Monthly Archive for September, 2009

The Problem With Health Insurance Mandates

Megan McArdle explains:

A mandate to buy insurance comes with a bunch of other things that have to be put into place to make it work.  Guaranteed issue, community rating, subsidies, and regulations as to what constitutes basic coverage.  These make the individual mandate very, very expensive for both individuals and The American Taxpayer.  Before Massachusetts, there was a fair amount of hope that by introducing the healthy youngsters currently foregoing insurance into the pool, the average cost of treatment would actually fall.   Massachusetts has fairly conclusively disproved that theory; health insurance premiums in the individual market are going to rise 10% this year, according to the Boston Globe.

There are a lot of reasons for that, but one is mandate creep, something that has particularly bedeviled New York.  A mandate essentially becomes an opportunity for various medical service providers groups to pick the pockets of consumers and taxpayers.  They lobby to get their service included in the mandatory package.  Consumers use it, because hey, it’s practically free.  Insurance costs go up–but there’s no reason not to keep on using podiatrists  and massage therapists, because your personal actions will not make a difference in bringing costs down.

Then, as I’ve earlier discussed, the government’s temptation in response to these problems is often price controls.  Overall, I’m not a fan.

The full post can be found here.

Obama’s Healthcare Plan Takes From The Poor And Gives To The Rich

It’s explained here:

Let’s start with basics: Insurance protects against the risk of something bad happening. When your house is on fire you no longer need protection against risk. You need a fireman and cash to rebuild your home. But suppose the government requires insurers to sell you fire “insurance” while your house is on fire and says you can pay the same premium as people whose houses are not on fire. The result would be that few homeowners would buy insurance until their houses were on fire.

The same could happen under health insurance reform. Here’s how: President Obama proposes to require insurers to sell policies to everyone no matter what their health status. By itself this requirement, called “guaranteed issue,” would just mean that insurers would charge predictably sick people the extremely high insurance premiums that reflect their future expected costs. But if Congress adds another requirement, called “community rating,” insurers’ ability to charge higher premiums for higher risks will be sharply limited.

Thus a healthy 25-year-old and a 55-year-old with cancer would pay nearly the same premium for a health policy. Mr. Obama and his allies emphasize the benefits for the 55-year old. But the 25-year-old, who may also have a lower income, would pay significantly more than needed to cover his expected costs.

Like the homeowner who waits until his house is on fire to buy insurance, younger, poorer, healthier workers will rationally choose to avoid paying high premiums now to subsidize insurance for someone else. After all, they can always get a policy if they get sick.

To avoid this outcome, most congressional Democrats and some Republicans would combine guaranteed issue and community rating with the requirement that all workers buy health insurance—that is, an “individual mandate.” This solves the incentive problem, and guarantees that both the healthy poor 25-year-old and the sick higher-income 55-year-old have heath insurance.

But the combination of a guaranteed issue, community rating and an individual mandate means that younger, healthier, lower-income earners would be forced to subsidize older, sicker, higher-income earners. And because these subsidies are buried within health-insurance premiums, the massive income redistribution is hidden from public view and not debated.

The full article can be found here.

Quote Of The Day

“According to provisions in both House and Senate bills, mandated plans must have low copayments and provide coverage of health-care services that is at least equal in scope to a typical, current employer-sponsored plan. But these are the very flaws that are responsible for high and rising health-care costs, flaws that stem directly from the misguided tax exclusion for and the extensive state regulation of health insurance. By locking in these flaws, the mandates will inhibit precisely the innovation needed to reform U.S. health care….Comprehensive, low-deductible, low-copayment insurance has brought us to where we are today. The administration’s plan to expand and lock-in this flawed paradigm will ultimately defeat the goal of making health services more affordable for everyone.” –Cogan, a senior fellow at the Hoover Institution and professor of public policy at Stanford University. Mr. Hubbard, dean of Columbia Business School, was chairman of the Council of Economic Advisers under President George W. Bush. Mr. Kessler is a professor of business and law at Stanford University and a senior fellow at the Hoover Institution…writing in the WSJ

Tax Cuts Vs Fiscal Stimulus

Even more proof that tax cuts are better at stimulating the economy than fiscal stimulus. Bruce Bartlett describes the recent research by Harvard economist Robert Barro:

Harvard economist Robert Barro is out with a new paper that undoubtedly will get a lot of attention from conservatives.  First, he finds that the multiplier effect from government purchases is well less than one; meaning that each dollar of government spending adds less than a dollar to GDP and is, therefore, contractionary rather than expansionary. Second, he finds very powerful effects from cuts in marginal tax rates; a one percent cut raises the growth rate of GDP per capita by 0.6%. Barro also provides a very useful time series of average marginal tax rates, including Social Security and state taxes, from 1912 to 2006.

The full post can be found here. In short,  as conservatives argued at the beginning of the fiscal stimulus debate: tax cuts are better at stimulating the economy than fiscal stimulus. This research confirms earlier research that found the fiscal multiplier of Obama’s recent fiscal stimulus to be zero, see here.

Quote Of The Day

“The problem is, the public option was never the crucial issue; instead, it was the mandate to purchase insurance. Once government mandates insurance coverage, it gets to define what constitutes insurance, which means it can ban pre-existing condition clauses and the like. The mandate also”justfies” large subsidies for insurance, to avoid non-compliance with the mandate. So, an individual mandate, which the Baucus plan includes, implies a rapid takeover of the entire health care system by the federal government.” —

Explaining The Healthcare Debate

For those of you that have not been following the public option part of the healthcare debate, Will Wilkinson does a wonderful job giving you the overall narrative:

Keep an eye out for the following dynamic in the debate. (1) Republicans push hard on the idea that a public option is a “trojan horse” or “back door” to single-payer. (2) Democrats loudly deny with exasperated, eye-rolling annoyance that the public option has anything whatsoever to do with backing into single-payer. (3) Republicans say, Well, okay. Then I guess you won’t mind structuring the public plan in a way that will help ensure that it competes with, but can’t use implicit and explicit government subsidies to crowd out, private plans. (4) Democrats freak out about a “neutered” or “watered-down” public plan. It just so happens, they say, that in order to work–to improve the quality of care and keep costs from rising–a government-run plan has to be set up in exactly the way you’d want to set it up if you were trying to crowd out the rest of the market. But we aren’t trying to do that!!! (5) Republicans: Are too! (6) Democrats: Are not! (7) Republicans: Are too! (8) Democrats: Are not! ….

The full article can be found here.

How Big Was The Fiscal Multiplier?

According to recent economic data, zero:

Once you allow for a significant role of forward-looking behaviour by households and firms, there is no multiplier. The expectation of future tax increases, or rising government debt and future interest rate increases leads to a reduction in private consumption and investment spending. This holds in particular for the three New Keynesian models developed by economists at the ECB, the IMF and the EU Commission (see Smets and Wouters 2003, Laxton and Pesenti 2003, and Ratto, Roeger and in’t Veld 2009). These models include extensive Keynesian features such as price and wage rigidities, but also employ up-to-date microeconomic foundations. The model of EU Commission researchers is especially interesting because it is recently estimated and one-third of its households do not care about the future and follow a traditional Keynesian consumption function.

That’s from Volker Wieland, Professor for Monetary Theory and Policy in the House of Finance at Goethe University of Frankfurt and Director of the Center for Financial Studies. Greg Mankiw has more.

Quote Of The Day

You have got to see this video to believe it! It’s an undercover gonzo journalism exercise in which two reporters pretending to be a pimp and a prostitute go into the Baltimore office of ACORN asking for its help in importing underage Latin American girls for a sex ring, and committing tax fraud to do it. Incredibly, the left-wing “community activists” are pleased to comply.” — Rod Dreher, Megan McArdle has more

Update: Newt Gingrich has more.

Quote Of The Day

“Maybe I have a biased selection, but it seems like every sensible economist, political scientist, development worker, and journalist that I know thinks our current course in Afghanistan can have only one outcome — disaster. Disaster for Americans, for our NATO allies, AND for Afghans.” — William Easterly

A Healthcare Plan I Could Support

This plan laid out by Brad DeLong and endorsed by Mathew Yglesias is a healthcare plan I could support:

— 1. Taxes on public health hazards (booze, sweeteners, etc.)

— 2. An army of publicly employed doctors and nurses working in clinics and vans and such roaming the country dispensing preventive care and lifestyle advice to all and sundry.

— 3. 15 percent of your income is automatically plunked into a Health Savings Account.

— 4. When you want health care services that aren’t covered by the clinics, you pay out of your HSA.

— 5. If there’s money left in your HSA at the end of the year, it gets plunked into your IRA unless you specifically fill in an opt-out form.

— 6. If you run out of money in your HSA and need more health care, the government pays for it.

— 7. On top of the 15 percent HSA deduction, there’s a 5 percent tax to pay for 6.

This plan, unlike the ones before congress, actually addresses the main driving force behind continued healthcare costs: shielding the consumer from prices. If only congress could adopt such a plan, I’d be for it and I’d bet a majority of Republicans would be too.

Brad DeLong explains the plan in greater detail here. Matthew Yglesias makes valuable comments here and here.

Update: Clive Crook has more.

Quote Of The Day

“The truth is that bills now before Congress don’t require federal money to be used for supporting abortion coverage. So the president is right to that limited extent. But it’s equally true that House and Senate legislation would allow a new “public” insurance plan to cover abortions, despite language added to the House bill that technically forbids using public funds to pay for them.” — FactCheck.Org, arguing that Obama was not being completely honest about the claim that his healthcare will not cover abortions

Obama Supports Extending Patriot Act Provisions

Yahoo News reports:

WASHINGTON – The Obama administration supports extending three key provisions of the Patriot Act that are due to expire at the end of the year, the Justice Department told Congress in a letter made public Tuesday.

Lawmakers and civil rights groups had been pressing the Democratic administration to say whether it wants to preserve the post-Sept. 11 law’s authority to access business records, as well as monitor so-called “lone wolf” terrorists and conduct roving wiretaps.

The provision on business records was long criticized by rights groups as giving the government access to citizens’ library records, and a coalition of liberal and conservative groups complained that the Patriot Act gives the government too much authority to snoop into Americans’ private lives.

More here.

The longer Obama is President, the more I think that he will be, in the end, a net benefit to Republicans. As I said when Obama was first elected:

Obama’s choices in office could have, ironically enough, a positive affect on Bush’s legacy. For example, if Obama decides to take, even with the control of congress, a “pragmatic” approach to foreign policy and continues many of Bush’s more controversial positions, it could have a long run positive affect on how Bush’s legacy is viewed.

The more of Bush’s controversial policies that Obama adopts, the stronger Obama makes the argument that Bush really did, out of necessity and national interest, enact such policies. In the long run, Obama neutralizes many of the complaints against Bush, especially since he has a stronger control of congress than Bush ever did.

Quote Of The Day

“there is our inefficient and inequitable system of tax-advantaged, employer-based health insurance. While the federal tax code promotes overspending by making the majority unaware of the true cost of their insurance and care, the code is grossly unfair to the self-employed, small businesses, workers who stick with a bad job because they need the coverage, and workers who lose their jobs after getting sick.

This employer-based system arose not by thoughtful design but as an unforeseen result of price controls during World War II and subsequent tax policy. How this developed and persisted despite its unfairness and maladaptive consequences is a powerful illustration of the law of unintended consequences and the fact that government can take six decades or more to fix its obvious mistakes.” — Jeffrey S. Flier, Dean of Harvard Medical School, link via Greg Mankiw

A Bad Track Record

Unemployment Update

More here.  Remember the administrations (horrible) prediction record when they tell you healthcare costs should be contained.

Does European Healthcare Systems Have Better Infant Mortality Rates?

On paper they do. But Dr Bala Ambati explains just how they achieve it:

Further, on infant mortality, Western European societies have a lot more abortion and make much less effort to save preterm infants born under 28 or 30 weeks of gestation (such births there are often recorded as stillbirths), whereas in the US, NICUs routinely take care of preemies born at 24 weeks or even younger.

So with that information in mind, this recent news article about the British Healthcare System is no surprise:

Doctors left a premature baby to die because he was born two days too early, his devastated mother claimed yesterday.

Sarah Capewell begged them to save her tiny son, who was born just 21 weeks and five days into her pregnancy  –  almost four months early.

They ignored her pleas and allegedly told her they were following national guidelines that babies born before 22 weeks should not be given medical treatment.

Miss Capewell, 23, said doctors refused to even see her son Jayden, who lived for almost two hours without any medical support.

She said he was breathing unaided, had a strong heartbeat and was even moving his arms and legs, but medics refused to admit him to a special care baby unit.

The full article can be found here.