Pursuit of Truthiness

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Archive for June 2012

Obamacare Mandates Ambivalence

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The health insurance mandate was ruled constitutional today. I have little expertise on legal matters (although the Commerce clause does seem ridiculously overused), but the occasion made me think of another way to say why I am so ambivalent about Obamacare.

The reason I disliked the law initially is that it was billed as a grand reform of health care but it does not actually address any of the biggest problems with the US health care system. I see the biggest problems, in rough order, as:

1. No one knows the price of anything (which causes overspending and all manner of mis-allocation)

2. Spending on health care is inefficiently high and is going to bankrupt the government if current trends continue

3. Supply-side issues: Not enough doctors (due to AMA cartel), barriers to innovation (FDA), bad incentives (fee-for-service, drug companies running their own trials)

4. Expensive health insurance is seen as a necessity, because many “essential” procedures are too expensive for an average person to pay out of pocket, and cheap insurance (catastrophic-only) doesn’t exist (partly because of laws against it)

5. Most people get health insurance through their employers. This is a ridiculous historical accident that causes many problems.

6. The market for individual health insurance is broken. Very few people use it, and they pay much higher prices than people buying the same plan for group insurance- adverse selection is running rampant, and when this is combined with price controls it means some people can’t buy insurance at any price.

Obamacare sets out to solve problem 6 while leaving the others alone. I probably shouldn’t begrudge it for not trying to completely fix a very messed up system. How does the law do on its on merits, rather than relative to my ideal reform?

It does okay. It seems reasonably likely that the law will pretty much fix problem 6, and give us a functioning market for individual health insurance. The mandate combined with guaranteed issue and (semi) community rating should fix the adverse selection problem, and the exchanges may also make the whole process of buying individual health insurance less confusing. It will be a good thing to have a functioning market in individual health insurance again.

So why am I not simply happy that problem 6 is getting solved? Because the solution may make some of the other problems worse. The law also includes a light version of an employer mandate (a penalty if too many of your employees end up taking subsidies because you didn’t provide them health insurance), which could further entrench the employer-based health insurance system. However, the law will get us a revived individual health insurance market to compete with the employer system, so the net long-term effect is unclear.

Mostly though, Obamacare cuts off my hope that we will ever solve problems 1 and 4. Once almost everyone has insurance, no individuals will know about prices, and so individuals will exert no downward pressure on prices. Even absent the mandate, when everyone else has insurance, it is very hard to go without it yourself. The mandate means we will never be Singapore.

More directly, the mandate worsens problem 4 by making cheap insurance illegal. This is pretty much inevitable with a mandate- you are saying people need to buy insurance, which means you need to define what the minimum level of insurance is, and then no one can buy a plan less expensive/comprehensive than the minimum. You can reduce the problem by making the minimum smaller but it must always be there.

In summary and in typical economist fashion, then: on the one hand, Obamacare fixes the market for individual health insurance, but on the other hand, it makes it less likely that people will ever know prices or be able to do without expensive health insurance. It fixes some problems but makes others worse.

(This post could greatly benefit from including more facts but I don’t have the time)

Written by James Bailey

June 28, 2012 at 1:29 pm

Posted in Economics, health care

Explaining the Puzzle of Congressional Popularity

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There is a seeming paradox in the fact that the US Congress is extremely unpopular (its current approval rating is 17%), while most individual members of Congress are reasonably popular (approval ratings more in the 50% range, with incumbents extremely likely to be re-elected). People like each of the parts but hate the whole.

The simplest way to resolve this paradox is to say that people are irrational, and as an economist I am ashamed to say that this was always my reaction when I heard these facts. But there is a good reason for the usual economist’s assumption of rationality: saying people are irrational often serves as a curiosity-stopper. You see something puzzling, but you just say that people are weird and dumb and you can stop thinking about it. But often it doesn’t take much more thinking to realize how people could be rational after all. Here are some possibilities in this case:

1. Different congressional districts have voters with different political beliefs. Congresspeople should usually have beliefs closer to their own district than someone representing another district would. Voters in Philadelphia should like their representative better than Congress as a whole because their rep is liberal while Congress is moderate.

2. An important specific case of (1) is that people know their representative is trying to bring them pork, while literally no other person in Congress is doing so; in fact the other Congresspeople are all trying to redirect pork away from my district and towards their own.

3. Congresspeople campaign and advertise heavily in their own districts, but very little in other districts. Congress as a whole does essentially no advertising (except, I suppose, putting up signs beside ARRA projects).

4. We may simply like individuals more than groups; perhaps you could call this a kind of irrationality. Certainly people dislike “corporations” but like almost every individual corporation.  Then again, some things probably poll better collectively- the military, the Supreme Court.  This is an interesting question in its own right.

I wonder if political science papers have succeeded in determining the importance of each explanation (and what other explanations they have advanced). One could get data on political beliefs of politicians and their districts to see how unpopular diverging from your district makes you (or see if congress as a whole is more popular in more moderate districts). You could examine how much popularity congresspeople get from bring more pork home (or being seen trying to do so). You could get at the individual-vs-group question by asking people what they think of specific congresspeople in other districts.

Written by James Bailey

June 14, 2012 at 12:57 pm