Possibly the most debated point in the healthcare legislation is the individual mandate. It requires that all citizens must purchase health insurance, or pay a fine. Or pay additional tax. Or something like that. The reports and interpretations vary widely. It may be a long time before the practical interpretations are settled.

There is some logic to such a requirement. Since the legislation also prohibits insurance companies from denying a policy due to preexisting conditions, young, healthy people could simply forego insurance until they got sick. Then, when they see some major healthcare expenses looming, quickly sign on for insurance and stick the big bills to the insurance company, after only paying a few premiums.

This is exactly what is happening in Massachusetts. The new federal legislation is largely modeled on the Massachusetts state laws that were passed in 2006. In Massachusetts, despite civil fines for doing so, many people are going without health insurance until they need care. Then they enroll for a few months, exercise their benefits as much as possible, then drop their coverage. The fines for not having coverage are substantially less than the premiums for coverage, so many people simply pay the fines and game the system. Read more about this in the Washington Post.

As a result, insurance premiums in Massachusetts are the highest in the country, and the major insurance companies are still losing money. The insurers have proposed rate increases, and the state regulators have denied the requests. From the Wall Street Journal on April 9th: “…all of the major Massachusetts insurers are nonprofits. Three of [the] largest four—Blue Cross Blue Shield, Tufts Health Plan and Fallon Community Health—posted operating losses in 2009. In an emergency suit heard in Boston superior court yesterday, they argued that the arbitrary rate cap will result in another $100 million in collective losses this year and make it impossible to pay the anticipated cost of claims. It may even threaten the near-term solvency of some companies. So until the matter is resolved, the insurers have simply stopped selling new policies.” That’s right: if you reside in Massachusetts, you CAN NOT buy a new health insurance policy.

We can only hope that the federal legislation finds a way to avoid these same outcomes on a national scale. If there is any logic or justification for the individual mandate, can there be a way to make the system work? It won’t work unless nearly everyone complies, but is it legal for the government to require people to purchase a product from a private company? Many experts say no, and for a number of reasons. We’ll discuss this next week.