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Mandates resolve the problem of free riders

Should the government have the right to require citizens to buy a product, such as privately sold health insurance? This requirement, or "mandate," is part of President Barack Obama's Affordable Care Act, and it is also part of the Massachusetts health reform act signed into law by then-Gov. Mitt Romney. Such a mandate is a restriction on individual freedom in order to prevent people from demanding health care without signing up or paying into the system. The U.S. Supreme Court will decide on the constitutionality of such a mandate, probably by July 2012.

Under current law, the uninsured are entitled to health care at hospitals. With a mandate, all would be required to pay into the system to get health care out of it. Those with low incomes would be assisted in that payment, but all would be required to pay to enjoy its insurance benefits. However, when questioned at a recent Republican debate, all the candidates responded that they opposed such a mandate. Their reason: Mandates interfere with individual liberty.

Of course, all mandates interfere with individual liberty, but is there an off-setting advantage to mandates? The reason given for mandates is that a public good or service is being created and, without the mandate, free riders can benefit without paying their share of its costs. Mandates become necessary whenever the good or service must be shared or has a shared effect. They are commonly used as a means of funding police and fire protection, Social Security, and minimum levels of automobile insurance coverage.

Early fire protection in America was by "mutual insurance associations." There was no mandate for a homeowner to join this association, to pay its dues, or for the association's fire department to try to save a nonmember's house if it was burning. Their responsibility was to prevent the fire from spreading to their members' homes.

Why don't we see mutual association fire departments in urban communities today? The reason is that in more densely populated areas, a burning house is a much greater danger and expense for the neighboring property owners. As a result, voters find a great efficiency in a mandate requiring that all property owners share in the cost of a public fire department. In fact, one of the early public fire departments was founded in Alexandria, Va., by George Washington.

Police protection works the same way. If free riding were allowed, the police would be free to ignore pleas for help from free-riders who were crime victims. Of course, once the rise in the neighborhood crime rate became known, neighborhood property values would fall and insurance rates would rise. Similarly, old-age poverty is a signal to the world of the failure of our economic system. Without mandated participation in Social Security, free riders would diminish the "commonwealth."

Health care is another public good in which the outcome of individual decisions has shared consequences. For instance, when a disease is contagious, we strive to mandate treatment to reduce its spread. Mandated health treatments — flu shots for schoolchildren, HPV injections for preteen girls — reduce societal costs at the expense of restricting some personal freedoms. When we mandate, we restrict one kind of freedom to gain another: less illness at lower cost.

When he signed the Massachusetts health insurance reform into law, Gov. Romney recognized that people must be required to buy insurance; otherwise free riders would simply go to the emergency room for free care. The federal Affordable Care Act, often dubbed Obamacare, has the same requirement. These mandates are included since otherwise the plans would cost a great deal more due to free-ridership. The Supreme Court must now decide if the constraint on individual liberty imposed by this mandate is sufficiently offset by economic advantages.

Mandates resolve the problem of free riders 10/04/11 [Last modified: Tuesday, October 4, 2011 4:17pm]
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