Health mandate may be ignored by many
WASHINGTON – People are more likely to buckle their seat belt than follow the speed limit, even though the penalties for speeding are higher. They are more likely to go along with hotel efforts to reduce linen laundry if told that other guests are doing the same.
And the question of whether people will follow a government order that they carry health insurance – an issue that will help determine whether universal health care is a success or costly failure – will depend on more than the penalty they would pay for refusing, many economists say. This, they say, is the lesson of behavioral economics, a school of thought that holds that people do not necessarily make decisions out of well-reasoned self-interest. It is an approach that has gained a powerful foothold in the Obama White House.
“We’re human. And there are lots of other influences that go into what we do,” said Kenneth Baer, a spokesman for the Office of Management and Budget. “One of the most important insights of behavioral economics is that we’re not all rational maximizers calculating our cost and benefits and doing things like a computer.”
As the proposed $900 billion health care legislation inches toward the finish line, a critical unknown is whether people would comply with a mandate on individuals to carry insurance, one of the Democrats’ primary tools to increase significantly the number of Americans who have coverage. The Senate Finance Committee, whose bill has dominated much of the recent debate, set its maximum penalty for noncompliance at $750 per year, at the same time creating subsidies to help low-income Americans buy coverage. In the House, the penalty is based on income, but works out to about the same for a middle-class family.
But many reform supporters say the finance panel’s subsidies are too low. And insurers worry that younger and healthier people will opt to pay the penalty instead of buying coverage, upsetting the legislation’s delicate balance and resulting in higher premiums for older and less healthy people, or bigger costs to government.
That calculation is more complex when seen through the prism of behavioral economics, a hybrid of economics and psychology.
As the behavioral economists see it, compliance will depend not only on the penalties and cost of coverage, but also on the ease of signing up for coverage and whether people can be persuaded that it is a widely accepted social norm. They point to the large number of eligible people who fail to take advantage of Medicaid, food stamps and Pell grants as a sign that perceived inconvenience can keep people from taking steps in their economic interest. By contrast, the Medicare drug benefit program has achieved high enrollment partly because low-income Medicare recipients did not need to apply for subsidies if they already qualified for Medicaid.
“Non-financial things matter. … When the choice itself is complicated, it can deter people from making choices,” said William Congdon of the Brookings Institution. “The small hassles associated with taking up programs – driving to an office, filling out a form – have a disproportionate effect in discouraging people.”
The record of mandates is mixed, according to research done by Sherry Glied, a Columbia University professor of health policy who has been nominated for a position in the administration. The rates of people buying car insurance, for example, vary among states and do not correlate directly with the size of penalties for going without insurance. Overall, she found, mandates work best when compliance is relatively easy and affordable, when penalties are “stiff but not excessive” and enforcement is prompt and routine.
Some experts argue against setting up an equivalent default enrollment for health insurance, since it would require spending money and choosing an insurer. But others, including one of the behavioral economists hired by OMB Director Peter Orszag, Harvard University’s Sendhil Mullainathan, have argued for using the tax system to collect automatic payments for health premiums.
The best case study is Massachusetts, which instituted a health insurance mandate three years ago. The state made it easy to sign up – people who qualified for subsidized coverage got help filling out forms at safety-net hospitals and clinics, while others could use a Web site to determine whether they qualified for subsidies or call a new agency, the Health Connector, for assistance.
The Health Connector held 200 meetings with employers and two dozen outreach sessions, community groups received funding to help people sign up, and residents got red-lettered postcards in the mail. And it worked: A Health Connector board member told Glied that a typical comment from young adults coming to sign up for coverage was: “My mom said I had to sign up for health insurance or I would get into trouble.”
But Richard Zeckhauser, a Harvard economist, says he is unconvinced that it will be in the interests of many young people to comply. And he questions whether the government should use behavioral economics to persuade them otherwise.
“We can think of ways of mesmerizing them into buying things they shouldn’t buy, but I don’t think government can be in that role,” he said.