If you build a coverage mandate, will they come?

By Alec MacGillis
Washington Post Staff Writer
Monday, October 26, 2009

People are more likely to buckle their seat belt than follow the speed limit, even though the penalties for speeding are higher. They are more likely to go along with hotel efforts to reduce linen laundry if told that other guests are doing the same.

And the question of whether people will follow a government order that they carry health insurance -- an issue that will help determine whether universal health care is a success or costly failure -- will depend on more than the penalty they would pay for refusing, many economists say. This, they say, is the lesson of behavioral economics, a school of thought that holds that people do not necessarily make decisions out of well-reasoned self-interest. It is an approach that has gained a powerful foothold in the Obama White House.

"We're human. And there are lots of other influences that go into what we do," said Kenneth Baer, a spokesman for the Office of Management and Budget. "One of the most important insights of behavioral economics is that we're not all rational maximizers calculating our cost and benefits and doing things like a computer."

As the proposed $900 billion health-care legislation inches toward the finish line, a critical unknown is whether people would comply with a mandate on individuals to carry insurance, one of the Democrats' primary tools to significantly increase the number of Americans who have coverage. The Senate Finance Committee, whose bill has dominated much of the recent debate, set its maximum penalty for noncompliance at $750 per year, at the same time creating subsidies to help low-income Americans buy coverage. In the House, the penalty is based on income, but works out to about the same for a middle-class family.

But many reform supporters say the finance panel's subsidies are too low. And insurers are pushing for larger penalties. If younger, healthier people pay the penalties instead of buying coverage, they warn, it will upset the legislation's balance, resulting in higher premiums for less-healthy people or bigger costs to the government.

That calculation is more complex when seen through the prism of behavioral economics, a hybrid of economics and psychology that has been ascendant for years, never more so than today, with many of its leading practitioners in the White House.

As the behavioral economists see it, compliance will depend not only on the penalties and cost of coverage, but also on the ease of signing up for coverage and whether people can be persuaded that it is a widely accepted social norm. They point to the large number of eligible people who fail to take advantage of Medicaid, food stamps and Pell grants as a sign that perceived inconvenience can keep people from taking steps in their economic interest. By contrast, the Medicare drug benefit program has achieved high enrollment partly because low-income Medicare recipients did not need to apply for subsidies if they already qualified for Medicaid.

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

The record of mandates is mixed, according to research done by Sherry Glied, a Columbia University professor of health policy who has been nominated for a position in the administration. The rates of people buying car insurance, for example, vary among states and do not correlate directly with the size of penalties for going without insurance. Overall, she found, mandates work best when compliance is relatively easy and affordable, when penalties are "stiff but not excessive," and when enforcement is prompt and routine.

The thinking is that people tend to settle for the default option -- in the most oft-cited example, people are far more likely to participate in a 401(k) savings plan at work if they are automatically enrolled in it, with the choice of opting out. OMB Director Peter Orszag has done research on that point, and Cass R. Sunstein, the director of the White House Office of Information and Regulatory Affairs, featured it in "Nudge," the 2008 popularization of behavioral theory that he co-authored.

Some experts argue against setting up an equivalent default enrollment for health insurance, since it would require spending money and choosing an insurer. But others, including one of the behavioral economists hired by Orszag, Harvard University's Sendhil Mullainathan, have argued for using the tax system to collect automatic payments for health premiums.

The best case study is Massachusetts, which instituted a health insurance mandate three years ago that has succeeded in bringing coverage levels from 91 percent of state residents to more than 97 percent. The state made it easy to sign up -- people who qualified for subsidized coverage got help filling out forms at safety-net hospitals and clinics, while others could use a Web site to determine whether they qualified for subsidies or call a new agency, the Health Connector, for assistance.

The mandate had bipartisan backing, and residents were deluged with publicity. 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."

Mark B. McClellan, who oversaw Medicare and Medicaid under President George W. Bush, said his promotion of the Medicare drug benefit succeeded for the same reasons, by penetrating people's lives with trusted voices. McClellan spent much of 2005 on a bus between enrollment events where "neutral people" would talk up the benefit.

"People would stand up and say, 'This was not necessarily the bill we wanted, but here are the facts and for most of you it's in your best interest,' " he said.

Health Connector Executive Director Jon Kingsdale cautioned that the cost of coverage and penalties still play a big role, and said he worries that the federal bills fall short. While the Massachusetts penalty started at $219, it kicked in right away and ticked upward a year later, to what is now roughly a $1,000 maximum, enforced through the state income-tax system. The Senate Finance Committee legislation's penalty, on the other hand, kicks in a year after the bill goes into effect; it wouldn't reach $750 until 2017.

Given the outlines of the emerging bills, Richard Zeckhauser, a Harvard economist who has worked with many of the White House economists, says he is unconvinced that it will be in the interests of many young people to comply. And he questions whether the government should use behavioral economics to persuade them otherwise.

"We can think of ways of mesmerizing them into buying things they shouldn't buy, but I don't think government can be in that role," he said.

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