COVERAGE Making Mandates Work (Nudge, Nudge, Nudge)

Economic decisions are rarely the product of a simple costs-benefit analysis. This is particularly true of the decision to purchase health insurance, where the costs are upfront and certain, while the benefits are uncertain and down the road.

Requiring that all Americans purchase health insurance confronts this challenge, and it is a central aspect of the current health reform legislation in Congress. The so-called individual mandate is necessary to make other insurance market reforms like community rating and guaranteed issue work. Coupled with subsidies to make insurance affordable, the individual mandate can be an effective tool for coverage expansion.

The debate in Congress focuses mostly on whether the penalties for not purchasing health insurance ($750 in the Senate Finance Bill) relative to the coverage subsidies are enough to actually influence people's decisions. The success of an individual mandate, however, depends on more than just subsidies and fines, and Monday's Washington Post lays out some important lessons from the field of behavioral economics.

One of the central insights of behavioral economics -- reflected in recent books like Nudge, which was co-authored by the White House's Cass Sunstein -- is that the choices we make are often determined by how easy it is to make them. As Brookings' William J. Congdon tells the Post:

Non-financial things matter. ... When the choice itself is complicated, it can deter people from making choices. The small hassles associated with taking up programs -- driving to an office, filling out a form -- have a disproportionate effect in discouraging people.

One way of rectifying this problem is through the creation of insurance market exchanges, or new marketplaces that can simplify the process of purchasing insurance and applying for subsidies. Massachusetts's Connector serves as a model, but policy makers could also learn from other states' efforts to simplify and streamline enrollment in programs like Medicaid and SCHIP.(Here's a Kaiser Commission on Medicaid and the Uninsured issue brief on "express lane" innovations in enrolling poor kids.)

Compliance with an insurance mandate should be easy, Columbia's Sherry Glied tells the Post, and enforcement should be quick and routine. For example, state efforts to enforce auto insurance mandates are telling. Two years after implementing an electronic insurance compliance system, the state of Georgria cut its uninsured motorist rate from 20 percent to 2 percent. Investments in health IT from the stimulus would facilitate the cooperation and coordination needed to ensure high rates of participation.

Compliance and enforcement are important in implementing an individual mandate, but the long term success of a mandate is to alter people's expectations for insurance coverage. As the Post notes, after passing reform, Massachusetts worked hard to sell reform and raise awareness:

The Boston Red Sox promoted the mandate, pharmacy loudspeakers intoned it, grocery store receipts carried reminders and churches coaxed congregants. The Health Connector held 200 meetings with employers and two dozen outreach sessions, community groups received funding to help people sign up, and residents got red-lettered postcards in the mail.

And it worked: A Health Connector board member told Glied that a typical comment from young adults coming to sign up for coverage was: "My mom said I had to sign up for health insurance or I would get into trouble." 

Granted it may be more difficult to find a sports team to sell reform in D.C. because the only people with less credibility here than the government are the Washington Redskins. Still, Gilbert Arenas may need something to do after he blows out his knee a week into the NBA season.