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. 

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. 

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.