Obamacare Analysis

Oct 31, 2013 by

Jay Greene – 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.

Obamacare Analysis | Jay P. Greene’s Blog.

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