Krugman Wrong on Obama and Mandates
It’s not often that I take issue with Paul Krugman’s economics (at least not recently), but he does misrepresent the issues in going after Obama on health insurance mandates.
The simple story is that any effort to establish national
health insurance will require some anti-free loader mechanism to
prevent gaming. The logic is straightforward. Everyone agrees that we
want to get
rid of the current practice under which insurers are allowed to charge
fees
based on people’s health. Under this system, people with serious
illnesses either must pay exorbitant fees or will be unable to get insurance altogether.
(Insurance
companies lose money if they insure people with high bills.)
Under a reformed system, we will require a standard fee under which everyone pays the same rate regardless of their health history. However, this creates a situation in which it doesn’t make sense for healthy people to pay for insurance. Why not just deal with minor health related costs out of pocket? You can wait until you get sick and then buy into the system and pay the standard rate.
That works for healthy people, but it would destroy the system because the only people buying insurance would be those with relatively high bills. This means that insurance would be very expensive, which of course encourages more people to play the “wait till I’m sick strategy.” The end result is that the system collapses, because only the very sick would ever find it worthwhile to buy insurance.
One way around this problem is to mandate that everyone buy insurance. Senator Clinton has proposed a mandate as an explicit part of her plan. Senator Obama has attacked Clinton for this mandate (sometimes unfairly). By contrast, he has suggested that we can get near universal enrollment through other mechanisms. Specifically, he has suggested that we can have a system of default enrollment, whereby people are signed up for a plan at their workplace.
People would then have the option to say that they do not want insurance, so they are not being forced to buy it. However, they will then face a late enrollment penalty if they try to play the “healthy person” game. When they do opt to join the system, at some future point, they will have to pay 50 percent more for their insurance, or some comparable penalty for trying to game the system.
A system of default enrollment will ensure that people do not remain uninsured due to inertia. A system of late enrollment penalties will ensure that people don’t try to game the system.
Is the Obama mix as good at reaching universal or near universal insurance as the Clinton mandate? The reality is we don’t know. It will depend on many factors, most importantly the sanctions that are imposed under both systems (i.e. the penalty for not getting insurance with the mandate, and the late enrollment penalty in the Obama system). Krugman is wrong to say that a mandate is necessary. We can get to the same place with Obama’s approach; it really depends on the details.
The difference that matters is not the policy distinction bewteen Obama and Clinton. It is the nature of their expected leadership, and the Congress they will have to work with. Obama seems more likely to generate the enthusiasm and ambition needed to sweep a large Democratic majority into the House and Senate.
It won't matter if Clinton's plan is better financially, if it doesn't pass. The current Congress would not give her the mandated coverage she wants. And I don't see her candidacy carrying as many along with her as Obama's would.
February 4, 2008 8:42 AM | Reply | Permalink
Tom gets it exactly correct!
Thanks, Tom!
February 4, 2008 9:09 AM | Reply | Permalink
In a fascinating coincidence, postings with the headline "Why Krugman is wrong ..." are the lead both here at TPMCafe and at DailyKos. However, Dean's contribution here at TPMCafe is much more reasoned and thoughtful. However, Dean is terribly wrong.
Dean spends most of his posting acknowledging the truth about Krugman's main point, that without universal mandate, there will be no universal health plan. Without universal mandate, there will be adverse selection, a disaster that condemns health plans to increasing costs as people try to "game the system" - as Dean describes.
Dean says that Krugman is wrong because Dean has some other way to prevent people from gaming the system, namely a "penalty." Dean never describes how such a penalty would work. How do you enforce a penalty on someone who thought they were healthy, thought they had a job, and discovered one day that neither is true? Add the "penalty" to the list of debts owed in bankruptcy court?
Right now, the system extracts the most cruel of penalties on people who fall sick, in the form of astronomical medical bills, bankruptcies, loss of home, descent into poverty, and so forth. Right now the system adds to these penalties with excruciating waits for care, denial of care, and failure at even a pretense of healthcare continuity.
We have penalties right now, Mr. Dean, and they are horrible, and they don't work.
Here is a very short list of mandates that work: social security, unemployment insurance, sales tax, income tax. The argument that mandates are unworkable is a sham, and more upsetting, the argument is an insurance industry sham.
February 4, 2008 9:10 AM | Reply | Permalink
It won't matter if Clinton's plan is better financially, if it doesn't pass. The current Congress would not give her the mandated coverage she wants. And I don't see her candidacy carrying as many along with her as Obama's would.
Therein lies the rub.
February 4, 2008 10:27 AM | Reply | Permalink
I don't think penalties in lieu of requiring enrollment in some plan will so much keep people from "gaming the system." I think it will force people who don't have a hell of a lot of money to begin with to take their chances without healthcare (as many of us do now), and hope there isn't some catastrophic injury or illness. When they do need to pay into the system, they not only will pay a "late enrollment" penalty, but premiums will be that much more expensive since people are opting out of the system in the first place.
And what happens if they can't afford to pony up? Are they (and their children) denied coverage? Or do those who opted into the system from Day 1 pay for their care?
Clearly, a single-payer, not for profit system is preferable. But, absent the courage to take on the insurance industry to do that, it's important that everyone be enrolled in the system, with sliding-scale credits so that those who can't afford to pay (or pay as much) will still be covered.
It won't be perfect, but it will be better than what we have now.
February 4, 2008 10:30 AM | Reply | Permalink
Statistically, only 3% of patients (under 65) have health care bills higher than $ 30,000 per annum. Yet, these very sick individuals account for over 50% of all the health care costs. You see this in company plans where claims are usually low, but one person has a bad accident, and next year the company gets hit with a 30% rate increase by their insurance company.
If the government is going to wade into this, it makes more sense to me to start by acting as a re-insurance agent with existing ins companies for all claims over $ 30,000. So, at that point a Sallie Mae type institution would pick up half the burden of those costs. The government already insures crops, flood damage, and bank accounts, so it's not really a stretch to set up an istitution for health care. This should dramatically lower the cost of private insurance, since private risk is cut in half. Add some significant reforms in other areas (like insurance policy and tort reform), and you could solve this problem with a minimum of beauracracy and cost to the taxpayer.
I don't like any plan i've seen from either party. They will demand a significant tax increace, and they will do nothing to lower existing premiums. The middle class is going to get screwed -- as usual.
February 4, 2008 10:31 AM | Reply | Permalink
Please pardon the potentially naive question, but why do we keep focusing on insurance coverage in the health care debate? Isn't the goal of the health care system is to provide care, and isn't insurance just a method of managing the costs for that care and spreading financial risk?
A major reason our system is so broken is that too many intermediaries and financial interests get in the way of doctor-patient relationships. It seems to me like the reforms being discussed merely bring more bureaucracy into the picture and don't take steps to alleviate this underlying inefficiency.
I am not necessarily saying that a single-payer system is the only feasible solution, but I sense that keeping the conversation bogged down within the framework of financial management is hurting the drive for every American to receive adequate health care.
February 4, 2008 10:38 AM | Reply | Permalink
right now ins companies are the ones paying the bills for health care in America and managing the Medicare system. So, if you could address some of the issues doctors have with insurance companies by giving doctors more authority, then that issue goes away. In exchange insuruance companies get a taxpayer-funded re-insurance partner that will dramatically cut their risks. It's a win-win for everybody, and it doesn't add that much beauracracy. You have to inject some reality into what is possible to get done. A European-style system here is pie-in-the sky.
February 4, 2008 10:59 AM | Reply | Permalink
Okay, how is Obama going to decide who is "gaming the system" and who is just signing up at an optimum time for them? I'f I'm 22 and say "sorry, I don't make enough money, can't do it" and then realize that when I'm 27 I'm doing better and that I can, should I pay a penalty? How will Obama know if that' gaming the system or not? That's far different from not having the insurance and then buying it a week before I need knee surgery.
February 4, 2008 10:46 AM | Reply | Permalink
u raise a good point, and what bothers me is that no one is coming forward with any stats showing us how their plans are actually going to stem the tide of rising costs and increasing premiums. We could go through this difficult political battle and come out on the other side not much better off than we are now.
February 4, 2008 10:46 AM | Reply | Permalink
February 4, 2008 11:59 AM | Reply | Permalink
Premium growth will be stemmed (somewhat) by giving consumers the choice between a government sponsored plan or private sector plan. Since premiums are going to be capped on government plans, private plans will not be competitive unless they offer better rates. Since there are big expenses in "selling" [big commissions, "sales conferences" & lavish entertainment] and underwriting Group Insurance, insurers will have to cut out the fat. Drug costs would be lowered by regulation (which should bring down private plan costs as well). If that bothers you, it bothers me that generic thyroid goes up each year and that once WalMart, etc., instituted the $4 generics, other outlets could magically do that as well--at a profit. Other cost savings are going to be harder to capture in the short term. Everyone participating in health care delivery is going to have to make some changes, and so are consumers.
All of this is pretty theoretical unless you are lowish income and uninsured. Try getting some quotes in Massachusetts (make up a zip code) for unsubsidized insurance (about $30,000 income for one person, better than PA 2x poverty of about $20,000). See if you think you could a) afford health insurance on that amount of income and b) be able to pay your health bills under the plans available, assuming you've even been able to maintain continuous coverage so as not to get hit for a year on pre-existing conditions. And don't forget to factor in the present situation where those without prescription drug coverage (many of the "economical plans") have costs shifted to them since insurance companies negotiate big price breaks for themselves on drug reimbursement.
What really boggles my mind is that business interests are not clamoring for this. Even paying some percentage for not offering coverage, they will become enormously more competitive. Getting this off the back of business could really help true growth in the economy.
February 4, 2008 1:08 PM | Reply | Permalink
I have a rather naive question - If it comes down to one side gaming the system or the other (and the insurance companies are most certainly gaming it now) why not have the customers game it? In that case people would at least be getting taken care of!
Yes, I know this is overly simplistic and even childish. It's still a business after all and it can't be run into the ground. But I do find it a bit irksome that we only hear the phrase "game the system" when it comes to big business protecting their rackets from what all "those people" will do to them. Isn't it ironic that it's always the needy and helpless that do nothing but sit around all day scheming about how to screw all of us over? You remember those "welfare queen's" driving their Cadillacs right? Sure you do. Why is it we never hear about "gaming the system" when it comes to the likes of the insurance companies, pharmaceutical companies, the banks, the credit card companies, the electricity and fuel industries, etc? Is it because they're making money at all of our expense and that's how it's supposed to be? Interesting...
Like I said, naive but I'm still curious.
February 4, 2008 1:43 PM | Reply | Permalink
"Krugman is wrong to say that a mandate is necessary. We can get to the same place with Obama’s approach; it really depends on the details."
I dunno here...
Firstly, he is citing some recent research from MIT that argues a system without mandates will end up some way short of universal coverage. His words:
"One plan achieves more or less universal coverage; the other, although it costs more than 80 percent as much, covers only about half of those currently uninsured."
Maybe this is bunk research, and if so please show us. If it's not bunk research, I'd say Dr Krugman has a fairly compelling argument.
Secondly, let's say an Obama style non-mandate system can get full coverage. If so, why stop with health insurance? Let's do away with all coverage currently mandated by law. All of it. Including Social Security. Because the technocrat in you clearly thinks this is all doable, just depends on the details.
Or let's look at it this way. You have a reward-punishment mechanism to incentivize people to get coverage. Reward is what? You get healthcare, at the cheapest rate going. And the punishment? If you get sick, you get penalized for not being covered. And these penalties - assuming they can be afforded - are supposed to subsidize existing participants.
Forgive me for being obtuse, but exactly how is the latter a great improvement from the existing system? Maybe it delivers cheaper lifetime healthcare insurance for the insured, but that clearly depends on high rates of enrollment in the first place and that the penalized can indeed pay for their free-riding. So basically some of the dependencies that, if you could rely on them, would bring more efficiency into the existing system.
One final issue is that the technocratic approach drifts toward the right-wing philosophy that people must make good choices or else they deserve to suffer. The irony is that the responsible may suffer too, through higher premiums, if not enough people make the appropriate rational choices. Does the practising economist in you believe that is a sound assumption to make?
Sometimes I'm all for technocracy, offering incentives and tilting the market to a better plane. On this one I can't see it working, at least not well enough to mark a good enough improvement.
February 4, 2008 1:53 PM | Reply | Permalink
Should we be discussing universal health care rather than universal insurance company's screw job! Under these plans Americans who can not afford medical care will still not have medical care. This is not acceptable! When are we going to get health care as provided by Great britian, Sweden, and the majority of European nations? Anything else is not acceptable!
February 4, 2008 7:07 PM | Reply | Permalink
Forget the economics of the problem for a second. The difference between the Hillary and Obama plans is in the politics.
Democrats will support either plan, but Republicans will see the Hillary mandate as a Life Tax (TM), and will actively campaign against it.
The Obama plan is really more of a blueprint at this stage. The details have yet to be worked out, but the structure is there. When Obama enters office, the negotiations will begin between the public sector parties and the private sector companies. The result will be a government subsidy for those who want health insurance and an appropriate penalty for those who do not.
In a perfect world, we would have single payer universal health care and we would all live forever. In this world we have to compromise with those we disagree with, and the Obama plan is just that, a compromise.
February 4, 2008 7:29 PM | Reply | Permalink
what bothers me is that no one is coming forward with any stats showing us how their plans are actually going to stem the tide of rising costs and increasing premiums.
one way will be "competition". IIRC, all of the candidate's plans offered some kind of option that was similar to some currently run government program -- all of which operate with lower overhead costs than private insurers.
**********
there are two things that bother me about all of these plans....
1) providing universal (or near universal) coverage is going to require a lot more medical professionals than we have right now.
2) the current "employer based" health care model is based on a model that does not take into account the number of children in a family -- if you have "family" coverage, it doesn't matter if you have 2 kids or 10 kids.... and IMHO, in order for universal health care to work, this is going to have to change.
February 4, 2008 7:30 PM | Reply | Permalink
The difference between the two plans is irrelevant. The one thing of which we can be completely sure is that whatever plan is actually implemented won’t look like what either candidate is discussing today. Conversely the one thing which will absolutely ensure there is no plan would be an attempt by the President to force Congress and the Medical/Pharma complex to stand at attention, salute and say “Tell us what to do and by God we’ll do it”.
Ain’t going to happen.
Compare and contrast Nye Bevan’s creation of the UK NHS.(in Michael Foot’s biography) with Brad DeLong’s review--which you can find on the net- of Haynes Johnson’s and David Broder’s “The System:The Death of Health CareReform in 1993-1994.
Bevan, regarded with some reason as an implacable enemy of the British middle class spent three years during which he himself and the officials of his Department met 28 times with the very middle class doctors on the Negotiating Committee in “continuous microscopic discussions.” While a massive majority of the docs voted in repeated referendums to refuse to ever participate. But they did.
And when Bevan died in 1960 the editor of the British Medical Journal who had continually likened him to Hitler summarized Bevan’s style: “Bevan made it his business to understand, as far as he could, just what kind of profession the medical profession was”.
DeLong was prompted by the Johnson and Broder book to describe the “worst hours of my life” when he was involved in our failed health care reform., the central failure of which was being “totally clueless with respect to how to construct a coalition to support reform.” .
While trying to draw your own conclusions on which of the candidates might create our Health Service read Delong’s review.
February 4, 2008 10:39 PM | Reply | Permalink
Amen Opti Mo,
We have become so conditioned to believe that the term "health care" refers only to the financial liability incurred by purchasing private insurance that we neglect to notice how ridiculous our entire system of actually providing care is. The notion that access to medical treatment should be tied to employment is bizarre. Tying health care insurance to employment was a post-WWII enticement offered by companies desperate for workers. It outlived its usefulness long ago and is now some sort of aberrant social scheme that no one is very pleased with. It puts an undue financial burden on American business in an increasingly competitive marketplace (although corporate America is doing a darn good job of passing those costs on to workers)and it unjustly either neglects or punishes those productive and tax paying citizens who unfortunately don't work in mainstream corporate America.
In a reasonable society, people should have access to medical care regardless of where, when or how they work--the two are fundamentally unrelated, yet we keep insisting that this is the only acceptable approach to health care. I get that we have to start with "baby steps" in order to get anything done, but the current plans being offered by the candidates essentially only tweak the fatally flawed system we now have and are, I fear, doomed to failure. As a society we need to decide if we believe that access to health care is a right for all people or whether we believe it is a privilege for those who can afford to play within the arbitrary rules of the private insurance game. I think both candidates are trying to straddle the fence--most likely in an admirable effort to get some sort of comprehensive health care plan passed. However, fence riding is a dangerous sport more likely to end in a painful and humiliating wedgie than any meaningful policy reform. Hope I'm wrong. Bet I'm not.
February 4, 2008 11:10 PM | Reply | Permalink
The question is not who has the better plan now, it's who is most apt to get a plan passed.
February 4, 2008 11:37 PM | Reply | Permalink
A pretty sobering account of Hillary's earlier Health Care involvement can be found on the
net if you search Brad De Long and Health Care Reform. And in particular read the article he wrote in 2000 in the form of a review of
"The System:The Death of Health Care Reform in 1993-1994" by Haynes Johnson and David Browder.
People are capable of change,I guess. And perhaps Hillary's performance as a Senator is an indication of that in her case. If we vote for her today we'd better hope so.
February 5, 2008 4:09 AM | Reply | Permalink
Re: providing universal (or near universal) coverage is going to require a lot more medical professionals than we have right now
Why? People without insurance do get healthcare now (and many of these uninsured people are young and healthy anyway). The problem is that people without insurance end up going bankrupt if they do need expensive care.
February 5, 2008 6:21 AM | Reply | Permalink
Eisenhower was a Republican. The tax rates under Eisenhower would easily pay for universal single payer healthcare, repair of the national infastructure, support the commons, grow the middle class and return America to the position of ecomonic greatness.
Obama is short-sighted, miserly and peevish.
Krugman is being polite . . . otherwise he is dead on. Rationalization sourced at the trough of Obama is not pretty and not accurate. On ther other hand, Obama (like Clinton) remains a damn-sight better choice than any of the folk actually registered as a Republican.
When mediocrity is best that is offerred . . . Hope and pray for mediocrity.
February 5, 2008 11:34 AM | Reply | Permalink
The predominant question is how do we unwind the healthcare spiral? Lower insurance will require cheaper healthcare will require cheaper manufacturing and medical education will require... what?
In any case, with a dipping economy, and a recent rise in unemployment, a forced-purchase law targeted at the end user is increasingly unattractive. SP is the only way to actually ensure universal coverage. Instead of actually ensuring universal coverage, though, the plan is to turn the uninsured into criminals. By that logic, we no longer have theft, murder, or speeding.
The belief that people don't have health insurance because they're too healthy to need it is... really sort of twisted and ignorant. Most people who don't have health insurance simply can't afford it. They don't avoid the doctor or the hospital because they are innately healthy or because they are flush with cash, but because they figure (hope) they can get by without them; just pop some Advil to deal with the pain, etc.
We keep trying to find a nice, Third Way market-nudging way to provide UC, but the problem is, the market never provides universal anything. (If it did, there would be no such thing as a market, as a market requires continued demand to continue to exist. The market operates to survive, not to make its demand disappear.) The only way to make something universal is to make it exist by default. I.e., SP. If we're not talking SP, we can't be talking universal. Sorry, Third Wayers.
February 5, 2008 12:46 PM | Reply | Permalink