Individual Mandate in Healthcare: Pros, Cons, and Values

Introduction: The Healthcare Crisis in America

Healthcare is currently one of the most contentious issues facing the developed world from both a financial and societal perspective. American civilization is reckoning with an aging population, higher healthcare costs, and rising Social Security pressures required to service that aging population. As COVID-19 has illustrated, the current healthcare infrastructure is not nimble enough to handle a sudden and unexpected shift in societal health. Healthcare emergencies can have grave and often life-threatening implications for individuals. Without proper infrastructure, health insurance, and the ability to quickly pivot to address at-risk populations, the overall economy suffers.

These negative and life-threatening influences are now being evaluated against a political backdrop that aims to provide universal healthcare to all American citizens, further complicating the healthcare problem overall. One such provision within universal healthcare proposals is the individual mandate. An individual mandate is a legal requirement for everyone to maintain a basic level of healthcare coverage. Individuals who do not comply with the mandate may be fined and, in extreme cases, face other legal penalties for not adhering to the provision. This creates a compelling dynamic between individual rights and the collective security of society. Both sides of the argument have valid reasons that underpin their overall stance. This paper identifies the key views regarding the individual mandate, explores its pros and cons, discusses government intervention and its role in infringing on individual rights, and concludes with a synopsis of findings informed by a Christian worldview.

Rising Costs and Demographic Pressures

Healthcare within America represents a very large portion of the overall economy. As of 2020, healthcare expenditures account for roughly 18% of the nation's GDP. Even more alarming, the percentage of national output dedicated to healthcare has been increasing over the past decade. At its current trajectory, nearly one out of every five dollars will be spent on healthcare by the year 2030. The United States, by far, has the highest healthcare expenditures relative to GDP compared to any other nation, spending roughly $11,000 per person on healthcare annually.

This trajectory is unsustainable and can have severe financial implications for society — most notably the long-term solvency of the Social Security program. The baby boomer population is currently at or near retirement age. According to census data, all baby boomers will have reached retirement age by the year 2030, meaning roughly 73 million people will be retired and drawing on some form of benefits or healthcare services. At the same time, the overall population is aging as women increasingly enter the workforce and elect to have fewer children. Fertility rates for women are now approximately 1.7 children, compared to a historical average of 2.1 children.

This mismatch between older and younger populations presents significant challenges for healthcare costs and the individual mandate. As the population ages, those who utilize healthcare services are more likely to be older individuals who are historically far more prone to requiring care. The average life expectancy for individuals aged 65 or older increased from 12 years post-retirement in 1900 to 20 years in 2020. Meanwhile, the working-age population is shrinking due in part to lower fertility rates, meaning fewer workers are generating the tax revenues needed to support the older generation. The result is a growing number of retired individuals living longer and consuming healthcare services — paid for by a shrinking younger workforce — with costs that increase every year.

The rising costs of healthcare must also be considered alongside Social Security deficiencies. According to the Office of Retirement and Disability Policy, Social Security trust reserves are expected to be exhausted by 2037. To sustain future benefits for the next 75 years, the government would need to reduce benefits by 13%, increase the payroll tax from 12.4% to 14.4%, or pursue some combination of both. America therefore faces a perfect storm of negative pressures: rising healthcare costs, an older and longer-lived population, lower tax revenues generated by a smaller working-age cohort, a shrinking asset pool for Social Security, and healthcare costs that increase annually. The Affordable Care Act and the individual mandate are designed to help mitigate these pressures by making healthcare more affordable and lowering costs, which in turn benefits older individuals entering retirement by 2030.

How Insurance Risk Pools and the Individual Mandate Work

Health insurance, like other forms of insurance, works by creating risk pools — groups of policyholders who collectively share risk. In a typical risk pool, everyone pays insurance premiums, but only some will file claims. As noted above, younger and healthier individuals are less likely to file claims than older individuals. If a health insurance risk pool is large enough and includes enough healthy people paying premiums, sufficient funds will be available to cover the costs of those who do become sick. This benefits the older population through lower healthcare costs and also protects younger individuals against unexpected medical expenses.

The rationale behind the individual mandate is straightforward: if everyone is required to have insurance — especially healthy people — the risk pools will be broad enough to lower premiums for everyone, including those with expensive medical conditions. The problem, however, is that the mandate would essentially compel younger individuals who might not otherwise purchase health insurance to do so. This has significant implications for individual freedom and for the role of government in private life, as explored in the following section.