The Power and the Money

Candidate Obama was right about health care back in 2008, mostly

Obamacare is back in the news because of this insane ruling by this judge in Texas. I am not going to talk about that. What I am going to talk about, however, is the argument between Obama and Clinton over health care back in 2008. Short version: once elected, President Obama decided that Candidate Obama was wrong and health care reform needed a mandate. But he was actually right back then, as shown by the fact that Congressional repeal of the mandate has not dented the law’s success.

The long version has to do with the putative results of a 1993 health insurance reform in New York. To the right is a picture of a great place to eat in New York, but given the kind of food they serve I would recommend having health insurance should you choose to eat there often.

Back during the 2008 campaign, Senator Obama claimed that you could use private insurance to provide universal coverage without a mandate.

Senator Clinton argued the opposite. Her plan to expand health care rested on three prongs: (1) community rating, so nobody faced higher premiums due to pre-existing conditions; (2) a mandate, so that healthy people would not refuse to buy health insurance; and (3) subsidies, so that everyone could afford to comply with the mandate. She argued that New York State had tried (1) without (2) and triggered a death spiral that killed the market for individual health insurance in the state. 

The logic was as follows: community rating meant that insurers could not charge people who were more to people who were more likely to use medical care. Everyone had to be charged the same. That meant, however, that healthy people had to pay more than they had before. So some healthy people decided to drop health insurance. That left more sick people in the pool, so insurers had to raise rates. But higher rates drove even more healthy people to drop insurance. So rates rose even more, in a death spiral. 

Candidate Obama argued that this was malarkey. People wanted health insurance. People will buy it if they can afford it even without a mandate. If you make insurance cheap enough, then there will be no death spiral. 

President Obama then changed his mind based on what his advisers thought that the CBO would say about it. Nothing wrong with that, of course. But it raises the question: was the CBO right? There were reasons to believe in 2009 that it was not. Back in 1999, Thomas Buchmueller and John Dinardo (both at U.C. Irvine) found that there was no evidence of a death spiral in New York.

A 2012 report called the “The Impact of Guaranteed Issue and Community Rating Reforms on State’s Individual Insurance Markets” concluded that Buchmueller and Dinardo were wrong and New York did in fact hit a death spiral ... only the report’s own figures show no such thing!! Here is the data from New York that they used to conclude that there was a death spiral:

It shows that the number of people under-65 who bought individual insurance in New York fell below the national average and stayed there. Now, they do not have pre-reform data, but the results is indicative, right? A death spiral!

Or maybe not. Unlike most New Yorkers, I have absolutely nothing against New Jersey. I like New Jersey. New Jersey is a fine place. So let’s look at the data from New Jersey:

New Jersey saw the same fall, even though it did not have a reform. And the above charts come from the report!! How the authors concluded the opposite is unclear to me.

In other words, there was no evidence that New York had experienced a death spiral back when the Democratic candidates were talking about this back in 2008, and there was no evidence that New York had experienced a death spiral when SCOTUS ruled on the mandate back in 2012. 

Now Congress has repealed the mandate and Obamacare is doing surprisingly fine. Candidate Obama was correct: make insurance affordable enough and healthy people will buy it. 

President Obama should have stuck to his guns. Would a no-mandate reform have attracted more GOP support? Sadly, I doubt it. But it is always nice to stick to your campaign promises.

You can’t get there from here: path dependency and public health care

California just costed the proposed Medicare-for-all system. It came to about $400 billion. $200 billion would come from existing federal spending. The remainder could be financed by a 15% payroll tax (or something else). Of that $200 billion, $150 billion would displace employer-provided costs around $150 billion. The remainder would either replace out-of-pocket spending or represent the cost of getting the small remaining number of uninsured Californians into care. 

$400 million is nonetheless a huge number. It is a little more than $10,000 per person. The Canadian public sector, in contrast, spends about $3,200 (U.S.) per person. (Total spending was C$6,299 in 2016, according to the Canadian Institute for Health Information; about 70% of that was public.) 

And therein lies the rub. The United States has seen years of runaway health care costs, driven by our odd hybrid system. That means that whether you like Canada on the left, or Singapore on the right, any sort of transition will be very expensive.

Which is why, at the end of the day, I favor making Obamacare work. The Dutch have shown how: automatic sign-ups, direct deductions, and high penalties. And more subsidies to push up affordability. At the same time, slowly expand Medicaid eligibility while reducing the Medicare age. It is incremental and messy ... but anything else would require a big bang at big cost, as California just discovered. 

A note on the reaction to the recent Obamacare troubles

There is something wrong with the fact that most pro-Obamacare observers are calmly assessing the recent troubles and admitting error, while the opponents (okay, Megan McArdle) are now jumping on being right for the wrong reason without admitting any of the successes.

I will make the fast-one explicit: McArdle implicitly claims that the 2016 status quo is worse than the 2009 status quo. To which I call ideologically-motivated bullshit.  

One day she may surprise me with a cogent explanation of why she thinks that to be true. Until then, I claim the reason is a residual desire to believe that government intervention can never do right. I say residual, because she has clearly abandoned that belief as a general principle, but libertarianism, like Communism, is a very tenacious meme in the original 1976 sense of the word. 

Jill Stein is a jerk

What, this surprises you? Anti-vaxxer. Devaluing the life of a black child to save an animal. Saying that Hillary threatens nuclear war and is the equivalent of the Fat Crybaby in how immigrants will be treated. (Actually, that last might be true, albeit probably not for the reasons that Stein gave.)

But I wrote this because she is appears to be refusing to endorse ColoradoCare. Why? There is no why! It’s Jill Stein! She has no plan.

I am fascinated by ColoradoCare. It could lead to national single-payer, the way Saskatchewan and Alberta did in Canada. Or it could be a complete disaster. Yet it seems people can barely be bothered to poll. Is it just the weirdness of the national campaign what covering it up?

ColoradoCare

 Speaking of health care, does everyone know that Colorado has single-payer on the ballot this November? 

The big problem is rising health care costs. You can come up with a program that covers its costs now, only to have it fall into the red as those costs continue to increase. I hate to cite Megan McArdle, simply because she likes to say things like, “Not that I'm saying single payer would work well at the federal level, because I don't think it would,” despite, you know, Canada. 

But on this one, she is right: Colorado would be taking a big risk. After all, health care costs are a big part of the Puerto Rican story.

I am not sure how I would vote. I would want to see more about cost control and escalator clauses on the tax bill. Just telling readers that something interesting is afoot out west. 

Dutch lessons for Obamacare

 It looks like the Obamacare exchanges are running into some trouble, which is disappointing for anyone who would like to see all Americans have access to affordable health care. The problem, as noted elsewhere, is that not enough healthy people are buying insurance via the exchanges. That is leading to adverse selection, which increases the cost and decreases the amount of available plans. 

Back in 2008, the Obama campaign claimed that you did not really need a mandate to make health care reform work. Enough healthy people would buy insurance if it was properly subsidized. The Clinton campaign said, no, that’s wrong, you need a mandate. When the Affordable Care Act was actually written, however, the authors soon realized that you did, in fact, need a mandate. The problem now seems to be that the mandate is not strong enough; too many healthy people are not buying insurance. 

The Dutch experience is worth noting. The Health Insurance Act of 2006 required all Netherlands residents to purchase subsidized health insurance. Their mandate was pretty weak, though: a penalty of 130% of the premium over the period of being uninsured. Note that this is different from the U.S., where the penalty is less than the premium.

But nonetheless Dutch enforcement was American-style lax. As a result, by 2010 about 1% of the population failed to buy insurance and another 2% made no premium payments on the insurance they did buy. (It is not clear how these figures compare to Obamacare, since the Dutch system is universal, whereas most Americans still get insurance via their employer.) Costs increased markedly, which is what you would worry about with an ineffective mandate.

So in 2011, the government started deducting premiums directly from people’s paychecks if they failed to pay. (See page 7 for the details.) Interestingly, the change did not go through Parliament: rather, it was a regulatory reform issued under the provisions of the 2006 act. And the Netherlands is still having some trouble. 

The problems with Obamacare are fixable, but they are real. 

What’s the matter with Mexico?

 The Mexican state offers its citizens a surprisingly low level of social insurance given the country’s relative prosperity (hat tip: David Kaplan): 

Índice de protección social de México peor comparado con países con PIB per cápita similar https://t.co/hEncQo70ez pic.twitter.com/fYw6GV8oHO

— David Kaplan (@David_S_Kaplan) June 2, 2016

Brazil, Costa Rica and Uruguay are all outliers in the opposite direction, but for clear historical reasons. The latter two countries democratized early (even if Uruguay backslid) and enjoyed relatively homogenous populations. They established social insurance programs early on, unlike the rest of Latin America. Brazil, meanwhile, authorized a lot of social spending as part of its democratic settlement in 1986. Brazil has an extremely inefficient state, but it does provide social protection. For the details, see my friend Lee Alston and his coauthors. 

In the other direction, the fact that Guatemala and Honduras underperform really comes as no surprise.

But Mexico? That should be a surprise.

But only a partial surprise! Under the dictatorship of the PRI, Mexico deliberately neglected universal social insurance in favor of particularistic benefits designed to have maximum political benefit in a world where most political benefits were not delivered via popular votes. It is no surprise that Mexico reached the year 2000 behind the rest of Latin America, even countries that had experienced long bouts of military rule. For more on this, go read Mexico Since 1980.

What is more surprising is that after twelve years of democracy, the country has caught up so little. 

Marcocare

 Was that not an amazingly entertaining debate? I am tempted to put up my hand-written notes as I watched. 

But I have a question. During the debate, Senator Rubio said that he wanted to replace Obamacare with a refundable tax credit. (The link defines refundable tax credit; Rubio gives his plan here.) How is that different from Obamacare subsidies? You take away the simplicity of the Obamacare exchanges, but you might even wind up increasing the subsidy.

Me, I think getting rid of the clear comparability of the Obamacare bronze, silver, gold and platinum plans would be a bad thing, but this plan is politically brilliant. It hits the mandate, which hurts the system, but it provides a ready-made answer to the people who already have insurance. Given status quo bias, you could easily keep those people on the rolls. Then give them a refundable tax credit bigger than their current subsidy. Brilliant! You move the United States a bit away from the Dutch health system that we are trying to emulate, but you do not piss anyone off and you keep the spirit of the Affordable Care Act ... while getting to say that you killed “Obamacare.”

Fear the man from Florida in the general. Although I do not think that he will get there.

Unless my analysis is wrong. School me, folks!

Why Obamacare will be hard to repeal

 Congress just managed to send an Obamacare-repeal bill to the President’s desk via reconciliation. Does that cause me to alter my opinion that Obamacare is pretty much safe even if President Cruz takes office with GOP majorities in 2017?

No.

You see, the bill doesn’t really repeal Obamacare. Rather, it repeals the subsidies for policies bought on the exchanges, repeals the Medicaid expansion, and repeals the Obamacare taxes, including the fine (er, “tax”) for failing to buy insurance. 

Which means that the bill leaves in community rating. So ... insurance companies will still be prohibited from price discriminating or denying coverage, but there will be no incentives (be it positive subsidies or negative fines) to keep healthy people inside the system. Bring on the health insurance death spiral!

A death spiral for health insurance would also be a death spiral for the party in power. The GOP, therefore, would need both Democratic support and a carefully considered alternative to proceed with Obamacare repeal. Since I suspect neither will be forthcoming (at least not under President Cruz) then I also do not think that the GOP will repeal Obamacare.

I could be wrong. The GOP might be unable to restrain itself from taking a suicidal leap.

They might console themselves that Thomas Buchmueller and John DiNardo (U-Mich) found that community rating did not cause a death spiral in New York State between 1993 (when it was implemented) and 1996. Rather, it led to a switch towards HMOs. That switch, however, has already occurred nationwide.

The end result in New York was not good. By the time it had run its course in New York, the death spiral did not result in death, but rather in a market that was astonishingly expensive (page 38 of this report) and effectively had no individual insurance market at a price anyone below the 90th income percentile could afford.

So it is possible that the GOP would go full crazy and repeal via reconciliation. That would hurt a lot of people of course, but Democrats could console themselves by retaking Congress in 2018 and consigning President Cruz to a single term. Which is why full-on Obamacare repeal is not the way I would bet.

Maybe the game isn’t on after all, plus health policy!

Well. There may not yet be an equivalent of Fivethirtyeight for the Mexican election, but the poll of polls doesn’t look good for AMLO. You gotta stare really hard to see any sign of movement. Enrique Peña Nieto (EPN) is still cruising towards victory with a plurality of the vote. (Mexico, I have to add, does not have a French-style runoff system nor an Australian-style transferable vote. This is a bad thing.) 

It seems odd — but not surprising! — that the biggest issues in the election are the least discussed. Oh, they both get mentioned in short ads (see below) but not much in concrete terms. I am referring, of course, to crime and health policy. The latter should be a big issue. While Mexico has made great strides in public health over the past 18 years, it is still far from universal coverage. So what do the two main candidates propose? (My apologies, Josefina.)

Well, both AMLO and EPN think it ridiculous that Mexico has a multiplicity of public health systems: one for formal sector workers, one for government employees (both run like the U.K. National Health Service) and a bare-bones People’s Insurance program for the poor. So it will be no surprise that both are calling for universal coverage. AMLO, however, wants change to be incremental. He wants to allow patients to receive services in the installations of any of the public health programs, a de facto conversion of the federal government’s role to something more like a single-payer system. The problem, of course, is a combination of complexity and vested interests. Peña Nieto is more direct: he wants a new Universal Social Security System, which he claims would cut overhead expenses from 9.5% to 3% and de jure move Mexico to Canadian-style Medicare. He also wants to provide more free medicines via a voucher system, with no word on how to pay for it.

So who would you trust? EPN has a better, more-concrete plan. AMLO is more serious about these things, and incremental change is generally easier. At the end of the day, AMLO is more honest about the inevitability of the need to throw more money at the problem ... but at the end of the day, a President AMLO is also more likely to be hamstrung by Congress.

Edge: AMLO. Not that it matters.

Health care reform, House version

  What’s in the health care reform bill?  It isn’t easy to get a concise version.  But my brother wants one.  So I spent my morning trying to put one together.  Here it is.  I am not 100% sure that all of this is correct, so I promise to update the body of the post should anyone bring any mistakes to my attention.

Subsidies:

The bill increases the limit for Medicaid to 150% of poverty, or $33,075 for a family of four. Right now the limit is at the poverty line (with some exceptions) or $22,050 for a family of four.

Families earning up to 400% of poverty ($88,200) will have their premiums and out-of-pocket expenses capped.  The cap starts at 3% of income for non-Medicaid-eligible families and rises to 10% for families earning between $77,175 and $88,200. 

Medicare will cover all prescriptions, eliminating the “donut hole.”  Currently annual drug expenses are covered up to $2,700, and coverage kicks in again at $6,100, but Medicare recipients are responsible for expenses in-between. Medicare will be allowed to negotiate prescription drug costs. 

Mandates:

Employers must offer insurance or pay a fee equal to a percentage of their payroll.  Businesses with less than $500,000 in payroll are exempt. The fee will start at 2% of marginal payroll and rise to 8% for firms with more than $1.5 million in wages. 

The penalty for failing to purchase insurance is set at 2.5% of income, up to a $750 per-person cap, or $3,000 for a family of four. 

Insurance reform:

Insurers will be prohibited from discriminating on the basis of pre-existing conditions.  Annual out-of-pocket costs will be capped on and lifetime benefit limits will be banned.  Age-related premium increases will be capped at 200%. 

All plans will have to meet a minimum “essential benefits” package.

A national Health Insurance Exchange will be created, which will provide a centralized market in which businesses with less than 100 employees and individuals can purchase coverage.  No plans traded on the exchange will be allowed to cover abortion.  Only legal residents of the United States will be allowed to purchase plans on the exchange.

The anti-trust exemption for insurance companies is eliminated.

A non-profit public plan will be available to anyone unable to purchase insurance on the exchanges or through their employer.

Revenue and cost reduction:

A 5.4% surtax will be imposed on incomes over $500,000 for single taxpayers, and $1 million for married couples. The fees mentioned under “mandates” will also generate revenue. 

The government currently reimburses private plans that supplement Medicare (called Medicare advantage) by about 14% (or $1,100 per recipient) compared to what it costs to insure the same services directly.  That difference will be eliminated. 

The plan is expected to generate a surplus through 2023.  (The annual surplus does not decline over time; rather, CBO projections end.)

Editorializing below the fold.

If eliminating the public option is what it takes to get this thing passed by the Senate, then I have no problem with eliminating the public option .  Nor do I have a problem with changing the way the plan will be financed, as much as I like the marginal tax hikes.  (They should kick in lower, but that is just me putting my money where my mouth is.)  Fixing the donut hole seems like good politics, and allowing Medicare to negotiate drug prices eliminates the problem my Medicare-receiving father had with the original reform. 

In short, I no longer really care about the public option.

I will also be very annoyed at anyone who calls this “socialism.” 

P.S.  Strangely enough, I find Heritage a good source of information.  They place a rather breathless (and often quite silly) spin on the details, of course, but they have the details, and they don’t natter on (at least on the pages I reference) about socialism and death panels and the like. 

National health care, updated

  Megan McArdle, whom I respect, linked to a piece by Glenn Reynolds that basically says that his wife and father would be dead while his daughter and mother would have a much-impaired quality of life under socialized medicine.

But I have a question.  Two, actually.

(1)  The treatments for Reynolds' mother (hip replacement) and father (radioactive prostate cancer implants) were developed for a patient pool that is mostly subject to Medicare.  Which is socialized medicine by most definitions.  Why doesn't that fact show that the argument is fallacious?

(2)  If other countries generally force healthy young women to die or live impaired lives, why doesn't that show up in any of the comparative quality-of-life studies?

A third, fourth, and fifth might be:  Does Ms. McArdle really believe this argument?  If so, why?  And what does it have to do with any of the actual health care reforms that are on the table?

Meanwhile, Matt Yglesias points out why I have trouble staying friends with doctrinnaire libertarians.  This one's for you, Guy.

UPDATE:  Matt Miller has an interesting column in today's Financial Times.  He points out that save for the public option, the current reform plan essentially extends coverage using a basic template designed by Mitt Romney in Massachusetts.  In addition, one of the financing plans on the table (not my preferred one, I must admit, nor the President's) was basically proposed by John McCain.  Finally, the eye-popping cost is propaganda, caused by people's emotional reaction to the t-word; the right way to think about the cost is that it is 0.5% of GDP or 3% of total healthcare spending.  In short, the way to a compromise that should attract lots of Republican votes is obvious.

But I will add that since we aren't going to get any Republican votes, I will be very annoyed at my party and President should we get a bill that does not include a public option and that is not financed by a surtax on high earners like, uh ... really? ... my wife and me.

Senator Wyden is my hero

In a parallel universe, I'd ask our non-American readers to tell me what they think of this TV spot.  Thing is, most of your won't say anything, save for a few ironic remarks that will whizz right over my head and knock a hole in the window overlooking my balcony.   

But whatever.  The below advert really is funny, and it is for a good bill which moves the U.S. very close to a German-style health care system.  One snag is that a lot of Americans are very satisfied with their current coverage, and have reason to fear switching to a fund regulated by a Health Help Agency instead of one chosen by their employer.  Another is that it mandates health care, which will provide a lightning rod for opposition. That said, seven Republicans have signed on, and like I said, the video is rather funny.  Especially for a political spot. 

Comedy is certainly looming ever-larger in American political discourse.  Hillary, Obama, and John Edwards all appeared on the Colbert Report yesterday and even John McCain used to be pretty good on the Daily Show, before he retreated to "crazy base world." 

So, what the heck.  I'm still curious.  Let's enter that parallel universe.  Readers!  Are the above videos cleverly amusing to you, or just silly?  Would humor like this work in your country?  Do your politicians even try to be funny?  If not, why not?  If so, how differently?  Inquiring minds want to know.