• If you missed it the first time–Thirty economists on the individual mandate

    Thirty health economists (including some major figures–Arrow, Cutler, Gruber, Newhouse, Pollack…) wrote a letter circulated around Congress explaining the need for the individual mandate. If you haven’t seen it, I think it is one of the better one-page explanations of the issue going:

    The Patient Protection and Affordable Care Act (ACA) requires people to buy health insurance when they can afford to do so. This “individual mandate” is essential to address two features of current health insurance markets: the fact that millions of people cannot afford health insurance coverage, and the fact that insurance companies frequently charge high or unaffordable premiums to people who need insurance most-those suffering from costly illness or injury.

    This mandate is one of three pillars that together support ACA’s private market approach. The first pillar is insurance market reform – ending the ability of insurance companies to discriminate against sick or injured people with high medical costs. Subsidies to help Americans of modest means gain access to affordable health coverage provide the second pillar. The individual mandate provides the third pillar. It requires people to obtain insurance so long as that coverage is affordable. The mandate expresses a basic obligation of citizenship as well as an economic reality. Without the mandate, some people will choose to gamble or to free-ride, undermining the fairness and financial stability of the health insurance system…..

    Few of the uninsured could personally finance medical treatment for a serious illness or injury. Moreover, this country embraces the fundamental principal that everyone should have to minimally decent medical treatment when needed, without regard to ability to pay. Federal legislation and the custom and practice of health care providers embody this principle. A healthy individual’s decision to forego affordable insurance coverage thus imposes real costs on others, while raising premiums on many people with serious medical needs who require the most help….

    More here and here….

    • These 30 economists are nutty. When a person is sick, what he needs is health care, not insurance. They are demonstrably not the same, otherwise we’d need food insurance, sex insurance, etc.

      Furthermore, the financing of the health care the sick patient gets, whatever it is, is not insurance.

      No wonder we place no credence on economists.

    • If anything the economists are too gentle.

      The only way for private insurance to be affordable is to have at least 10 healthy persons for every sick person. This is truer than ever with the invention of new expensive treatments for the sick.

      All countries that rely on private insurance have a double mandate — one mandate on the carriers to cover everyone, the other on the populace to buy insurance.

      Without this, the development of actuarial death spirals is inevitable, the only question is when.

      America would have trouble with any mandate. We have very light regulation of labor markets, many places where a person can get off the grid, just a huge country physically. The designers of the mandate seem to think the country is like Denmark or Massachusetts or Canada — where people get in line and pay their taxes and get permits, etc.

      I of course favored the expansion of Medicare and Medicaid. There is a pre-existing tax collection system and enforcement system.

      We shall see what works.

      Bob Hertz, The Health Care Crusade

    • “fundamental principal”? Spell-check . . .

    • I used to be a big believer in a health insurance mandate, a few things put big doubts in my mind:

      1. Robin Hanson’s work that shows how little medical care beyond the cheap stuff (vaccinations, antibiotics) (plus trauma and infant care which can usually be amortized by the recipient of the care), help .
      2. Work that shows that healthy people are more likely risk adverse and so obtain insurance.
      3. What looks to me like huge effects on prices of 3rd part payment. To me even Canada and Japan it look like too much is spent on health care.

    • With all due respect to these distinguished economists, several of whom are friends and former colleagues, their letter is entirely predicated on making the exchanges work within the ACA framework. Truth be told, the current ACA penalties lack any real teeth, and would likely have to be raised substantially to force the healthy young into insurance.

      There are many other approaches to health reform, including changing the current tax exemption for health insurance paid through private employers. The current subsidies do not go to the self-employed or the unemployed, and regressively benefit primarily upper-income employees. Changing to a refundable tax credit system of (say) $2000 a year for individuals and $4000 to $6,000 a year for families would provide a massive positive incentive for the healthy to buy insurance. This subsidy could be income-tested, or not. Many distinguished economists have proposed reforms of this general type. Since the invincible young average less than $2000 in annual health costs, this would pay for excellent insurance and eliminate the need for penalties. Coupled with nothing more than a “shall issue” requirement placed on insurance policies, this would work far better than the ACA system in creating a large pool. It would also bring bring insurance to the many millions who work for large employers but decline employer insurance. And unlike the ACA it would be easy to administer. Single-payer is another option, though politically impossible.

      Working to maintain and improve the ACA is one path, but there are others.

    • The tax credit scheme described above was proposed in general by John McCain, and since 2008 by John Goodman.

      If it was extended to all those under age 65, it would cover perhaps 75 million individuals and 35 million families.

      This would be a total of about $400 billion in tax credits. A tax credit is new government spending, just under somewhat of a disguise.

      How would this be paid for?

      I suppose the argument is that current employer contributions would be turned into taxable salary.

      I am very skeptical that this would happen, especially with non-union employers. Even if it did happen, I do not think that government tax revenues would swell by anything close to $400 billion a year.

    • In response to Bob Hertz, I was not trying to propose a specific set of numbers, but to use illustrative numbers to point out that the 30 economists were making a constrained recommendation and that there are reasonable alternatives outside the ACA box.

      That said, if the tax credits were income tested at reasonable levels (reader pick ’em), and if we subtracted out those under 65 on Medicaid or Medicare (SSI and disability) from the numbers he gives, the costs would easily fall below the close to $300 billion tax expenditure on the current system.

      We are making those tax expenditures now; the issue is whether there is a better set of parameters that would reduce windfalls to the “rich” and create sensible incentives for all. Quite apart from any other issues, the accepted parameters for induced expenditures from “free” health care compared to minimally subsidized health care suggest that national savings from reduced wasteful over-utilization could be, in todays dollars, in the multi-hundred billion dollar range (see both the classic RAND study and the recent RAND study on so-called high (sic) deductible plans). Savings of that magnitude would surely turn almost any variant of a tax credit plan into a huge plus in reducing taxpayer as well as consumer costs.

      Just because John McCain or John Goodman proposed something doesn’t make it a bad idea. McCain had excellent advice and Goodman is on any neutral expert’s list of the top half dozen health care analysts around today. But the point I want to make is that any sensible liberal economist should surely want to reform a tax subsidy that benefits primarily the top 1% to 10% with negligible (and in fact negative) benefits to to the lower 50%. The Affordable Care Act as currently formulated has immense defects compared to the alternatives, not least of which is its use of unnecessary compulsion.