C. Eugene Steuerle The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
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(Health Affairs Spring (II) 1994) Prologue: Policy makers often rationalize their support of government mandates that require the purchase of health insurance on the basis that it is not right for some to bear the cost of coveragewhile others, who are equally capable of affording it, avoid such costs. On equity grounds, it simply is not fair that some workers purchase insurance, while others with equal ability to pay depend upon society to cover the unpredictable costs of illness. In this paper Eugene Steuerle discusses the complications that arise when government strives to design and implement mandates. No plan now exists that relies solely upon an employer mandate. While the focus of business concern about the Clinton plan has been on its mandate that employers purchase health insurance for their workers, for instance, the proposal also contains an individual mandate that has received far less attention. Steuerle, an economist, is a senior fellow at The Urban Institute. At the institute, he has conducted extensive research on budget and tax policy, health care, Social Security, and welfare reform. The latest of his books, coauthored with Jon Bakija, is entitled Retooling Social Security for the Twenty-First Century (Urban Institute Press, 1994). It has been widely recommended by former Social Security commissioners us "pathbreaking" and "undoubtedly the most comprehensive analysis of the very long-range financing problems confronting the Social Security program." Earlier, Steuerle served in various positions in the Treasury Department over a fifteen year period (1974-1989) under four different presidents, including service as deputy assistant secretary for tax analysis. In that post he directed the Treasury study, "Financing Health and Long-Term care: A Report to the President and the Congress."
Many of the health reform bills now before Congress include some form of mandate to implement health reform. The plan of the Clinton administration, for instance, contains a mandate on both employers and individuals. Mandates or regulations regarding purchases of goods and services, however, operate very much like tax-and-expenditure schemes in their impact upon the economy. That is, a mandate to purchase health insurance is in many ways equivalent to taxing individuals and then giving each of them a product equal in value to the amount of tax each paid. For some theoretical purposes, one can make all three-individual mandates, employer mandates, and tax-and-expenditure schemes-close to identical. In practice, however, each of these approaches creates very different perceptions and usually is implemented in very different ways. Choosing from among alternative regulatory and tax approaches requires close examination of goals, the ability of each approach to meet those goals in implementation, and the size of related costs and distortions that inevitably accompany any tax or regulation.
This paper focuses mainly on employer and individual mandates and demonstrates that there are strong equity and efficiency rationales for a mandate. These are not issues of progressivity; indeed, by itself, a mandate to purchase health insurance is regressive. The paper further shows that the logic of a mandate, just like any tax or expenditure, is inherently individual in nature and shows how distortions arise in a system in which costs are hidden from individuals either by the government or by employers. It next raises tough implementation issues for both employer and individual mandates. No employer mandate, moreover, is sufficient by itself: It must be accompanied by an individual mandate. Finally, many persons fall outside of a mandated system, no matter how well designed.
Note: This report is available in its entirety in the Portable Document Format (PDF) and as a one-page brief.
