Private Law Alternatives to the Individual Mandate

By Wendy Netter Epstein. Full Text.

There is excitement on the left about a move to universal health care and on the right about returning more power to the states. Yet in a time of divided government, major health policy changes are not imminent. Meanwhile, millions of Americans are uninsured under the current system—a problem made worse by the recent repeal of the individual mandate penalty. The Affordable Care Act guarantees coverage to all and prohibits insurers from charging the sick more than healthy people. To balance out the additional costs of sicker risk pools, the mandate was supposed to attract the coveted younger and healthier insureds. But with the penalty zeroed out, healthy people can now wait until they get sick to buy insurance. Insurers will respond to sicker risk pools by raising premiums—when for many premiums are already prohibitively high.

This Article looks to private law mechanisms to prompt the young and healthy to buy health insurance, responding not only to the mandate penalty repeal, but also to the pervasive, global problem of insurance uptake in a market-based system. It looks to both neoclassical economic theory and principles of behavioral economics to better understand what motivates (and deters) the purchase of health insurance. It then explores economic incentives and “nudges” that encourage healthy individuals to sign up for policies without forcing them to do so. It suggests co-opting practices previously deployed for nefarious purposes to prompt behavior that policy now seeks, such as offering low introductory rates, long-term contracts, and limited exit rights. Other options include insurers selling return of premium-style policies or policies with a generosity frame, simplifying plan offerings, or automatically enrolling the uninsured with a right to opt-out. These solutions—many of which would not require congressional action—hold the promise of lowering premiums without removing choice or requiring substantial government action.