The Individual Mandate, a Brief History — Part I Conservative Origins

In recent years, politicians of every stripe have eaten their words about the wisdom of requiring all Americans to possess health coverage. This hasn’t been real news since the 2007 Democratic primary debates, when candidate Obama claimed his reasons for opposing the mandate were similar to those expressed by Hillary some 15 years ago.

A few years later it was President Obama’s turn. And by 2010, the entire Republican party performed a synchronized heel-face turn, virulently opposing the solution they advocated decades earlier. All of this culminated with the recent passage of the “Repealing the Job-Killing Health Care Law Act” in the House, by which point the mandate had become a 21st century Intolerable Act.

The media have dutifully reported each foible as if such strategic backpedaling were something new under the sun. But the 22-year path to ACA § 1501(b) is a story in its own right, a sort of philosophical history of American health reform policy.

Part I – The think-tank solutions (1989 – 1992)

Back in the late 1980s, the individual mandate wasn’t controversial at all–just another idea being kicked around in conservative think tanks. Although economist Mark V. Pauly, an adviser to the first Bush administration, is often cited as the mandate’s creator, conservative thinkers Stuart M. Butler and Edmund F. Haislmaier were dreaming up similar proposals at the Heritage Foundation as early as 1989.

While Democrats debated the choice between employer mandates and single-payer, Pauly and other conservatives looked for market-based remedies to what all agreed was a national “health care crisis.”  The problem with the health insurance market was that it operated more or less like normal accident insurance. As Butler once framed it:

If a young man wrecks his Porsche and has not had the foresight to obtain insurance . . . society feels no obligation to repair his car. But health care is different. If a man is struck down by a heart attack in the street, Americans will care for him whether or not he has insurance. If we find that he has spent his money on other things rather than insurance, we may be angry but we will not deny him services . . . .

A mandate on individuals recognizes this implicit contract. . . . [E]ach household has the obligation, to the extent it is able, to avoid placing demands on society by protecting itself.[1]

Like the ACA, Butler’s proposed mandate operated through the tax code, using tax credits to make individual insurance more affordable for those who needed the help. Butler’s idea was to replace the tax exclusion for “company-based” plans with above-the-line tax credits: Butler’s plan gave a 20% tax credit to anyone with a health plan meeting basic coverage requirements, along with a “steeply rising” credit for out-of-pocket expenses in relation to household income.[2]

Later versions of the Heritage plan went further and actively discouraged employer-run plans by turning them into normal health plans, subject to the same proposed federal requirements–including the requirement to accept any applicant, employee or not.[3] Butler disliked the income exclusion because it was, first of all, unfair to those who had to purchase their own plans; the exclusion also perpetuated what he felt was an arbitrary emphasis on health insurance as an employment benefit. So long as insurers could deny applicants with preexisting conditions, the employer-centric status quo also discouraged workers from switching jobs–a concern eventually answered by HIPAA in 1996.

Butler predicted that people would gradually leave their employer plans for small groups, such as union-administered plans, Farm Bureau plans, and local HMOs. The small groups, bolstered by the formerly uninsured now required by law to join, would gain bargaining power with size. The higher premiums of those with preexisting conditions were answered with larger tax credits and state-operated subsidized high-risk pools, while low risk individuals enjoyed the benefits of fierce competition between plans intended for their lucrative demographic.[4]

Mark Pauly’s individual mandate operated much like the Heritage plan’s, but served a slightly different reform scheme. Pauly, too, would cease exempting the value of employer-provided health benefits from taxable income, although self-insured employers could otherwise continue to operate much as they do now. There were other differences, such as the Pauly plan’s less generous tax credit system; but the individual mandate played essentially the same market-stuffing role in both proposals.[5]

The primary difference between these conservative think tank mandates and the ACA is how they are enforced. Under the Pauly and Heritage proposals, you simply would possess whatever minimum coverage the federal government required. The 1992 version tasked state programs with randomly assigning the voluntarily uninsured to existing plans.[6] This is considerably more invasive than the ACA:  following the lapse of the three-month grace period, failure to comply with the mandate results in a “personal responsibility payment,” but no actual health coverage.

In 2011, the Pauly and Heritage plans seem surprisingly bold. Such an abrupt shift from the employer-provided model would likely have been more difficult and costly than either Heritage or Pauly let on. For example, the CBO predicted doing so would slow future wage growth for many workers.[7] But, at least in theory, the shift would benefit many low-income households, which would receive the same insurance tax credit everyone else did. And for the young invincibles, the proposed out-of-pocket deductions would make the lower-premium, higher out-of-pocket plans less risky.

These proposals met with few questions about government power, federalism, or individual liberties. Years later, Heritage scholar Robert E. Moffitt hammered libertarian critics for ignoring the disastrous economic effects of “free riders” on responsible citizens by focusing on “metaphysical abstractions.”

“An individual mandate for insurance, then, is not simply to assure other people protection from the ravages of a serious illness, however socially desirable that may be; it is also to protect ourselves. Such self protection is justified within the context of individual freedom; the precedent for this view can be traced to none other than John Stuart Mill. It does not necessarily follow, however, that we would have a right to prescribe anything beyond our own self-protection.”[8]

Still, any legislation adopting the think tank mandates would need to smooth out their harsher aspects-e.g., they’d need exclusions for religious objectors and extreme hardships. But these proposals were realistic, enforceable, and rooted in a genuinely conservative emphasis on personal responsibility.

[1] Start M. Butler, Assuring Affordable Health Care for All Americans, Heritage Lectures 218, p. 8(1989).

[2] Butler, supra, at 4, 6.

[3] A Qualitative Analysis of the Heritage Foundation and Pauly Group Proposals to Restructure the Health Insurance System (”CBO Analysis”), CBO Memorandum, p. 4 (April 1994) (available online at http://www.cbo.gov/ftpdocs/48xx/doc4896/doc23.pdf).

[4] Butler, supra, at 5-7.

[5] CBO Analysis, supra, at 17-23.

[6] Stuart M. Butler, A Policy Maker’s Guide to the Health Care Crisis Part II: The Heritage Consumer Plan (”Guide Part II”), Heritage Talking Points, p. 12 (1992) (available online at http://s3.amazonaws.com/thf_media/1992/pdf/APolicyMakers%20GuidetoTheHealthCareCrisisPart2-S%20Butler.pdf).

[7] CBO Analysis, supra, at 22.

[8] Robert E. Moffit, Perspectives: Personal Freedom, Respnsibility, and Mandates, 13 Health Affairs 101, 103-4 (1994) (available online at http://content.healthaffairs.org/content/13/2/101.full.pdf+html).