James C. Capretta and Yuval Levin: The Mandate After the Court

Last month’s Supreme Court ruling on Obamacare left champions of that law breathing a sigh of relief, while its opponents — a majority of the public — were left frustrated. It seemed at first glance as though the chief justice’s tortured opinion had saved the individual mandate, and with it the broader statute. But Obamacare’s champions should take a closer look at what the Court left them with, because on their own terms, the law is now set to collapse.

Those who argued that the individual mandate was the linchpin of Obamacare’s new health-financing architecture believed it would sustain that system by averting a so-called insurance death spiral. Obamacare effectively outlaws risk-based health insurance: It requires insurers to take all comers, even those who were previously uninsured, and when an uninsured person seeks to enroll, the insurer cannot take that person’s health status into account when setting the premium. Under such rules, younger and healthier Americans would have very strong incentives to remain uninsured until they started to incur major medical expenses. Why buy insurance when you’re healthy if you can get it for the same price later when you get sick? But of course, if healthy people don’t buy coverage, insurers won’t have the funds to pay benefits for the sick. They would have to raise premiums, which would only drive more healthy people out of the system, and a vicious cycle would emerge.

So how do you get healthy people to buy coverage when you have outlawed the economic incentives of traditional insurance? For Obamacare’s designers, the answer was simple: outlaw the decision not to buy coverage too. The law created a legal obligation — in the words of section 5000A of the statute, “a requirement to maintain minimum essential coverage” — demanding that basically every American “shall, for each month beginning after 2013, ensure” that he and all his dependents have health coverage.

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