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How Kathleen Sebelius should have answered Jon Stewart’s question about mandates

As Republicans in Congress rush to blame President Obama for the government shutdown that they clearly caused, the competition for most infuriating interview with a politician this week has been intense. So we were kind of surprised that one of the top contenders was the video above: Jon Stewart’s interview with Health and Human Services Secretary Kathleen Sebelius on The Daily Show.

Throughout the interview, Stewart tried to get Sebelius to answer variations of this question:

“A very legitimate criticism of this is that businesses were given a delay of a year but individuals were not given that option. Why is that?”

It’s frustrating, first, because while there are legitimate criticisms of Obamacare, this isn’t one of them– it’s a GOP talking point based on people not understanding how the individual mandate and employer mandate actually work. If Stewart had taken some time to look at what these provisions actually do, he’d realize that just because they sound the same doesn’t mean they are. As Adrianna McIntyre of the health policy website Project Millennial’s put it:

“People are not corporations, and a requirement to carry insurance is different from one to provide insurance. Earth-shattering, I know.”

Even though the premise of Stewart’s question is wrong, it should have been a fantastic opportunity for Sebelius to explain how the law works and debunk yet another lame GOP argument. But for some reason, she could not (or would not) answer Stewart’s question. And so we saw one of America’s smartest late-night hosts repeatedly say that an intentionally misleading talking point is “a legitimate criticism,” while the country’s top health official was unable to explain why it’s wrong… argh!!

Anyways, we figured someone should clear this up.

What the individual mandate does

The individual mandate is a crucial part of the Affordable Care Act, because it prevents what’s known as an insurance “death spiral.” When insurance companies can’t discriminate based on pre-existing conditions– which is what Obamacare says– sick people are much more likely to buy insurance. Without relatively healthy people also buying coverage, the pool of people with insurance gets less healthy and more expensive to cover. To deal with this sicker pool, insurers raise premiums. That causes more healthy people to drop their plans, making the pool of people who choose to keep their coverage even more unhealthy and more expensive to cover… so insurers raise premiums again. That cycle continues until almost nobody can afford insurance and the system collapses.

Fortunately Congress didn’t pass an “Insurance Death Spiral Act”– to keep insurance costs down they included an individual mandate so that not just sick people sign up. It may sound unfair that some people have to buy insurance “for the greater good” as Stewart puts it, but it also prevents them from freeloading. Even healthy people get sick and have accidents, and if they choose to go without insurance, then the rest of us end up paying their ER bills– hospitals charge insurers more to make up for what they lose on “uncompensated care.”

The individual mandate also raises a little money– some people will still choose to go without insurance and pay the fine– but for the most part it’s to keep the system from collapsing into a “death spiral.”

What the employer mandate does

The employer mandate, on the other hand, is not an essential part of Obamacare– it doesn’t really serve an actual policy purpose, it’s just saves the government some money. As Sebelius correctly pointed out, 96% of large employers already offer coverage to full-time employees, and people who don’t get coverage through their jobs will be able to find affordable coverage on Obamacare’s new online marketplaces.

The concern though is that instead of providing coverage themselves, large employers will be tempted to send their employees onto the marketplaces where the federal government will pick up much of the tab. It’s not a big deal for employees– they get coverage either way– but it could cost the government more money, so they required these companies to provide coverage to full-time employees or pay a fine.

The White House says companies told them that the rule on reporting employee insurance info to the IRS was way too complicated, so the White House agreed to delay the rule a year to see if it could be simplified. The one-year delay will cost the federal government about $10 billion, but again, has very little policy effect. No one expects too many companies to suddenly drop coverage because, as Washington & Lee health law professor Timothy Jost points out, they have plenty of other incentives to offer health benefits:

“All of the reasons employers now have for offering coverage to their employees — significant tax subsidies, recruitment and retention of employees, and increased productivity and decreased absenteeism when employees are healthy — will continue to exist without the mandate penalty.”

What Sebelius should have said

Something like this (maybe worded slightly better– I’m not a politician):

The requirements for employers and individuals are both called “mandates,” but they serve very different functions. The employer mandate simply helps pay for reform, while the individual mandate is a critical part of making the law work. By delaying the employer mandate we can make sure the law is implemented more smoothly. If we delay the individual mandate, Obamacare doesn’t work, and tens of millions of Americans will lose access to affordable coverage. That would be unfair.

[For more on the employer mandate– including arguments for why it should be fixed or scrapped altogether– check out our earlier post here.]

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