Paul Krugman adopts a "Please, not in front of the kids" approach to his discussion of the back and forth between Hillary Clinton and Barack Obama on the merits of their respective health care plans:
The Mandate Muddle
Imagine this: It’s the summer of 2009, and President Barack Obama is about to unveil his plan for universal health care. But his health policy experts have done the math, and they’ve concluded that the plan really needs to include a requirement that everyone have health insurance — a so-called mandate.
...But Mr. Obama knows that if he tries to include a mandate in the plan, he’ll face a barrage of misleading attacks from conservatives who oppose universal health care in any form. And he’ll have trouble responding — because he made the very same misleading attacks on Hillary Clinton and John Edwards during the race for the Democratic nomination.
...lately Mr. Obama has been stressing his differences with his rivals by attacking their plans from the right — which means that he has been giving credence to false talking points that will be used against any Democratic health care plan a couple of years from now.
Let me summarize: Obama should not criticize Hillary now because it will only help Republicans later, after Obama realizes Hillary was right and he was wrong. My goodness - maybe he should just drop out of the race and spare his party the vexation of having to evaluate alternatives.
I do want to applaud Prof. Krugman for the candid title to his column - he really does his best to create a muddle on health care mandates. Here we go with his list of Obama's "false" talking points:
First is the claim that a mandate is unenforceable. Mr. Obama’s advisers have seized on the widely cited statistic that 15 percent of drivers are uninsured, even though insurance is legally required.
Bah. Neither Obama nor anyone else is claiming that mandates are not enforceable; they are noting quite pointedly that the level of compliance will depend in large part on the carrots and sticks associated with the mandate.
The carrot is insurance subsidies for folks who can demonstrate a low enough income. But Obama's issue is whether Hillary also has a big stick. Here is Krugman acknowledging that point the last time he assaulted this topic:
...Mr. Obama accuses his rivals of not explaining how they would enforce mandates, and suggests that the mandate would require some kind of nasty, punitive enforcement: “Their essential argument,” he says, “is the only way to get everybody covered is if the government forces you to buy health insurance. If you don’t buy it, then you’ll be penalized in some way.”
As an economist the notion that incentives and penalties will affect people's behavior should hardly surprise Krugman, but let me document it anyway by citing this study on "The Likely Efficacy Of Mandates For Health Insurance":
The effectiveness of a mandate depends critically on the cost of compliance, the penalties for noncompliance, and the timely enforcement of compliance.
Thank heaven for studies.
Lets swing back to Krugman:
Anyway, why talk about car insurance rather than looking at direct evidence on how health care mandates perform? Other countries — notably Switzerland and the Netherlands — already have such mandates. And guess what? They work.
Hooray for The Netherlands, and Switzerland too. But if we are looking at evidence, why doesn't Krugman present some evidence about the carrots and sticks on offer in the Netherlands. This tidbit from a health care oriented blog about which I know nothing may strike Hillary backers as a politically unpalatable penalty:
Individuals have a mandate to purchase coverage (effective 1/1/06) and pay a penalty of 130% of the monthly premium if they go without coverage.
For comparison, the Massachusetts penalty for non-compliance was reported recently in the Times:
A year after Massachusetts became the only state to require that individuals have health coverage, residents face deadlines to sign up or lose their personal tax exemption, worth $219 on next year’s state income tax returns.
That is roughly $20/month, which apparently is not providing a lot of motivation. However...
But in the second year, the fine can amount to half the cost of the least expensive policy available, probably at least $1,000.
Higher penalties produce higher compliance - go figure.
And I know we are all curious about Switzerland but so far all I have found is this:
For those who try to evade the mandate, penalties are stiff: the government can tack on fines equally 30 percent to 50 percent of the price of the insurance. Misrepresenting whether you are covered is punishable by fines and prison terms.
If I had to guess I would bet that the 30% to 50% is in addition to the cost of the insurance. Or could it be the case that if a person not in compliance is detected they are fined but allowed to walk away without paying their way into compliance? I don't know.
So to recap - everyone except Krugman acknowledges that higher penalties produce higher compliance; Hillary does not want to hint at the penalties she has in mind because they are likely to draw unfriendly fire; and Barack does not think Hilary should be allowed to claim her plan is "universal" unless she is willing to take the heat for the compliance components that will make it universal.
Back to Krugman's false talking points:
The second false claim is that people won’t be able to afford the insurance they’re required to have — a claim usually supported with data about how expensive insurance is. But all the Democratic plans include subsidies to lower-income families to help them pay for insurance, plus a promise to increase the subsidies if they prove insufficient.
Oh, stop - unless the insurance is free there will be people who will only be buying insurance because they are forced to, not because they want to or because they think that the subsidized price is right. Krugman and Clinton, in their wisdom as the economy's central planners, are comfortable asserting that these people can "afford" it but what does that mean? There are plenty of things people can "afford" if jail is the alternative.
And whatever the level of subsidization, there will be some groups - most likely the working near-poor and the middle class - that think the insurance is not affordable relative to the alternatives, one of which would be more heavily subsidized insurance. Of course, this is not a bug but a feature - Hillary and Bill made it clear in 1993 that their goal was use health care to create a huge new middle-class entitlement, thereby positioning the Democratic Party as the purveyor and protector of these middle-class benefits in the same way that (back in the day) the Democratic Party wooed the elderly by being generous with Social Security. Any day now!
Sorry to go instantly off-topic, but I wanted to report that the shrill banshee has dropped to 64 on Tradesports.
Now I'll butt out and wait for others to educate me on health care.
Posted by: Other Tom | December 07, 2007 at 12:02 PM
You may be waiting a while, OT, I don't think Krugman comments here that often.
Posted by: michaelt | December 07, 2007 at 12:23 PM
(There was supposed to be a sarcasm tag at the end.)
Posted by: michaelt | December 07, 2007 at 12:25 PM
If you don’t buy it, then you’ll be penalized in some way
The only way you can give people incentive to buy health insurance and punish people that don't buy health insurance in a way that will truly work is to deny care to anyone that does not buy insurance.
That won't happen.
Posted by: MayBee | December 07, 2007 at 12:38 PM
Even that won't work, MayBee. People take risks all the time. For example, examine this "prediction":
Posted by: cathyf | December 07, 2007 at 12:48 PM
Yeah, I don't think it would actually make everybody get insurance.
It would be better incentive than the current system for people who can afford insurance that just don't want to pay for it.
It would also reduce the costs of health care for everyone.
I don't see how we can have a mandate that imposes financial penalties if one of the arguments against our current system is that it sends too many people into bankruptcy.
Posted by: MayBee | December 07, 2007 at 01:01 PM
Back in my high-school debate days there was a vogue for "checks and balances": every affirmative team would promise that their plan for fixing whatever problem was the topic that year would include "a system of checks and balances"-- end of description. I'm afraid I wasn't a good enough debater to drag out of them who would be checking whom, or what would be balanced against what. I don't know if debaters are still relying on checks and balances, but the now middle-aged ones of my day have apparently gone to work for Hillary and placed their trust in "mandates" that are just about as specific.
Posted by: Paul Zrimsek | December 07, 2007 at 01:11 PM
Well, I claim that bankruptcy is insurance. We know that health insurance is not for guaranteeing access to health care -- because you get health care whether you have insurance or not. No, the purpose of health insurance is to insure you against financial catastrophe if you get sick with something catastrophically expensive to treat. From that point of view, it is clear that bankruptcy is a form of catastrophic health insurance. You can even argue that there are insurance premiums on the bankruptcy "insurance" -- declaring bankruptcy is all about partially shielding assets in a financial catastrophe, and those assets would have all been generated via taxable economic activity, and the taxes form a built-in insurance premium.
Posted by: cathyf | December 07, 2007 at 01:12 PM
Well, I claim that bankruptcy is insurance.
Right. So as PaulZ says, we have a kind of a "checks and balances" situation.
Bankruptcy spreads the cost of the uninsured to everyone, and is personally devastating to the individual. To solve that, we will mandate people pay for their own insurance. If they don't, we will treat them anyway and charge them more as a penalty.
In which case, they will probably just have to declare bankruptcy. It doesn't solve the problem we have been presented with.
The only way to do that is to either not give people the medical treatment, or to not make people pay for their treatment, insurance, or any financial penalties.
The only one of those two solutions that doesn't increase medical costs (another problem we're told about) it to not give the medical care in the first place.
Posted by: MayBee | December 07, 2007 at 01:28 PM
Heck, no we won't pay.
Posted by: DavidL | December 07, 2007 at 01:35 PM
Why argue the details on this? All variants of the Democratic plan involve telling people what to do with their own property. That's what the Republican party was founded to fight. 150 years age, the Democrats wanted to take all money away from some of the people in the country. Now they want to take some money away from all of the people in the country. Letting the government have 100% control over 15% of the population is now recognized as the worst mistake America ever made. How is the idea of giving the government 15% control over 100% of the population acceptable in polite society?
Posted by: Helen Thomas | December 07, 2007 at 01:43 PM
Damn sticky joke names. That last comment was me.
Posted by: bgates | December 07, 2007 at 01:45 PM
Sounds unassailable to me, cathy.
Posted by: clarice | December 07, 2007 at 01:59 PM
It would be better incentive than the current system
Denying care is not really credible, though. This is the same argument used to justify S.S.: We can't credibly say we're going to let people who didn't save enough starve in their old age, so we make them do it. It's a reasonable argument for mandatory insurance, but there's no reason to get the government involved beyond setting up the mandate. A way to make it cheap enough is to make it only for catastrophic care (like expenses greater than $10,000 in a year, no psych expenses allowed). Then there's the payroll/welfare check/unemployment insurance deduction method to get most people who can't prove they have insurance.
Posted by: jimmyk | December 07, 2007 at 02:17 PM
CathyF,
Bankruptcy as the health insurance of last resort, while a good analogy, points out a huge flaw in our current system.
As you pointed out earlier, the option to fully 'self-insure' exists only to those with sufficient assets. [We do not require the posting of a bond or other security to self-insure for medical costs--though states may impose such a requirement on entities that (probably through lack of competent advice) elect to self-insure outside of an ERISA-qualified health and welfare plan, which need not meet any asset test for the health-care portion of benefits. But I digress.]
Thus the expected costs of 'self-insurance' do not include the costs of catastrophic injuries or illness. But if we treat bankruptcy as one of those costs, we see that it is a only practical deterent to those without significant financial resources.
Per this Federal Reserve analysis (.pdf, Table 4, p10), some thirty percent of the population had net assets under $25K in 2001. Since it is fairly easy to get to that amount even under the federal bankruptcy exempt amounts, and households at that level tend not to have terribly good credit anyway, bankruptcy imposes only trivial costs on many of the uninsured.
Odd question for the day: Is the plural of aircraft 'aircrafts'? The multiple? (see link)
Posted by: Walter | December 07, 2007 at 02:21 PM
Does anyone else suspect that Paul Krugman, the respected economist who's been suggested for the Nobel Memorial Prize, has been kidnapped and is being held incommunicado while his columns are written by Rahm Emmanuel?
Posted by: Charlie (Colorado) | December 07, 2007 at 02:22 PM
Why argue the details on this? All variants of the Democratic plan involve telling people what to do with their own property. That's what the Republican party was founded to fight.
Um, well, no, the Republican Party was founded specifically to tell people what to do with their own property, ie, free "it".
Posted by: Charlie (Colorado) | December 07, 2007 at 02:25 PM
... is a only practical deterent to those
withoutwith significant financial resources.Posted by: Walter | December 07, 2007 at 02:26 PM
That last comment was me.
Alright, I'm confused again. I've always thought bgates was male.
And not a loon.
Posted by: Walter | December 07, 2007 at 02:29 PM
Denying care is not really credible, though. This is the same argument used to justify S.S.: We can't credibly say we're going to let people who didn't save enough starve in their old age, so we make them do it. It's a reasonable argument for mandatory insurance, but there's no reason to get the government involved beyond setting up the mandate.
I completely agree it isn't credible. I don't even agree with the concept of it.
Comparing it to Social Security is interesting, though. Note that the government didn't just mandate people begin saving for their retirement. They actually set up a government program that you can't opt out of. An individual may set up a retirement account, but by doing so you can't petition to be excused from SS.
All I'm really trying to say anyway is that it is stupid for Krugman to be arguing about what mandates work, and if there have to be any, because none of the currently proposed solutions actually solve the problem they define. They are making the case for universal, single payer, government health care- and proposing another "solution" entirely.
Posted by: MayBee | December 07, 2007 at 02:35 PM
Actually, SS does a lot more than provide a forced retirement savings plan, think about all the folks who, thru no fault of their own, draw a SS check for being disabled. Many are children. SS provides a BASE under all of us, which lifts the unfortunate ones up to a liveable level.
Posted by: Ed McClelland, Albuquerque, NM | December 07, 2007 at 02:36 PM
Walter - On another day, on another site, I made a joke comment signing in as Helen Thomas. On this thread, Firefox made a joke by keeping the name. Yes I'm male.
Posted by: bgates | December 07, 2007 at 02:46 PM
And, as long as we're doing statutory analysis in the health insurance context, I should point out that, if you find yourself facing bankruptcy and want to shelter some money, make sure to discuss 11 USC 522 (d)(10)(E) with a qualified attorney:
Posted by: Walter | December 07, 2007 at 02:46 PM
I'd like to crankily point out that we're to a great extent not talking about "insurance" any more.
Insurance is a scheme of shared risk through which a large pool of people pay a relatively small amount into a common fund, from which the costs of improbable but expensive events are paid.
That means all insurance has to have two common properties: the net income over some length of time has to meet or exceed the total claims expense, and the claimed events have to be at least *somewhat* improbable.
If the claimed events are probability one for every member of the pool, then all you're doing is paying someone else additional costs to do with your money what you'd be doing anyway.
Well, all the health "insurance" schemes we're talking about are not for catastrophic medical expenses, they're primarily ways to ensure (not "insure") that everyone has access to basic medical care.
Observation one: under the definitions we're talking about, eg with the mandate schemes, the definition of "basic care" includes so many things that the probability of needing that coverage is very close to one.
Observation two: with observation one, we immediately see that any such scheme, to be solvent, will require net revenues greater than total medical costs; the difference accounts for administration costs. Since we know some people at the bottom end of the income distribution won't be able to pay their share of the overall medical benefit plus costs, it must necessarily be paid by everyone else in the system.
Conclusion: mandate schemes, whether Romney's or the Democrats, are effectively taxation to pay for universal health care.
Correlary: this mandated health insurance wil inevitably cost *more* than the medical benefits paid out.
I call bullshit.
Posted by: Charlie (Colorado) | December 07, 2007 at 02:53 PM
Correlary: this mandated health insurance wil inevitably cost *more* than the medical benefits paid out.
Indeed. As I understand it, Edward's plan calls for taxpayers subsidizing insurance for those making up to $100,000/year
According to Barak Obama in the Social Security discussion, that is the top 6% of wage earners, and quite possibly upper middle class.
Posted by: MayBee | December 07, 2007 at 02:59 PM
Well, all the health "insurance" schemes we're talking about are not for catastrophic medical expenses, they're primarily ways to ensure (not "insure") that everyone has access to basic medical care.
Consider the likely cost of auto insurance if said "insurance" covered oil changes, spark plugs, new tires, etc.
Ramesh P made a point that was obvious as soon as I read it, although it had been opaque previously - since health care was originally set up as a way to circumvent wage/price controls during WWII, and since the premium is deductible to the employer in as way it would not be if it were paid by the employee, having a generous insurance plan is a great way to let your employees cover their health care with pre-tax dollars.
And back when company cars were allowed, companies played the same game there, so I'll bet that if employers were allowed to provide auto insurance and deduct it, we would see auto insurance that covered routine maintenance. File that under "Social experiments we are unlikely to see".
Posted by: TM | December 07, 2007 at 03:24 PM
Consider the likely cost of auto insurance if said "insurance" covered oil changes, spark plugs, new tires, etc.
Precisely correct and a great point, which I'm gonna steal as I write about this over the weekend.
Posted by: Charlie (Colorado) | December 07, 2007 at 03:47 PM
I'll bet that if employers were allowed to provide auto insurance and deduct it ...
I know of only one company that includes $500 luxury box seats in the recipient's income. The vast majority consider their tickets 'de minimus' benefits not worth the trouble of tracking. (Of course, the vast majority of corporate tickets are only in the $100 range, but a few games with guests and it does add up.) So far, it hasn't been on the Service's radar screen.
I miss the 2.4 martini lunch. 1.5 just doesn't pack quite the punch.
Posted by: Walter | December 07, 2007 at 03:53 PM
There is no such thing as a right to healthcare, because there is no such thing as a right to any amount of uncompensated, involuntary servitude on the part of those who must work to pay for that healthcare. No amount of need, medical or otherwise, entitles one man to steal another man's property -- or have the government do the stealing for him.
Posted by: Michael Smith | December 07, 2007 at 04:04 PM
I'd like to crankily point out that we're to a great extent not talking about "insurance" any more.
You're right. And it's largely because of the tax system, which allows employers to take most of the premiums from pre-tax income. So the incentive is to put everything possible into the health plans.
Posted by: jimmyk | December 07, 2007 at 04:11 PM
Michael, I'm sympathetic, but even Ayn Rand allowed that some level of taxation, use fees, etc, were needed, for example to pay for enforcement of contracts and provision of national defense.
Posted by: Charlie (Colorado) | December 07, 2007 at 04:12 PM
I still think it is a good idea to outlaw all health insurance. Then prices would fall and people could afford to purchase health care services again....just like they used to.
Posted by: Ed McClelland, Albuquerque, NM | December 07, 2007 at 05:07 PM
Charlie, Rand advocated a system of voluntary financing for the government by charging user fees to businesses and individuals that want access to the civil court system. Her point was that:
a) The volume of business contracts that depend on the courts as an enforcement mechanism is huge -- and individuals and businesses would be willing to pay a fee -- a fixed percentage of the contract's value -- for access to the courts to insure the contracts are enforcable.
b) It would nonetheless be voluntary because no one would be forced to pay. Those that didn't pay simply could not use the courts.
However, Rand stressed that no such mechanism would work to finance the sort of welfare state we have now. "Switching to a voluntary system of financing...", to quote Rand, "..is the last, not the first change to advocate." So I acknowledge that we are stuck with taxation for the foreseeable future.
I'm simply making the point that those who advocate universal health care are essentially advocating that a portion of the population -- namely, the upper income taxpayers -- be sentenced to whatever amount of involuntary servitude is required to earn enough to pay the taxes it will take to finance the whole system.
We fought a horrific war to put an end to the idea that some individuals are entitled to benefit from the involuntary servitude of other individuals -- and yet here we are slowly but surely erecting another such system.
The old system was based on the false notion that the blacks were inferior and thus did not possesses rights. As evil as that notion was, the current system is based on an even greater evil -- it is based on the notion that the men of superior ability, ambition, productivity, creativity and rationality should be forced into some amount of involuntary servitude precisely because of their abilities.
If it is evil to punish a man because of his allegedly inferior talents, how evil is it to punish a man for his demonstrably greater talents? What happened to equal rights for all?
Posted by: Michael Smith | December 08, 2007 at 01:54 PM