Is the Affordable Care Act an Excuse for Income Redistribution?

This post has been cited in the 29 April 2010 edition of Health Wonk Review.

Greg Mankiw wrote on Saturday, “[O]ne of the prime motives for healthcare reform had nothing to do with health per se but rather was a desire by those on the left for greater redistribution of income.” As rationale for this claim Mankiw cites his November 2007 post.

To judge whether my conjecture is correct, ask your favorite pundit of the left the following: What health reform would you favor if the reform were required to be distribution-neutral? That is, you can change the rules of the health system but you cannot change the distribution of economic resources between rich and poor. My guess is that your favorite pundit would either object to the question or answer by retreating to more modest reforms. If so, this suggests that calls for sweeping reform are mainly motivated by the desire for increased redistribution.

One thing I noticed in following health reform closely is that few pundits–on the left or right–understand health economics. However, the lefty pundits in Mankiw’s hypothetical would be correct that the provisions of the Affordable Care Act (ACA) could not be implemented without increased redistribution. A motivation for increased redistribution as an end in itself is not required to hold that point of view.

There is a perfectly good reason why the ACA must be redistributive. By now we know how avoidance of adverse selection requires that a mandate accompany outlawing pre-existing condition exclusions. And low-income subsidies must accompany a mandate (if necessary, see Krugman for a review of the logic). If an individual can’t afford health insurance without a subsidy, it’s not helpful to provide one and to adjust the tax system to make the overall package distribution neutral. That’s like saying, “Can’t afford insurance? Let me help with the cost. Now pay me back.”

If a distribution-neutral reform exists it doesn’t do much and/or isn’t politically viable. That may be what Mankiw prefers, but admitting as much isn’t evidence that increased redistribution is the motivation for reform. It’s just being honest.

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