Private Law Alternatives to the Individual Mandate

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Despite excitement on the left about a move to universal health care and on the right about a more state-driven model, major policy changes in a time of divided government are not imminent. Yet with the recent repeal of the individual mandate, the current system may be crumbling. The Affordable Care Act guarantees coverage to people with pre-existing conditions and prohibits insurers from charging them more than healthy people. But the mandate was supposed to draw cheaper and healthier people into the risk pools to balance out costs. Without the mandate, healthy people can simply wait to buy insurance until they get sick. Insurers are left to cover an increasingly sicker, more expensive population, and premiums skyrocket, starting a chain reaction ending in the so-called “death spiral.” The model only works if healthy people purchase insurance, and now there is little to prompt them to do so. This Article relies on private law to solve the problem. It looks to both neoclassical economic theory and principles of behavioral economics to better understand what motivates (and deters) the purchase of health insurance. It then explores economic incentives and “nudges” that will encourage healthy individuals to sign up for policies without forcing them to do so. It suggests co-opting practices previously deployed for nefarious purposes to prompt behavior that policy now seeks, such as insurers offering low introductory rates, long-term contracts, and limited exit rights. Other options include insurers selling return of premium-style policies or policies with a generosity frame, simplifying plan offerings, or automatically enrolling the uninsured but giving a right to opt-out. These private law solutions—many of which would not require congressional action—hold the promise of ultimately lowering prices without the government forcing action or taking away the right to make autonomous choices.