• What does Cowen want?

    In a thought provoking post on health reform, Tyler Cowen wrote,

    I am less worried about mandate enforcement than I used to be; Austin Frakt has had good posts on this at TheIncidentalEconomist.

    So, I expect that Marginal Revolution readers will come to this blog’s home page looking for those “good posts.” I suspect what Cowen is getting at is whether the individual mandate penalty is of sufficient size.

    On that point, I did write a good post. I showed that the size of the ACA’s individual mandate penalty is, on average, smaller than that that imposed on Massachusetts residents who don’t comply with that state’s mandate. And, as we all know, Massachusetts has achieved quite high rates of insurance (~96%).

    There is still gaming of the ban on pre-existing condition exclusions in Massachusetts–individuals jumping in and out of coverage. Cowen may have also been thinking about my post that discussed that this is also not a big issue. In fact, gaming of this type isn’t even what the mandate intends to eliminate. The role of the mandate is to protect the insurance market from adverse selection. Turns out there isn’t very much by way of adverse selection consequences due to the gaming of the Massachusetts law. The insurance market remains stable.

    But there are so many good posts here on health reform, health care, health policy, and health economics, it is hard to know exactly what Cowen had in mind. Just to be sure you don’t miss something good, maybe you ought to subscribe. 🙂

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    • You wrote:
      I showed that the size of the ACA’s individual mandate penalty is, on average, SMALLER than that that imposed on Massachusetts residents who don’t comply with that state’s mandate.

      Do you mean larger?

    • Insurance does not pay for healthcare, or anything else.

      Insurance merely trades a 1% change of 100,000 loss for a flat 1,000.

      The ONLY reason people can game the system is when we distort the pricing, The youth should pay $2,000 a year, the oldster $10,000. But liberals insist they both pay $6,000.

      Health care costs goup with age. If as a society we wish to transfer wealth to the poor, so be it. But we must do so explicitly, not with foolish and market-destroying schemes, in a vain effort to hide it.

    • @Robert Arvanitis

      Your cynicism blinds you. If you want to see it as a transfer of wealth from rich to poor instead of from healthy to at-risk age groups, you won’t find a place at the compromise table.

    • @Dan Dorstal

      Not at all cynical. There are two separate threads.

      As civilized people we care for the weakest among us. But I insist we be explicit about it, and not bury any net transfer in a scheme labeled “insurance” when there is subsidy and not actuarial risk transfer.

      Second, we grow old and unhealthy for two reasons. If it is from bad behaviors like smoking or obesity, then the market price for risk must reflect that.

      If failing health arises from passage of time, then just as with pensions, the prudent citizen funds for his old age. (Now if that is not possible, and we have aged poor, then revert to the first thread, and Medicaid.)

      Simple. We can be humane as long as we do not distort economics any more than necessary.