• Health Care,  Uncategorized

    Cato Public Speaking Worshop

    The Cato interns had a public speaking workshop today.  Each intern was asked to give a four minute speech on a non-frivolous topic.  I chose to speak on the difficulty of moderate health care reform:

    People often accuse libertarians of being radical idealogues, of abstracting a generally appropriate principle of freedom to unacceptable extremes.  Hayek complained in the Road to Serfdom that, “Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez faire.”  Practical, reasonable people will shy away from extremes.  But often there is no middle ground between defending ones principles and abandoning them completely

    This, I suggest, is what many people discover when they try to compromise in health care policy.  The Patient Protection and Affordable Care Act, otherwise known as “Obamacare” contains 5 important provisions

    • Subsidies for the poor
    • An individual mandate to buy insurance
    • Community Rating for premiums
    • Guaranteed Issue of insurance
    • The pre-existing conditions fix

    To many practical, reasonable people, this program all together looks like a serious government invasion of the health care sector.  The individual mandate is an obvious affront to freedom and subsidies may seem to unjustly redistribute wealth.  But many people would like to compromise and pick the most carefully targeted of the five previous reforms.  They will likely pick the pre-existing conditions fix.

    Insurers usually refuse to cover illnesses that began before a person purchased his insurance – so called pre-existing conditions.  This creates a serious problem for the uninsured sick.  Many illnesses, such as cancer, require extremely expensive treatment. Most people cannot pay for treatment on their own, and if they are not treated, the illness will kill them.  The fix, forcing insurers to cover pre-existing conditions, seems like a narrowly targeted reform that will help the neediest people without significantly infringing on the liberties of others.

    But once insurers are forced to cover pre-existing conditions they will change their behavior.  Instead of selling sick people insurance only for future illnesses, they will refuse to sell them insurance at all.  So a reasonable legislator trying to pass a targeted fix must pass a second reform – Guaranteed Issue.  This reform forces insurers to “guarantee” that they will offer to sell insurance to anyone who asks for it.

    This still does not fix the problem.  Insurers may simply offer sick people insurance at premiums they can’t afford – say, $10 million dollars a year.  If legislators are unwilling to allow the uninsured sick to simply remain uninsured, they must lower prices.  So they must support community rating, which forces insurers to sell insurance to all comers at the same price.

    Now, legislators have passed drastic reforms that will affect all people – this is not merely targeted legislation affecting only the uninsured sick.  But they still cannot stop here.  There is a new problem that must be solved.  If the community rating is passed, healthy people know they will be able to purchase insurance at the average rate of the insurance.  They will drop out of the market, and only sick people will remain.  The price of insurance will rise.

    To prevent people from “gaming the system” legislators must pass the individual mandate – which forces the healthy back into the market with everyone else.  Although each of the previous reforms limited freedom, an individual mandate does so in a much more conspicuous way.  And it isn’t the end.

    If you order people to buy insurance, you must decide how to treat the poor.  It is unreasonable to order people with no income to pay premiums of thousands of dollars a year.  The health care of poor people must be paid for, either by programs like Medicaid, or by subsidies of private insurance purchases.

    The reasonable person who insists on helping the uninsured sick finds himself forced to embrace the whole set of reforms.  This has been hard to understand for people as highly placed as Barack Obama, who attacked Hillary Clinton for including an individual mandate in her health care plan in the Presidential primary campaign before adopting it himself.  And it was probably hard to understand for Mitt Romney and The Heritage Foundation when they tried to craft a middle ground in Massachusetts and ended up with a nearly identical bill.  And it may still be hard for Republicans to understand, some of whom have already promised not to overturn the pre-existing conditions fix, and I predict therefore, will not – and cannot – overturn any of the legislation. Sometimes, there is no middle ground, and compromise is more harmful than a radical defense of principle in extreme circumstances.

  • Health Care,  Uncategorized

    Reasons for Pessimism

    Some of my conservative friends have suggested a couple of reasons not to be utterly depressed by the passage of health care reform:

    1. Voters will angrily sweep Republicans into power.
    2. Republicans will rally the country around repealing health care reform.
    3. We now have an actual bill that voters can evaluate, and the bill will create its own opposition.

    I always have to ask my friends whether they are being sarcastic, or actually delusional.

    Republican resurgence is miserably insufficient to comfort anyone who opposed health care reform on principle, so we can breeze on to the second point. Though, I am generally skeptical that Americans really oppose these reforms, or that conservatives will control government in 2014!

    Republicans don’t actually oppose health care reform. They pretend to. But ask them why they dislike Obamacare, and they generally recite something incomprehensible about big government or socialism. Then they advocate something identical – like the conservative Heritage Foundation, which sponsored the same reforms in Massachusetts alongside Republican Governor Mitt Romney. Damningly, most conservatives – notice Republican Senator John Cornyn– still consider prohibitting insurers from denying coverage to already sick patients to be “uncontroversial”. Yet this “reasonable reform” inevitably leads to every major item in the Democrats’ health care legislation. More on this anon.

    Which brings us to the final argument. How, exactly, are people supposed to be able to evaluate the effects of this bill? As far as I can tell, they can’t. Most people today get their health care through their employer. This cuts into their wages, but they don’t know how much it costs because their employer never tells them. The reforms will not change this. People will continue to mainly receive insurance through their employer. Insurers will now be forced to cross-subsidize and offer more strictly defined plans. This could increase price and decrease choice, but employees will never see these changes. Their employer will still make the major choices for them.

    Low income individuals who will be offered subsidized insurance through pseudo-market health care “exchanges” will see a fairly large change. But why should they complain? They lose a bit of freedom by being forced to buy insurance, but likely gain from the subsidies. Do we really expect them to revolt against another quasi-welfare program? Hardly – the fact that Democrats have built a party around buying votes with entitlement programs suggests that it is a successful political strategy.

    The strongest arguments for or against health care reform have always been the long run counterfactuals. Progressives argue that the reforms will “bend the curve” of health care cost increases by taxing insurance into submission (other even more mystical-sounding claims are also made). Reform opponents counter that the bill will slow innovation in medicine and delivery systems by further delinking consumers from the costs of health care. I side with the opponents, of course, but the general public can’t appraise these arguments merely by watching the legislation work its magic. That’s why the arguments are counterfactuals. There is no alternative reality that we can compare our world to.

    Finally, there are the taxes. Nobody likes them. But every spending program has come with new taxes. Social Security and Medicare have much more visible taxes linked to them. Yet no major spending program, to the best of my knowledge, has ever been repealed because of taxes. Occasionally the taxes themselves have been lowered. Then they have been raised again. But the spending remains. The taxes, in this case, aren’t even that important: health care reform does most of its damage through regulations and cross-subsidies born directly by the insurance companies and their customers.

    In the end, no bill ever gets a careful examination after its passage. People have too much going on in their real lives to waste their time figuring out whether any particular piece of legislation is good (or just). Even if they did, there is little or no information with which to make a “practical” judgment. Expect even the “experts” to be debating the effects of this bill a decade from now. The only people who will care are those that derive a large benefit from the program – like the senior citizens who defend Medicare tooth and nail. 2014, the earliest the bill could be repealed by Republican lawmakers, is a lifetime away for our rationally apolitical electorate. If voters still remember health care reform, even if they still dislike it, they probably just won’t care that much. But reform comes with a built in interest group – the medical profession – that stands to gain access to new, paying patients. We can expect them – doctors, insurers, and hospitals – to loudly defend this legislation with the false moral clarity of other people’s money.

  • Health Care

    Will You Go to Jail If You Don’t Have Insurance?

    Jack Balkin says that the answer is no.

    Balkin is correct that, technically, anyone who does not buy insurance under the new set of laws will only have to pay a tax (or as I prefer to think of it, a fine).  Only if they refuse to pay the fine will they then, eventually, be sent to jail as a tax evader.  Fair enough.  But the general point still remains.  If you do not comply with this new law – you will be sent to jail.  Being sent to jail for refusing to pay the fine is only morally different if the fine has some particular justification.

    Balkin argues that the fine (or as he prefers to think of it, tax) is justified by free-rider problems:

    If lots of people (and especially young and mostly healthy people) don’t buy health insurance, the cost of insurance goes up for everyone, and it is passed on to others in the form of higher premiums. In addition, people who don’t buy health insurance tend to wait until their health problems are severe and then use emergency services; they may contract communicable diseases (which they may pass on to others) or they may become disabled. All of these costs get passed along to others–in the form of higher premiums and higher costs for hospitals and insurers–or they have to be absorbed by federal and state governments through programs for the poor or the disabled.

    So if you don’t buy health insurance, you are increasing costs for other people. The federal government is taxing you to recoup some of those costs. An analogy would be taxes on alcohol or tobacco, although these taxes are usually worked into the retail price of the goods so that people don’t even have the opportunity to refuse to pay them. Another example would be taxes on an enterprise that is creating additional costs to the environment through pollution; the government taxes you if you don’t purchase and install anti-pollution equipment.

    Balkin skips more than a few steps with this analysis.  In significant part, health care free riding is only possible because there are laws that legalize free riding.  For example, the laws requiring hospitals to treat all emergency room visitors, regardless of their capacity/intent to pay, are an invitation for free riding.  The costs of treating any of these patients who do not pay will be passed on to all of the hospital’s paying patients.  If we really wanted to eliminate this free rider problem, we would just make people pay for their emergency room visits – or we would at least not require hospitals to receive people without insurance.

    The current health care reform is not a brilliant scheme to end free riding.  In large part, it is an attempt to write more free riding into law.  It requires insurance companies to transfer health care costs from sick to healthy patients.  It enacts massive subsidies that transfer costs from the poor to the wealthy.  These transfers are very much like actual free riding, and they would not occur in an efficient insurance market that had no free riding.

    Balkin shrugs and says that “tax policy does this all the time”.  And so it does.  And opponents of these subsidies are right to remind the rest of the electorate that their participation is not voluntary, but enacted through threat of imprisonment.  Health care reform is commonly assumed to be in everyone’s benefit, but this is of course not the case.  The threat of jail time lies behind every government “charity”.