GULCIN GUMUS, Florida International University, Institute for the Study of Labor (IZA)
Email: gumusg@fiu.edu
TRACY REGAN, University of Miami - Department of Economics
Email: tregan@miami.edu

We investigate the effect of health insurance on labor market transitions in and out of self-employment as well as on the likelihood of being self-employed. We consider the role of individual health insurance coverage along with that from a spouse. Next, we examine a series of tax deductions granted to the self-employed through amendments made to the 1986 Tax Reform Act. Using data from the Current Population Survey for 1996-2007, we find significant but small effects of the after-tax health insurance premium on the entry rate, with no effect on exits from self-employment or the likelihood of being self-employed.

HANS VAN KIPPERSLUIS, Erasmus University Rotterdam (EUR) - Faculty of Economics
Email: hvankippersluis@few.eur.nl
OWEN A. O'DONNELL, University of Macedonia
Email: ood@uom.gr
EDDY VAN DOORSLAER, Erasmus University Rotterdam (EUR)
Email: vandoorslaer@few.eur.nl
TOM VAN OURTI, Erasmus University Rotterdam (EUR), Tinbergen Institute
Email: vanourti@few.eur.nl

A strong relationship between health and socioeconomic status is firmly established. Yet, partly due to the multidimensional and dynamic nature of the variables, the causal mechanisms connecting them are poorly understood. This paper argues that adoption of a life-cycle perspective is essential to uncover these causal pathways. A life-cycle perspective also allows investigation of whether the socioeconomically disadvantaged, on top of a lower health level, experience a sharper deterioration of their health over the life cycle. We show that in the Netherlands, as in the US, the socioeconomic gradient in health widens until late-middle age and narrows thereafter. The analysis and the available evidence suggests that the widening gradient is attributable both to health-related withdrawal from the labor force, resulting in lower incomes, and the cumulative protective effect of education on health outcomes. The less educated suffer a double health penalty in that they begin adult life with a slightly lower health level, which subsequently declines at a faster rate. The observed narrowing of the gradient in old age is partly an artefact stemming from the fact that only the most healthy of the disadvantaged survive into old age. It also reflects that after middle age, withdrawal from the labor force increasingly occurs for non health-related reasons.

MARK A. HALL, Wake Forest University - School of Law
Email: mhall@law.wfu.edu

Many proposals to reform health care finance and delivery require individuals or private employers to pay for private health insurance. This paper analyzes the constitutionality of such proposals. A direct and unconditional federal requirement for an individual to transfer money to a private party for health or economic purposes seems to be unprecedented. Thus, an individual (or employer) mandate to purchase private health insurance raises several possible constitutional issues.

Although the Constitution does not confer plenary powers over public welfare like those possessed by the states, a mandate to purchase health insurance appears to fall fairly readily within the current breadth of Congress's power to regulate interstate commerce. Also, if the sole means used to enforce compulsory insurance is the federal tax system, then this requirement would easily fall within Congress's broad powers over taxation. Moreover, under Congress's broad power to spend to promote the general welfare, it could require states to adopt an insurance mandate as a condition for receiving health-related federal funding. There are no plausible federalism objections to any of this as long as state and local governments are not required to purchase insurance for their own employees, but even that requirement appears to be consistent with current Supreme Court precedents.

Regarding individual liberties, there is no support in Supreme Court decisions for a Constitutional objection based on religious liberty, but a statutory objection might be made under the Religious Freedom Restoration Act (RFRA). Also, a plausible challenge might be made under the Takings Clause, but such a challenge is not likely to succeed. There is no solid precedent that applies the Takings Clause to mandated purchases of any kind, and several inconsistent precedents. Moreover, a Takings Clause challenge could easily be avoided by framing the mandate as a taxation provision (i.e., simply a tax benefit for complying or a tax levy for not complying).

These major contours of Constitutional jurisprudence appear to be secure. Still, challenges to some versions of compulsory health insurance would be possible. The safest versions - those least susceptible to challenge - would be mandates that: 1) contain explicit findings about effects on and in interstate commerce; or 2) are conditioned on federal spending or federal taxation; and 3) avoid state and local government employers; and 4) provide a religious exemption or exception from RFRA.

JILL BERNSTEIN, affiliation not provided to SSRN
Email: jbernste@verizon.net

Questions about paying for health insurance and for health care can direct discussions down many paths. The ultimate goal is to structure contributions in a manner that ensures access to necessary and appropriate care and is also sustainable for individuals, families, insurers, other payers, and government. Choices about when and how much individuals and families should pay shape decisions about how those payments need to be structured. Comprehensive expansion of health coverage in the United States will mean augmenting, reorganizing, or creating new systems to administer payments for health coverage. The ability of administrative systems to implement reforms effectively needs to be factored into evaluating coverage expansions. Deciding how to structure payments will, however, also involve broader considerations of resources, incentives, and values.

This paper provides a framework for considering the implications of different ways that people can pay for health coverage and care, drawing on research evidence as well as illustrations from existing private and public sector programs and the health care systems of other industrialized nations. The focus here is on two broad categories of health care costs borne by individuals and families. The first is paying for coverage, generally through premiums or taxes. The second is cost sharing for health services or supplies, generally consisting of deductibles, fixed copayments, or coinsurance (calculated as a fixed percentage of cost), often with limits on total annual out-of-pocket costs capped at a specific level, or different levels for different types of health care. Each category of costs can be structured in different ways, varying in amount covered, scope of benefits affected, special protections for vulnerable populations, and other design features. The number of permutations possible when different cost requirement are combined in insurance plans is practically infinite.

TIMOTHY STOLTZFUS JOST, Washington and Lee University - School of Law
Email: JOSTT@WLU.EDU

This paper examines the current role of health insurance regulation and the role that it could play in a reformed health care system. It begins by exploring the nature of health insurance and alternative approaches to its regulation. It next considers the current status of first state and then federal health insurance regulation, both describing the development of health insurance regulation and examining arguments in support of and in opposition to regulatory interventions. Finally, it considers the kind of insurance regulation that will be needed in a reformed health care system, as well as the question of whether authority for insurance regulation should be placed at the federal or state level.

C. EUGENE STEUERLE, Urban Institute
Email: esteuerl@ui.urban.org
PAUL N. VAN DE WATER, Center on Budget and Policy Priorities (CBPP)
Email: vandewater@cbpp.org

Many current proposals to promote more universal health insurance coverage contain mandates that would require individuals to buy health insurance. Language is important here: some who oppose an individual mandate do not object to modest penalties for those who fail to purchase insurance. Other proposals would impose requirements on employers to provide or pay for coverage in addition to or instead of an individual mandate. "The general theoretical conclusion from economics," writes Mark Pauly, "is that there is likely to be very little difference, in the long run, between an individual and an employer mandate" (Pauly 1994). This argument rests largely on the notion that if the same ultimate tax or mandate is imposed on exactly the same activity, the ultimate economic incidence doesn't depend on who initially pays. People will eventually react to the same net incentives in the same way. In practice, however, significant differences arise between what can be implemented through charges on employers and on employees, often guided by practical issues of administration and how people respond to alternative administrative structures.

While well grounded in principle, mandates to pay for or purchase health insurance must confront important administrative challenges. Most important, for many people a mandate to purchase health insurance requires that they receive subsidies adequate to make the insurance affordable. At the same time, given the long history of less than full participation in means-tested benefit programs, administration of mandates and subsidies needs to be carefully coordinated and thought out. Both are difficult. In addition, since sizable penalties are hard to collect after the fact or at the end of the year, payments should be kept current and penalties modest. Among the available techniques are withholding, automatic enrollment, and relating the penalty to some other tax or transfer benefit that can be denied through simple administrative means.

This paper identifies ways to structure health insurance mandates, if adopted at the federal level, so that they are more likely to be administered fairly and effectively. In doing so, it draws on information about the administrative arrangements used in existing health insurance mandates in Hawaii, Massachusetts, the Netherlands, and Switzerland, as well as the administration of mandates proposed by California Governor Arnold Schwarzenegger, the New America Foundation, and Senators Ron Wyden (D-OR) and Robert Bennett (R-UT). The appendix to this paper provides detailed information about the administrative features of these existing and proposed mandates.

BRYAN E. DOWD, University of Minnesota - Twin Cities - Division of Health Policy and Management
Email: dowdx001@umn.edu

This paper considers some design features of a health care reform proposal that would make a government-run health insurance plan available to all. The details of any health care reform proposal are important, and the details of this proposal still are under development. However, some details are available and discussed here.

The analysis begins with a description of problems in markets for health insurance that reforms might address. It then considers a specific reform proposal: offering a public plan and competing private plans in a government-run purchasing pool. The Medicare program provides an important precedent for such a system, and offers a practical guide to the problems and opportunities offered by such a mixed public and private system. The analysis then turns to application of the mixed public and private system to the commercial insurance market, discussing the likely problems and ways to resolve them.

An important assumption underlying this analysis is that public and private plans have inherent advantages and disadvantages, and neither type of plan needs to be favored with special subsidies or regulations. Both plans can be offered on a relatively level playing field. The best judges of the advantages, disadvantages and economic value of each plan are not politicians, bureaucrats, or policy analysts, but consumers supported by good data systems.

In this analysis, "the commercial health insurance market" means the market for health insurance faced by people who are not currently enrolled in Medicare, Medicaid, government-subsidized high-risk pools or other public insurance program. For example, the non-elderly disabled population that is enrolled in Medicare would not be part of the commercial insurance market as discussed here; nor would the low-income individuals enrolled in Medicaid; nor would the aged-entitled Medicare-enrolled population, even though many Medicare beneficiaries are enrolled in private health plans (the Medicare Advantage [MA] program, private supplementary policies, or private Part D drug coverage plans).

LAWRENCE D. BROWN, affiliation not provided to SSRN

Most Western nations treat health policy (especially, but not only, issues of coverage) as a national responsibility in which subnational governments or regions may be granted a more or less prominent role. The United States, by contrast, has never adopted a national health policy, nor agreed that it ought to do so. In consequence the 50 states have played three roles: partners with the feds in some very important programs (for instance Medicaid and the State Children's Health Insurance Program), sources of pressure on Washington for a redivision of labor in health affairs, and sources of innovation in health policy in default of national leadership.

This role trilogy was a potent political force in the run-up to the Clinton health reform plan of 1993-94. In the late 1980s, state spending on Medicaid shot up for several reasons, including the costs of treating people with AIDS/HIV, new federal coverage mandates, the states' own Medicaid maximization strategies, the impact of general medical inflation, and a growing number of uninsured residents. The administration of President George H.W. Bush was disinclined toward bold national measures, and a cadre of states resolved to install systems that would achieve or approach universal coverage and contain costs, mainly via managed care, to boot. In 1988 Massachusetts passed legislation that aimed at universal coverage via a play or pay approach. Oregon's famous rationing plan (aka "prioritization") earmarked savings imputed to the elimination of insufficiently cost effective services in Medicaid for an expansion of eligibility in that program. In legislation of 1993 Washington State coupled an employer mandate with managed competition. Other states-New York, California, Colorado, Vermont, and Florida, for example-deliberated at length on reform but after various and sundry detours came up short. These real and attempted innovations boosted the conviction that health reform was not only imperative but also at long last doable and thereby pushed reform higher on the national agenda. When Bill Clinton prominently advertised his commitment to health reform in his successful presidential campaign of 1992, few doubted that the idea's time had finally come.

By 1994 national reform and most of the states' handwork were dead. Massachusetts deferred implementation of its plan and then repealed most of it. Oregon added about 100,000 residents to Medicaid and then, failing to find big savings by rationing or otherwise, struggled with the program's costs. Washington State gutted most of its 1993 reform bill in 1995.To be sure, not all was lost. Minnesota, for instance, quietly layered federal and state programs without employer mandates or managed competition and brought its rate of uninsurance below 10 percent. The enactment of the Health Insurance Portability and Accountability Act (HIPAA) in 1996 gave the federal government a larger role in regulating private health insurance, which heretofore had been left largely to the states. The creation of SCHIP in 1997 put "catalytic federalism" ( Brown and Sparer,2001) on display: drawing both on Medicaid and on innovative programs of child coverage in states such as New York, Massachusetts, and Florida, the feds designed a new template that entailed new funding and challenges for the 50 states. On the whole, however, misadventures at both levels of government reaffirmed a sour truth that would-be leaders denied at their peril: health reform initiatives tend to generate much more antagonism among threatened interest groups (especially business, providers, and insurers) than gratitude within the electorate and are therefore a poor investment of political capital. For a decade thereafter the reform "movement" fell mute while states fine tuned their "partner" role in Medicaid waivers, the implementation of SCHIP, and other variations on incrementalist themes.

Around 2005, however, history began to repeat itself. The national number of uninsured, rising by roughly one million per year, hit 45 million. As in the late 1980s, relentless media attention to the issue powerfully intimated that the status quo was doomed. Meanwhile, growth in Medicaid and SCHIP had lowered the number of uninsured children by about five million. By enacting a program to cover all its children, Illinois showed that state health reform was astir again, and Maine and Vermont passed laws that aimed at universal coverage. For a time the media mostly recorded lagging enrollment in Maine's plan, but then the eyes of reformers everywhere were drawn to Massachusetts which, Rip Van Winkle-like, rose to reprise the quest for reform that had gone awry a decade earlier.

Even as the exogenous shock of soaring Medicaid spending had galvanized states in the late 1980s, the proverbial prospect of being hanged the next day by waiver-meisters in the federal Centers for Medicare and Medicaid Services concentrated the minds of Massachusetts's leaders on how best to meet Washington's conditions for renewing roughly half a billion dollars in waiver funds, namely, that the state spend less on the safety net and more on coverage for the uninsured. In 2006 Massachusetts passed legislation that combined an individual mandate (all residents are legally obliged to buy "affordable" coverage if it is available), very modest financial penalties for employers who fail to offer coverage, expansion of Medicaid, new income-related subsidies for those who do not qualify for Medicaid, and assorted administrative innovations that would help residents to find and enroll in affordable health plans. As before, New York State wondered if it should do something similar, and California too soon joined the (small) crowd. In 2008, as had been the case fifteen years earlier, innovations within the federal "laboratory" signaled to the American public and the presidential contenders seeking their votes that a plausible plan for national health reform was a precondition for political success. And now, as then, federalism is sometimes said to be a positive, perhaps indeed invaluable, element in the strategic design. (For example, then: Tallon and Nathan, 1992; now: Aaron and Butler, 2004).