Individual mandate in healthcare was year’s top consumer story

This was the year of the healthcare mandate. No other consumer story of 2012 comes close.

In a split decision, with Chief Justice John G. Roberts Jr. casting the deciding vote, the U.S. Supreme Court upheld the cornerstone of President Obama’s healthcare reform law, the most sweeping overhaul of our dysfunctional medical system in decades.

The so-called individual mandate requires that most people have health insurance. It’s the trade-off for the insurance industry’s agreement to stop denying coverage to people with preexisting conditions and to stop charging higher rates if you get sick.

It’s also the trade-off for insurers to remove limits on how much treatment they’ll cover annually or over your lifetime.

“It’s a huge deal,” said Lee Goldberg, vice president of health policy for the National Academy of Social Insurance, a Washington think tank. “Without the mandate, you’re much more likely to have spiraling healthcare costs and an unsustainable market for coverage.”

Critics of the mandate, and there are plenty of them, say it represents a government takeover of healthcare, a socializing of medicine. The government, they say, can’t make you buy something you don’t want.

But that’s not how the mandate works. No one’s forcing you to buy insurance. No one’s forcing you to be covered.

However, there will be a tax penalty if you decide that you want to take your chances. And there’s a very good reason for this: Taking your chances is foolish.

Unless you’re Superman, you’re going to need healthcare at some point in your life. That’s just a fact.

“No one’s going to throw you in jail if you don’t have insurance,” said Richard Curtis, president of the Institute for Health Policy Solutions. “But if you ever have an accident and have to use the [emergency room], that tax penalty will help to defray the cost that will be covered by those who do have insurance.”

Beginning in 2014, the penalty for going uninsured will be no more than $285 per family or 1% of income, whichever is greater. The cap rises to $975 or 2% of income a year later, and then up to $2,085 per family or 2.5% of income by 2016.

Quiz: How much do you know about business news in 2012?

Opponents of healthcare reform conveniently ignore the basic economics of the insurance business. Insurers aren’t service providers. They’re risk managers. They examine the risk they face by covering a group or individual and price their policies accordingly.

The larger the risk pool, obviously, the cheaper the coverage. That’s because the risk to health insurers goes down if younger and healthier people are included in the mix. The result: more affordable coverage for everyone.

Taken to its logical extreme, the most effective and efficient health insurance system for the United States would be something like a Medicare-for-all approach in which the risk pool comprises everybody in the country — young and old, healthy and sick.

In fact, we’re already well down that road. Federal and state programs such as Medicare, Medicaid and veterans’ assistance accounted for about 45% of total U.S. healthcare spending in 2010, according to a recent study by the National Institute for Health Care Management Foundation.

The amount of public money spent on healthcare should serve as a wake-up call to all those who think the world would end if the U.S. followed Britain, France, Canada and other developed countries in enacting a national health insurance system.

For the U.S., it would simply be an expansion of a system that already exists but is hobbled by the inefficiency of denying Medicare and other programs access to healthier members of the population, thus saddling taxpayers with a disproportionately large number of higher-risk people.

The individual mandate won’t radically change things. The healthcare insurance system will remain divided between a public sector that focuses primarily on aging and sick people and a private sector that, for purely financial reasons, provides increasingly less access to affordable coverage.

Average premiums for employer-sponsored family health insurance plans rose 62% from 2003 to 2011 to $15,022 a year, according to a recent report by the Commonwealth Fund.

Health insurance costs far outpaced people’s incomes in all states during that time, the report found, with workers’ average share of premiums for family plans soaring 74% and deductibles more than doubling, while the median household income rose only about 10%.

Still, the mandate is a big step toward remedying the system’s economic irrationality. By extending coverage to about 30 million of the 50 million people who now lack insurance, the mandate will place medical care within reach of many who previously may have sought treatment only in emergencies.

As a result, national wellness will improve and, presumably, healthcare costs will go down, or at least will be better controlled as fewer people put off medical attention until an easily treated ailment becomes an expensive catastrophe.

“The mandate is the key to making this all work,” said Devon Herrick, a healthcare economist at the National Center for Policy Analysis. “Otherwise people would just wait until they got sick before buying insurance and premiums would skyrocket.”

There’s still much to be done. The reform law’s insurance exchanges are a work in progress, and it’s unclear at this point how much coverage will be offered and how much it will cost.

But the Supreme Court has kept the ball rolling by maintaining the mandate as part of the equation. It was a decision that will change all our lives, probably for the better, and move us closer to a system under which all people can obtain affordable healthcare.

David Lazarus’ column runs Tuesdays and Fridays. he also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send tips or feedback to david.lazarus@latimes.com.