on the flaw in Obama's plan...

Len Nichols on why madates are vital to a health care plan...

Mandates make markets work better. Yes, you read that correctly. Markets need help sometimes. Voluntary insurance markets are inherently unstable, because people with more expensive health risks think community rating (charging the same price to everyone) is a bargain for them, while "young immortals" -- low-risk folk, usually young and healthy, who don't expect to use much health care -- think community rates are a bad deal for them. Both groups are right. So either community rates rise continuously (as more good risks drop out as rates rise, over and over) or, more commonly, insurers persuade state legislatures to let them underwrite differential risks and price (or deny) coverage according to preexisting conditions, age, and other criteria. Talk about moral hazard, wherein a behavioral decision is affected by the presence or absence of insurance! The incentive for an individual insurer to err against covering someone with a costly condition is very large.

Mandates go a long way toward correcting this "adverse selection" problem by putting everyone in the same risk pool. If everyone is required to buy, then insurers worry far less about attracting a disproportionate share of sicker patients, because the reluctant "young immortals" are buying, too. So the excess resources they now devote to underwriting and targeted marketing will be largely redundant and disappear. This is why John Sheils of The Lewin Group concluded that Senator Wyden's plan achieves such great administrative savings -- insurers will voluntarily disarm if everyone has to buy, and then the rest of us can stop paying them to figure out how to legally deny coverage to the sick.

In turn, mandates make community rating, the fairest pricing system by far, actually sustainable, because enrollees will not be churning in and out of the market anymore. The lower administrative costs will make insurance more attractive to high-risk and low-risk alike. And mandates will bar them from saving a few bucks by voluntarily joining the ranks of the uninsured, as some "free riders" have been known to do from time to time.

These "free riders" are people who can afford health insurance but choose to spend their money in other ways and thereby gamble that public hospitals will treat them when disaster strikes -- which it does, with actuarial precision. They were the original targets of Romney, and while they are a minority of the uninsured, they do impose costs on the rest of us, even on those who can't afford health insurance but pay taxes to support the public hospitals. So mandates make free riders pay their fair share. In a society that is not willing to deny all care to all who are not insured, mandates are the only way to achieve fair participation from this population