Individual Mandate Will Not Solve the Free-Rider Problem

The idea that government should compel people to purchase health insurance is gaining traction among Republicans and Democrats.  The idea is called an “individual mandate,” because it would require individuals to purchase coverage (as opposed to a mandate that requires employers to provide coverage to their workers).  Former Massachusetts Gov. Mitt Romney (R) put that idea into effect in the Bay State.  California Gov. Arnold Schwarzenegger proposes to do so in the Golden State.  A number of other states are considering it.

What makes the idea attractive is the fact that many people obtain health care but don’t pay for it.  Unless health care providers can (1) collect from, (2) avoid, or (3) deny care to those people (which in many cases is illegal), the costs must fall on someone else.  Thus, the reasoning goes, decreeing that everyone must obtain health insurance would solve that “free-rider” problem.

But there are two important reasons why it will not:

  1. There would still be people without health insurance.  Many will not obey the decree.  California mandates that all drivers must carry auto insurance, yet according to the Insurance Research Council, 25 percent of California motorists are uninsured.  In fact, the share of uninsured motorists is higher than the share of residents without health insurance (18 percent).  Even with a mandate, there will be uninsured people who free-ride at others’ expense.
  2. Free-riding by people with health insurance.  According to research by the Urban Institute’s Jack Hadley and John Holahan, people who have health coverage account for at least 30 percent of uncompensated care delivered to the non-elderly.  Since uncompensated care accounts for just 4 percent of health spending, a mandate could affect at most 2.8 percent of spending.

So an individual mandate could solve at most two-thirds of a very small problem, but chances are it would do even less good than that.

That small benefit must be balanced against the costs.  According to The New Republic’s Jonathan Cohn, who is generally sympathetic, “individual mandates … require substantial government intervention in the free market.”  Government must monitor yet one more aspect of the citizens’ lives.  It must define what qualifies as health insurance, which is an invitation to the sort of special-interest rent-seeking that has made health insurance unaffordable for so many.  It must tax some citizens to subsidize those who cannot afford coverage.  A final cost of such mandates is that rather than solve the much larger problem of moral hazard, they actually make that problem worse. 


What is interesting, then, is this.  Journalists and left-ish policy wonks explode when special interests try to line their own pockets by supporting, say, ineffective weapons systems.  But where is the outrage when this or that group seeks to do the same thing with ineffective health care proposals?