The False Dichotomy of Mandates

It's D-Day for national health care. This week, under the surprisingly steady hand of Senator Daniel Patrick Moynihan, the Senate Finance Committee will haggle over the shape of its health care package; that package will, in all likelihood, bear a striking resemblance to whatever program President Clinton signs or vetoes.

As the debate culminates, it has come to focus primarily on a single dichotomy--"employer mandates"--which liberals vaunt as a benison to be distributed to heretofor hapless American workers, versus "individual mandates" which curmudgeonly conservatives offer as a rear-guard action to stave off the "potentially disastrous consequences" of the above mentioned liberal benison.

Cast as such, the distinction seems nothing less than essential. In reality, the practical difference between a plan based on employer mandates and one based on individual mandates is hardly so crucial. It is a testament to the politicking driving the health care debate that this side issue should be the one most bitterly contested by the Finance Committee.

On the surface, choosing one of these options seems to be the key to determining the most important (but not most asked) question of the national health care debate: who will pay? And though the terms "employer mandate" and "individual mandate" outwardly suggest that in the former case individuals will pay, whereas in the latter businesses will get soaked, it is not nearly so simple.

Why are businesses involved in their employees' health insurance anyway? All employers workman's must pay for their employees workman's compensation and disability insurance, but of course it is easy to see how this is work-related. A few employers help pay for workers' life insurance, but other sorts of insurance--car, title homeowners--have never been the business of the boss. Health insurance only wound up as part of most American's work benefits because of a fluke of bureaucracy.

In the wake of World War II, the specter of inflation loomed over the American economy. And as every (now unemployed) Soviet economist can tell you the best response to such pressures is to institute wage-price controls, which is what the US did. Deprived of the ability to lure workers by raising money wages, businesses exploited a loophole in the controls: fringe benefits, such as health insurance, were not subject to the wage controls. In lieu of raising wages, employers added health insurance to compensation of effectively raise wages to attract the workforce they desired.

The etiology of employer-provided health-care provides a clue as to why an "employer-mandate" and an "individual mandate" are not so different. When an employer provides health insurance, it is part of real wages. In the time of wage-price controls, employers used it to total compensation as attractive as it would have been if the employer had been free to pay the employee more directly.

That means that employers who do not presently provide health car, if required to start doing so, would respond by dropping wages by as much as the health-care package is valued by the average employee. In the end, the individual winds up paying either way. Unfortunately, employees whose wages cannot be lowered much, because they make close to the minimum wage, would suffer layoffs.

There are substantive differences in the modalities of the two types of mandates. An individual mandate alleviates the problems associated with the need to switch insurance plans when one switches jobs--for example, people locked into jobs by pre-existing conditions. By the same token, it makes it harder for people to purchase insurance in groups--the firm is a natural purchasing group.

But when it comes to "incidence"--that is, who will pay--there really isn't much of a difference. It is simply a matter of adroit pandering. In employer mandates, the liberals see an opportunity to strike a visible populist blow, by delivering health care and hiding its cost. Conservatives aim to please the business lobby by relieving them of the burden of providing health care (and though most businessmen realize they'll have to compensate with higher money wages, they'll still be happy to dispense with the administrative burden).

There are a lot of legitimate issues for health care mavens to dispute. The one the Finance Committee is hung up on isn't one of them--and Senator Moynihan knows it.