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In evaluating the two primary health care reform options, an important factor is the potential of
each option to reduce these major risk factors. National health insurance might lead to an
improvement in personal lifestyle choices that affect health outcomes. It would be in the best
interest of the government to limit total health care spending over the life of each person. Thus,
the government might invest heavily in preventive care, including attempts to alter unhealthy
lifestyle choices, like smoking. On the other hand, NHI would mean that individuals would be
largely shielded from the medical costs resulting from their unhealthy lifestyle choices.
Consumer-driven health care might lead to an improvement in personal lifestyle choices that
affect health outcomes. It would be in the best interest of each person to limit their total health
care spending over their lifetime. Unhealthy choices, like smoking, would lead to higher health
care costs to the individual, both in terms of out-of-pocket costs for normal health care expenses
and in terms of the premiums paid for catastrophic health insurance. Thus the individual might
invest heavily in preventive care, like a stop-smoking program.
Appendix: Adverse Selection and the Individual Mandate
A very controversial provision of the ACA is the individual mandate; the requirement that most
people who do not have employer-provided or government-provided health insurance must
purchase health insurance or pay a penalty. The individual mandate was made necessary by
another provision of the ACA; the provision that insurance providers may not deny coverage or
charge higher premiums based on pre-existing conditions. This provision would lead to an
adverse selection problem if most individuals were not required to purchase health insurance.
If there were no individual mandate requiring most individuals to purchase health insurance, a
person could wait until they developed a health problem before purchasing health insurance. A
person could not be denied coverage or charged higher premiums based on this pre-existing
condition. Individuals in good health would have no incentive to purchase health insurance, since
they could always purchase the health insurance that they need after they develop a health
problem. Thus, only those with health problems would purchase health insurance. This adverse
selection of purchasers would mean that health insurance premiums would have to be very high.
By requiring that most people purchase health insurance, the individual mandate is intended to
assure that a normal selection of healthy people as well as unhealthy people will purchase health
insurance. The inclusion of healthy people will keep insurance premiums lower than they would
be if only unhealthy people were purchasing health insurance. Research by Hackmann, Kolstad,
and Kowalski indicated that the individual mandate included in the Massachusetts health care
reform law of 2006 successfully reduced adverse selection.
Appendix: Future Growth in Health Insurance Exchanges
The health insurance exchanges were intended to supplement not replace employer-provided
health insurance. It was anticipated that some employers would drop health insurance, but that
the large majority would not. If the percentage of employers who drop health insurance is much
higher than expected, the cost to provide the refundable tax credits to those purchasing health
insurance through the exchanges will also be much higher than expected.
Research by Douglas Holtz-Eakin and Cameron Smith indicates that for workers with income
below 250% of the poverty level, it would make sense for their employers to drop health
insurance, increase the employee’s pay enough to replace the value of the lost health insurance
benefit, and have the employee purchase insurance through a health insurance exchange. The
refundable tax credits are generous enough that both the employer and employee can benefit by
taking advantage of the government subsidy. The research indicates that around 40 million
workers (along with their employers) would be better off financially by dropping employerprovided
health insurance and taking advantage of the refundable tax credits available through
the health insurance exchanges. If this happens, the cost of the refundable tax credits will be far
greater than the $460 billion anticipated for the years 2014-2019, and for years that follow.
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