Blinder on Health Care
By David Henderson
Alan Blinder, in today’s Wall Street Journal, has an interesting piece attacking Supreme Court judges who would actually seriously consider finding the recent health care law unconstitutional. It’s titled, “Life Liberty, and the Pursuit of Insurance.” There are so many interesting parts of this piece that I’ll quote them and respond in turn to each.
Beyond the economics, our country was founded on the idea that the rights to life, liberty and the pursuit of happiness are inalienable. Access to affordable health care is surely essential to two of these three rights, maybe to all three.
Wow! I think he and I (and the founding fathers with me) have a very different view of what the right to life, liberty, and pursuit of happiness mean. Alan [he and I have always been on friendly terms and so I feel justified in using his first name] seems to think that it means that the government can use force to provide affordable health care. The founding fathers and I take these terms to mean that the government can’t use force. That would violate our liberty and our pursuit of happiness. Alan Blinder is a good economist. He understands that there is no free lunch. So when government provides subsidized health care, others are forced to pay for it. So by the founding fathers’ and my meanings, this law violate our rights.
In the very next sentence, though, Alan writes:
Rights are nice, but someone has to pay the bills.
The “but” suggests that he doesn’t really have a rights justification for the law and that he knows it. I think this is his way of saying that he doesn’t really care about rights. So maybe he and I do mean the same thing by “rights” because he couldn’t hold on to his meaning for more than a sentence.
The U.S. health-care payment system has a few oddities we’d be better off without. For one, the tax code incents employers to pay part of workers’ wages in the form of health insurance, which is why insurance became tied to employment in the first place. For another, we have somehow decided that the state should provide anyone age 65 or older with health insurance, while everyone younger should fend for themselves. I’d hate to have to explain either of those choices to the proverbial man from Mars.
All good points. So let’s end that tax treatment in a revenue-neutral way. And it is unfair to tax the young to pay for the old, especially when the old are, on average, wealthier than those in their twenties and thirties. If that’s a bad idea, and we can’t explain it to someone from Mars, what should we do? Hmmm. I’m thinking here. It’s tough, it’s tough. Maybe if I think harder I can figure it out.
He then writes:
Now the big question: Does anyone think it is sensible to have nine lawyers decide what sort of health-care payment system the nation should have? Yet that’s what may happen when the Supreme Court hands down its ruling.
Good question, Alan. It’s not sensible at all. No lawyer and, in fact, no non-lawyer, should be able to decide what sort of health-care payment system the nation should have. Why does his question work well rhetorically? Because it gets us thinking about who should be able to make our decisions. I have a suggestion: we should. But that’s not where he goes. He waits until the end of the article to say who should make the decision, writing:
If we are going to have political decision-making, at least elected politicians should do the deciding.
That’s an interesting formulation. Notice the conditional. IF we are going to have political decision-making, let’s have elected politicians do it. Not exactly a ringing endorsement of political decision-making. Maybe there’s hope.
Back to the earlier part of his article. He asks, “Why does the law require people to purchase health insurance?” and here’s the first part of his answer:
Like most forms of insurance, health insurance is plagued by potential adverse selection. Pick any price, and riskier customers–the people more likely to file claims–will find the insurance policy more attractive than less-risky customers. So in health insurance, in particular, insurance companies expend huge resources trying to screen the bad risks out and the good risks in. One obvious way is to exclude people with pre-existing conditions, but there are others. All this effort adds to national health expenditures, improves insurers’ profits, and hurts the bad risks (e.g. sick people).
Notice his careful use of the word “potential” rather than “actual” before the term “adverse selection.” He lays out how insurers reduce adverse selection by spending resources. Are the expenditures huge? I’m not sure. Alan writes that one obvious way is to exclude people with pre-existing conditions, but he misses–and this is a strange omission for an economist–another obvious way: price higher to higher risks, just as every insurance company does with every kind of insurance whenever they are allowed to. It does hurt the bad risks–he’s right there–just as every insurance premium based on risk does. It’s not clear, though, that it improves insurers’ profits. There is, after all, competition among insurers that tends to compete away abnormally high profits. Of course, there would be more competition if the people were allowed to buy insurance across state lines. But he doesn’t go there.
The essential bargain made in 2010 starts by using the individual mandate to create a huge pool consisting of (almost) all Americans under age 65–just as Medicare now does for the 65-and-over population. With that pool created, the law can then require private insurers to cover (almost) everyone, including those with pre-existing conditions. In return, insurers get a lot more customers and a lot less adverse selection. They also save a ton of money on screening.
The Supreme Court’s ruling could unravel this bargain. If the justices void the individual mandate, the adverse selection problem comes roaring back. Then, if the other insurance reforms remain in place, it will be the insurance companies that get sick. They will have to take on the bad risks while some of the good risks opt out, as they do now.
But with the penalty for not complying with the mandate being so low these problems he talks about will come roaring anyway. Moreover, insurance companies, unable to price according to risk, will try to make their insurance unattractive for high-risk people. That could get ugly. As health economist John Goodman has asked, “Would you want to eat in a restaurant that didn’t want you as a customer?”
Finally, Alan can’t resist. He writes:
I have a simple model of Supreme Court decision making which rarely errs. In cases in which there are clear Democratic and Republican positions on an issue–which certainly includes this case–the Court will vote 5-to-4 Republican. Think Bush v. Gore or Citizens United, for example.
Not quite. In one part of Bush v. Gore, the decision was 5-4. In the other part, though, it was 7-2.
And Citizens United? Really, Alan? Let’s see. Organizations that wanted the Supreme Court to decide as it did included that group of rabid Republicans known as the American Civil Liberties Union and that group of labor unions called the AFL-CIO.