Health Care

Free Riding as Coverage

A few posts ago I talked about the free rider problem in Obama’s healthcare plan.

I’m not sure whether Obama understands the potential impact of that problem.   But he clearly embraces its basic mechanism as a positive feature.

In the Democratic debates, Obama slammed Hillary for proposing a health care plan that included mandates – a requirement that everyone buy health care for themselves.

OBAMA: … Let’s take health care. About 95 percent of our plans are similar. We both set up a government plan that would allow people who otherwise don’t have health insurance because of a preexisting condition, like my mother had, or at least what the insurance said was a preexisting condition, let them get health insurance. We both want to emphasize prevention, because we’ve got to do something about ever escalating costs and we don’t want children, who I meet all the time, going to emergency rooms for treatable illnesses like asthma….

What [people are] struggling with is they can’t afford the health care. And so I emphasize reducing costs. My belief is that if we make it affordable, if we provide subsidies to those who can’t afford it, they will buy it.  Senator Clinton has a different approach. She believes that we have to force people who don’t have health insurance to buy it. Otherwise, there will be a lot of people who don’t get it.  I don’t see those folks.

And I think that it is important for us to recognize that if, in fact, you are going to mandate the purchase of insurance and it’s not affordable, then there’s going to have to be some enforcement mechanism that the government uses. And they may charge people who already don’t have health care fines, or have to take it out of their paychecks. And that, I don’t think, is helping those without health insurance. That is a genuine difference.

Obama recognizes the obvious: if you force people to buy health care, they are going to have to pay for it (and you will probably need fines to prevent people from dodging costs).  So he glosses his lack of mandates as a charitable feature.  It is unkind to force everyone to pay for health care – but people who don’t want to pay for it should get it anyway.  And Obama makes it clear that they will:

CUMMINGS: … the truth is that most Democrats really do want full coverage, everybody covered. Now, Senator Obama, this is a question for you. Under your plan, which is voluntary, it creates incentives for people to buy, but still is voluntary. There would be around — about 15 million people who would still not be covered….

OBAMA: Well, understand who we’re talking about here. Every expert who looks at it says anybody who wants health care will be able to get health care under my plan. There won’t be anybody out there who wants health care who will not be able to get it. That’s point number one….

So Obama recognizes the fundamental aspects of free riding.  It’s a feature – not a bug.

At one point, Blitzer forced Obama to acknowledge the problem.  Here’s the exchange:

BLITZER: Senator Obama, let me just fine-tune the question, because I know you want to respond. On this issue of mandates, those who don’t, whether it’s 10 million or 15 million, those who could afford it but don’t wind up buying health insurance for one reason or another, they wind up getting sick, they go to an emergency room, all of us wind up paying for their health care. That’s the biggest criticism that’s been leveled at your plan.

OBAMA: If people are gaming the system, there are ways we can address that. By, for example, making them pay some of the back premiums for not having gotten it in the first place. But understand that, number one, Hillary says that she’s got enough subsidies. Well, we priced out both our plan and Senator Clinton’s plan, and some of the subsidies are not going to be sufficient. Point number one.

Obama is speaking out of both sides of his mouth.  On the one hand, he makes a vague promise to maybe deal with the problem by something that sounds suspiciously like a fine.  On the other, he trashes Clinton for proposing fines.  What distinguishes those who don’t make voluntary health care payments for legitimate reasons from those who refrain because they are “gaming the system” (i.e. behaving rationally)?  Likely their income: if you are rich, Obama reserves the right to force you to pay both for your health care and that of people who don’t pay into the plan (the poor).

Either Obama genuinely intends to let people choose to defect from health care premiums (thus creating a free rider problem), or he is offering false choice (people can choose to defect, but if they “choose wrong” the choice will be taken away).  His plan is either incompetent or dishonest.  Either way, Obama is selling income redistribution, colorfully repackaged into free rider problems and surreptitiously targeted mandates.  Do Americans understand what they are buying?

NOTE: I’ve added emphasis to the quotes throughout.

UPDATE:  Oops.  I originally misidentified the economic problem as moral hazard, when it is actually a free rider problem.  This doesn’t change the analysis, just the terminology.  Moral hazard is a different, more traditional problem caused by insurance.

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