Pursuit of Truthiness

my gut tells me I know economics

Archive for January 2015

Romneycare vs Obamacare

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Back in the 2012 election, Mitt Romney was in the unenviable position of trying to attack the Affordable Care Act without implicating his own reform in Massachusetts. At the time, like most people, I assumed this attempt to differentiate the two was pure cynical politics. Johnathan Gruber worked on both bills and famously said “Its the same damn law”.

But recently, and actually thanks to the same Johnathan Gruber, I’ve realized there is one very important difference. First, there are some quantitative differences. Some of the ACA’s penalties are much larger, which may lead to more substantial disemployment effects. Also, Massachusetts had a much higher rate of employer-based insurance than the rest of the country to start with, so they had a smaller gap to close with government subsidies (making their reform the cheaper one).

The biggest difference though, and the one I hadn’t thought about until I saw Gruber talk at the American Economic Association meetings, is that Massachusetts had a guaranteed issue law for years before Romneycare. Guaranteed issue means that insurers must cover anyone, regardless of pre-existing conditions or expected costs.

By itself, guaranteed issue ruins health insurance markets. It allows people to go without insurance and pay no premiums until they get sick, then sign up and get huge benefits, then drop insurance again once they are recovered. For guaranteed issue to work, it needs an individual mandate to prevent people from gaming the system; for the individual mandate to work we need subsidies, so that poor people can actually get the insurance they are required to. This trio of reforms- guaranteed issue, the individual mandate, and subsidies- is what Gruber calls the 3-legged stool. Massachusetts only had one leg, and this means individual premiums were sky-high until Romneycare brought the other two legs.

Almost no other states, though, had their own guaranteed issue laws before the ACA- their individual health insurance markets were not nearly as broken as Massachusetts’ was.

Consider 3 policy packages:

1. No Reform

2. Guaranteed issue, individual mandate, subsidized exchanges

3. Guaranteed issue only

Before 2006, most states were at 1, but Mass was at 3. 3 is clearly inferior to both 1 and 2; the choice between 1 and 2 is a tougher one. Romneycare moved Mass from 3 to 2, clearly an improvement that fixed a totally broken individual market. Obamacare moved the rest of the country from 1 to 2, which is much more of a mixed bag. So for once, I think I overestimated the cynicism of a politician; the two laws in effect really were different.

Written by James Bailey

January 20, 2015 at 5:58 pm

Give me a lever long enough and a place to stand, and I will move the world

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G.K. Chesterton was a mad genius, a bullet-biting Archimedes. From his What’s Wrong with the World, in response to doctors wanting poor childrens’ hair cut short to prevent lice:

Now the whole parable and purpose of these last pages, and indeed of all these pages, is this: to assert that we must instantly begin all over again, and begin at the other end. I begin with a little girl’s hair. That I know is a good thing at any rate. Whatever else is evil, the pride of a good mother in the beauty of her daughter is good. It is one of those adamantine tendernesses which are the touchstones of every age and race. If other things are against it, other things must go down. If landlords and laws and sciences are against it, landlords and laws and sciences must go down. With the red hair of one she-urchin in the gutter I will set fire to all modern civilization. Because a girl should have long hair, she should have clean hair; because she should have clean hair, she should not have an unclean home: because she should not have an unclean home, she should have a free and leisured mother; because she should have a free mother, she should not have an usurious landlord; because there should not be an usurious landlord, there should be a redistribution of property; because there should be a redistribution of property, there shall be a revolution. That little urchin with the gold-red hair, whom I have just watched toddling past my house, she shall not be lopped and lamed and altered; her hair shall not be cut short like a convict’s; no, all the kingdoms of the earth shall be hacked about and mutilated to suit her. She is the human and sacred image; all around her the social fabric shall sway and split and fall; the pillars of society shall be shaken, and the roofs of ages come rushing down, and not one hair of her head shall be harmed.

Written by James Bailey

January 20, 2015 at 3:38 pm