The Impact of Individual Mandate on Health Insurance Costs
Understanding how an individual mandate influences health insurance costs involves examining how it redistributes risk among the population. For instance, consider the hypothetical scenario where the average medical expenses are $5,000 for a 20-year-old, $10,000 for a 40-year-old, and $20,000 for a 60-year-old. Assuming a relatively equal distribution of age groups in a health insurance pool, the average cost per person would be around $11,000.
Suppose half the 20-year-olds opt out, but none of the older individuals do. Suddenly, the average cost per person would rise to over $13,000. However, this number does not reflect the true distribution of healthcare costs. Since many 20-year-olds have bills significantly lower than the average, the overall average cost would be lower. Meanwhile, a few individuals with extremely high medical bills would skew the average upwards, and these individuals may already be aware that they would seek insurance.
The individual mandate serves as a counterbalance to individual underwriting, which charges higher premiums to those deemed higher risk based on their health status. Without a mandate, younger and healthier individuals might choose not to purchase insurance, leaving the pool with a higher proportion of older and sicker individuals. This would drive up the average cost of premiums for everyone due to the higher likelihood of high medical expenses.
Why Does an Individual Mandate Work?
The theory behind the individual mandate is that it creates a more balanced insurance pool where every individual, regardless of health status, contributes to the overall fund. This balancing act helps to offset the higher medical bills of sicker individuals by spreading the financial burden among a broader base of people.
In practice, however, the healthcare system in the US faces significant challenges that impact the effectiveness of the individual mandate. Two major factors are:
Corporate Greed
Insurance companies often maximize profits by increasing premiums, especially for higher-risk individuals. This approach shifts the financial burden onto those most in need of medical care, leading to a vicious cycle where healthcare becomes unaffordable for many. Corporate greed undermines the goal of making healthcare accessible and affordable to all.
Opacity and Lack of Transparency
The healthcare industry maintains a high level of opacity, keeping its financial workings hidden from the public. This lack of transparency allows for hidden costs and premium pricing that benefit the industry's interests. The insurers and healthcare providers argue that transparency would make their services uncompetitive and introduce "communistic" practices, which they claim are un-American and harmful to business.
Health Care and Kleptocracy?
While the healthcare industry claims that transparency would hurt their business, the reality is that health care and kleptocracy do not mix. The lack of transparency allows for unethical practices, such as overcharging and hidden fees. These practices not only drive up costs but also erode public trust in the healthcare system.
A transparent healthcare system would enable better price setting and competition, leading to more affordable premiums and better overall health outcomes. By advocating for transparency and price ceilings, we can democratize access to healthcare and ensure that everyone, regardless of age or health status, can afford the care they need.
Ultimately, the individual mandate can play a pivotal role in lowering health insurance costs by promoting a more equitable distribution of risk. However, the health of the American healthcare system also depends on addressing the greed and opacity within the industry, ensuring that everyone can access the care they need without financial burden.