Matt has alerted me to an excellent analysis by Martin Feldstein on a potentially fatal (pardon the pun) difficulty with Obamacare. He writes, in part:
The potentially fatal flaw in Obamacare is the very same feature that appeals most to its supporters: the ability of even those with a serious preexisting health condition to buy insurance at the standard premium.
That feature will encourage those who are not ill to become or remain uninsured until they have a potentially costly medical diagnosis. The resulting shift in enrollment away from low-cost healthy patients to those with predictably high costs will raise insurance companies’ cost per insured person, driving up the premiums that they must charge. As premiums rise, even more relatively healthy individuals will be encouraged to forego insurance until illness strikes, causing average costs and premiums to rise further….
The “wait-to-insure” option could cause the number of insured individuals to decline rapidly as premiums rise for those who remain insured. In this scenario, the unraveling of Obamacare could lead to renewed political pressure from the left for a European-style single-payer health-care system.
But it might also provide an opportunity for a better plan: eliminate the current enormously expensive tax subsidy for employer-financed insurance and use the revenue savings to subsidize everyone to buy comprehensive private insurance policies with income-related copayments. That restructuring of insurance would simultaneously protect individuals, increase labor mobility, and help to control health-care costs.
I’m not entirely unsympathetic to the general approach of Obamcare — requiring everyone to purchase health insurance while subsidizing that purchase for people with fewer resources. And I’ve been repulsed by the Republican response, with it’s hysterical over-reaction, strategically idiotic government shut-down, and lack of a reasonable alternative. But Feldstein makes a lot of sense to me. The problem is that Obamacare does not really require everyone to buy health insurance and the fines (err, I mean taxes) for not having insurance are too small so that many will rationally prefer the “wait-to-insure” option.
Of course, I’m not sure whether actually requiring everyone to buy health insurance would pass constitutional muster given Roberts’ reasoning in the Obamacare case. But it’s amazing how adroit in its reasoning the Supreme Court can be when the alternative is a policy disaster.
It would also be nice if the minimum policy required for purchase were not laden with expensive and unnecessary features, like coverage for birth control or annual mammograms from birth (or something like that). The trouble is that every special interest tries to get its pet project into the minimum required coverage, so it isn’t very politically realistic to hope that we would only require catastrophic coverage. But here’s hoping.
(HT to Minnesota Kid for the image)
As President Obama clearly articulated in a 2007 speech before an SEIU audience, he wants a single payer, government-controlled health care system. He explained that eventual goal was not achievable initially but would require a 10- to 20-year “transition” period following adoption of the initial plan, i.e., what has come to be known as ObamaCare. What the President perhaps did not anticipate was that the rollout of the plan and the underlying mechanics, including the flaw identified by Feldstein, might bring the initial plan to failure. Time will tell. The 2014 and 2016 elections will be the decisive factors.
Jay, the mandate to purchase unnecessary coverage is not only a result of special interest pleading. It’s necessary to the core system of Obamacare. There is no political support for the taxes they would have to raise to pay for the massive subsidies transparently, so they have to invent ways of sucking cash into the system without people seeing it. Accommodating the need for deception is one of the reasons the website doesn’t work; the process of signing people up becomes much more complicated if you don’t want them to be able to figure out how big the subsidies are.
The core problem with this approach is that it fails to remove the incentive to overconsume and overpay because of third-party payment. The system will just become more and more unsustainable. Kevin Williamson wrote on NRO recently about several countries that have alternative methods like mandatory individual HSAs.
To my mind, the only thing we need to provide the poor is catastrophic coverage. If we removed the deeply evil and enslaving incentive for employer coverage and legalized interstate commerce in health insurance, cheap catastrophic plans would spring up like dandelions. The remaining price gap could easily be covered by less than we currently spend on Medicaid.
Charles Krauthammer makes the point about Obamacare’s fiscal model relying on making people buy gold-plated coverage they don’t need in his new column: