Insurance Mandates Aren’t the Answer to Uninsured

Published March 1, 2007

In an op-ed published in the Baltimore Sun a few months ago, I questioned Maryland legislators’ interest in mandating individual health insurance coverage. I pointed out that Maryland already mandates that individuals buy auto coverage, yet the rate of non-insurance for auto is 12 percent, not much different from the rate of non-insurance for health, 14.9 percent.

I also pointed out in that article that part of the reason many people don’t buy health coverage is because the legislature has made it unaffordable by enacting 59 benefit mandates. It is hypocritical of the legislature to pass so many laws raising the cost of coverage, then blame people for not buying what the government has made unaffordable.

Though my article didn’t mention this, the case is even stronger in the 16 states where the rate of non-insurance is higher for mandated auto coverage than for voluntary health coverage. (See table.)

California Dreams

I wish California Gov. Arnold Schwarzenegger (R) had considered these issues before putting together his “reform” package calling for universal insurance coverage through a combination of individual mandates and state subsidies, announced January 8. His proposal seems to be a lot of misguided chatter with very little substance.

Table: Rate of Non-Insurance
Mandated Auto Versus Voluntary Health By State, 2004
State Uninsured Rate
Mandatory Auto Insurance
Uninsured Rate
Voluntary Health Insurance










District of Columbia

































Rhode Island






Sources: “Uninsured Motorists: 2006 Edition,” Insurance Research Council, and “Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2004 Current Population Survey,” by Paul Fronstin, Employee Benefit Research Institute, December 2004.

Schwarzenegger says “all Californians will be required to have health insurance coverage,” but he doesn’t say how he will enforce that requirement. Currently, California has a very high rate of non-insurance for health insurance (20.6 percent), which is not currently mandated, but an even higher rate for auto insurance (25 percent), which is mandatory.

In addition, there isn’t a word about how he intends to define what kind of coverage is acceptable to meet the mandate. Is it the same coverage that is on the market today, which so few people can afford? Does he intend to keep all 49 benefit mandates in effect? Or will he allow people to buy the coverage they prefer, instead of what the government wants them to buy?

A political note is in order here as well. Schwarzenegger says nothing about using the “Connector” approach as was done in Massachusetts. The Connector is the state agency through which all health insurance enrollment in Massachusetts is being done. According to its Web page, “The Connector serves as a bridge between eligible individuals, small employers, and health plans to promote affordable private health insurance to uninsured residents of Massachusetts.”

Unnecessary Compromise

The Connector levels the playing field between employer- and individually owned coverage, which is a good thing. Some free-market policy groups supported the Massachusetts idea because they felt getting the Connector in place was worth allowing mandatory coverage. But mandatory coverage isn’t necessary for the Connector idea to work. By acceding to mandatory coverage in order to get the Connector, many free-market advocates surrendered a fundamental principle of freedom for political expediency.

Apparently, in California that process has translated into thinking mandatory coverage is not such a violation of freedom after all, so we’ll do the mandate without bothering with this Connector thing. Bad idea.

Schwarzenegger would also tax, at 4 percent of payroll, all employers with more than 10 employees who do not provide coverage. Again, this is a principle the business community in Massachusetts went along with. But in Massachusetts, the assessment was a relatively low $295 per employee per year.

Again, this is the ol’ foot-in-the-door trick: Get people to compromise on a basic principle with a small hit this year, then hit them harder next year.

Counterproductive Mandate

It’s also a good example of the ol’ divide-and-conquer trick. Employers with fewer than 10 workers (80 percent of all employers in California) may support the idea because it doesn’t affect them. But there are three major problems with it:

  • Employers with 10 or fewer employees are the source of most of the uninsured in the state, so exempting them will do little to solve the problem.
  • Even at 4 percent of payroll, the cost per worker is a whole lot less than the cost of providing coverage, so many employers who currently provide coverage may decide to drop it.
  • It won’t survive a challenge based on the federal Employee Retirement Income Security Act (ERISA), which exempts employers who self-insure from state health insurance laws. Businesses in Massachusetts didn’t bring an ERISA suit against the idea because the cost of complying didn’t justify the cost of suing. That may be different in California.

More Taxes

Schwarzenegger has also proposed a new tax of 2 percent on doctors and 4 percent on hospitals, ostensibly to cover higher payments to the state for all the new users under Medi-Cal.

That sounds like another old trick: Rob Peter to pay Paul. What’s the point of raising Medi-Cal payments if you turn around and take that money away in the form of higher taxes?

I guess funneling the money through Medi-Cal ensures getting federal matching dollars for it, but that just means the rest of the states will be taxed more to pay for Schwarzenegger’s ambitions.

A whole lot of rhetoric, with virtually nothing positive in this stew.

Greg Scandlen ([email protected]) is president of Consumers for Health Care Choices in Hagerstown, Maryland.

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