Americans Need an Insurance Mandate, They Just Don’t Know It Yet

| Ritika Punathil | May 18, 2020 |

To understand whether the U.S. health insurance market is experiencing market failure, statistic, economic, and philosophical theory are all needed. The real challenge is determining what market corrections are appropriate for a nation of about 330 million people. Whatever they may be, they must be morally justified. This is where a philosophical analysis of America’s moral culture becomes essential. In his paper “Justice and Fairness: A Critical Element in U.S. Health System Reform,” Paul Menzel claims that the presence of market failure in the U.S. health care system is an undisputed fact and defends the validity of certain reforms using mainstream U.S. moral culture. Menzel received his PhD from Vanderbilt University, and is a Professor Emeritus of Philosophy at Pacific Lutheran University, where his research interests focused on the philosophy of health care economics.

Economic theory postulates that a competitive market is ideal because it enjoys freedom and well-being, in which competing producers have the incentive to deliver higher quality goods at lower prices. Subsequently, consumers demand sufficient quality and low prices to justify their purchases. As a result, overall value is theoretically maximized. But as Menzel states, the social and economic evidence in the health care sector does not support the theory. The U.S. health insurance market is a competitive one, yet the U.S. has a 8.5% uninsured rate (U.S. Census), 145% higher medical costs compared to the median costs of the Organization for Economic Cooperation and Development (Johns Hopkins), and lagging quality of care measures (Menzel).

Evidence of nonoptimal consumption lies in the fact that this market is not supplying its good (insurance) to those who most desire and need it. This is due to adverse selection in the market that is causing a death spiral, as the Institute of Medicine (IOM) estimates that about 18,000 Americans between 25 and 64 years die annually because of a lack of health insurance. In the insurance market, consumers can be categorized based on their risk of needing intensive medical care. Low-risk subscribers will not need much care, so they are more likely to have manageable costs and thus will not value insurance as much. Health insurance can help alleviate higher medical costs, so high-risk subscribers tend to value insurance more. Insurance premiums are calculated using the average cost of care for all subscribers in the market that the insurance company is responsible for covering. When the market initially begins with both low-risk and high-risk subscribers, premiums will be at a medium level. Since the lowest-risk subscribers have the lowest medical costs and thus place the lowest value on insurance, a medium level premium is not worth it, so they drop out of the market. In the next cycle, the loss of the least expensive consumers causes the average cost of the pool to rise, which is reflected in rising premiums. The new cost of premiums will prompt the subscribers with the lowest costs and lowest value for insurance to exit, thus fueling the spiral of higher premiums and a higher concentration of high-risk subscribers. Because of this, the market reaches the point where insurance is unaffordable to the highest-risk subscribers who value insurance the most.

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The passage of the Emergency Medical Treatment and Active Labor Act (EMTALA) is an indication that the provision of care is not optimal either. EMTALA guarantees Americans access to emergency care, which decreases their incentive to purchase insurance for primary care. This leads to some Americans deciding to forgo insurance and use less efficient emergency care as a substitute for more effective and efficient primary care. This phenomenon is defined as free-riding, and it costs insured Americans around $100 billion annually (Menzel).

The need for market corrections is evident, and they should incorporate principles that align with American moral culture. The justification is simple: if the market is for Americans, then it should be designed according to American ideals.

In his paper, Menzel identifies specific principles that he claims align with U.S. moral culture and should be used guide market corrections: The Just Sharing Principle (JSP) and the Prevention of Free-Riding (PFR) Principle. PFR refers to preventing situations where people receive benefits without paying their share of expense, as in the case with guaranteed emergency care. The Just Sharing Principle postulates that financial burdens of medical costs should be shared unless individuals can be reasonably expected to control those misfortunes by their own choices. The bipartisan support of EMTALA and guaranteed issue prove that most Americans support JSP and PFR.

Guaranteed issue is a market correction with bipartisan support that reflects the JSP. It prevents insurance companies from discriminating based on pre-existing conditions, which are uncontrollable misfortunes. However, simply enforcing guaranteed issue does not prevent market failure. Enforcing an individual mandate will keep low-risk subscribers in the market and prevent adverse selection and death spiral. The mandate also reflects PFR regarding EMTALA, because it now provides people with access to primary care and hold people accountable for emergency care costs, thus ending free riding. The final suggestion to allow this revised market to properly function is the implementation of subsidies to make premiums affordable for everyone. A mandate is useless if some Americans do not have the ability to pay for insurance, so a subsidy program is an appropriate solution.

It is reasonable to question this justification of bipartisanship: popular support does not rationalize morality. Indeed, a minority of Americans may oppose the JSP if they believe that they are not obligated to share others’ uncontrollable misfortunes. Regardless of one’s belief of the JSP, the current state of market failure harms everyone. The inability of some to afford care results in others being unfairly asked to foot the expensive bill. These market corrections can prevent these failures and benefit everyone, including the minority, which makes them morally justified.

While Menzel’s argument can lead one to believe that a system which incorporates guaranteed issue, individual mandate, and subsidies is supported by the principles held by the majority of Americans and will be the saving grace of the U.S. health insurance system, reality seems to indicate otherwise. In 2017, Congress eliminated financial penalties associated with failing to comply with the mandate, essentially rendering the mandate un-enforceable.

Apprehension towards the mandate can be understandable. With the implementation of a mandate, a consumer loses their freedom of choice and their protection from exploitation. Exploitation can come from patients and providers. Moral hazard is the phenomenon in which patients’ wasteful consumption of care is positively correlated with the extent to which their insurance policy will cover their care. Even if an expensive procedure is not effective, a patient may still opt to have it if they do not need to cover the full cost. In response to higher costs, insurance companies will raise premiums for everyone. On the other side, physicians who are compensated via fee-for-service have an incentive to engage in wasteful care as well, as they will get paid more for ordering more services for patients, even if these extra services aren’t necessary. This results in higher costs to patients and insurance companies despite stagnant quality of care measures like morbidity and mortality.

It does, however, remain an economic fact that the system will undergo adverse selection without the mandate. To ease concerns, the American public should know that the health care system is morally obligated to prevent any exploitation the mandate could invite. The JSP explicitly states that financial costs should only be shared if they are due to uncontrollable causes. Wasteful spending practices conducted by both patients and providers are clearly due to their own blameworthy actions and choices. So how do we eliminate the waste and keep costs low?

Physicians’ morally corrupt incentives can be abolished by phasing out the fee-for-service program, and patients’ tendencies toengage in moral hazard can be minimized using comparative effectiveness research (CER) and cost-effectiveness analysis (CEA). These methods minimize wasteful provision of care by objectively determining the most effective and the least expensive treatments. Therefore, CER and CEA should be used to create sophisticated guidelines that are sensitive to potential variations, thus maintaining an ideal individual patient focus.

This moral argument backed by Menzel asserts that the current U.S. health care insurance system is experiencing market failure and can largely be corrected by implementing guaranteed issue, individual mandate, and subsidies. The individual mandate is controversial, but it is essential for the American public to realize that it is necessary. Following these implementations, fee-for-service among physicians should be phased out and CER and CEA should be used to minimize patient moral hazard and create guidelines for a morally just health care system.

Ritika Punathil is a senior double majoring in Genetics & Genomics and Economics, with certificates in Global Health and Leadership. As a physician, she plans to use her economics education to understand how the healthcare system can be reformed. 



Menzel, P. “Justice and Fairness: A Critical Element in U.S. Health System Reform,” Journal of Law, Medicine, and Ethics (Fall 2012): 582-597


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