“I promise a chicken in every pot (chicken not included)”

Tyler Cowen was ‘somewhat surprised‘ to find out that a higher percentage of the uninsured disapprove of Obamacare. I’m not sure whether his surprise was that the disapproval wasn’t higher or lower.

I wasn’t surprised that more disapprove.

As I wrote in my “Wait…What?” post in July of 2012, Obama won votes by promising to solve the problem of the uninsured. Those voters didn’t realize that his solution would be to penalize the uninsured for not buying insurance.

It’s like the old Doctor joke.

Patient: Doc, it hurts when I do this. Can you fix it?

Doc: Yes I can.

Patient: Really? Great! How?

Doc: Stop doing that.

In July 2013, I didn’t think many people had made that connection, yet. I predicted they might when they had to pay the fine. They haven’t paid the fine yet, but are discovering that Obama’s solution was the same as the Doc’s above. Stop not buying insurance.

I offered what I think is a better medical mandate in this post (edited slightly).

If you choose not to purchase insurance and you need medical care, you will be expected to pay for your medical care.

Mine isn’t that much different than Obama’s. But, it doesn’t require government intervention.

Update: James Taranto, at the Wall Street Journal, does a great job of making my first point:

In short, what ObamaCare means to the uninsured who were not uninsurable is higher prices for a product they already were disinclined to buy, along with a punitive tax on not buying it. That seems more like a mugging than a benefit.

Round and round

This excellent post from Don Boudreaux, reminded me of my less worthy attempt at this in 2012.

This is the dynamic in a nutshell:

1. In a freer health care market, the costs of being unhealthy or uninsured is borne by individuals. This provides strong incentives to stay healthy and insured.

2. In #1, some people will still fall through the cracks. Some because of bad choices they made, but others because of unfortunate circumstances.

3. Attempts to solve #2 that involve anything other than encouraging people to make better choices creates moral hazards* that cause even more people to take less responsibility for their health and not buy insurance. This increases costs for those who pay.

4. The same compassionate people who wanted to solve #2 try — with no apparent awareness of this — reproducing the natural incentives in #1 to stay healthy and insured by dictating both. This appears in mandates that sound like, If we’re paying for you health care, then we have the right to tell you how to live your life.

We already see evidence of this in New York City with bans on salt, trans fats and large, sugary drinks. New York was already well down the Obamacare path, which is why New York City was one of the first areas in the U.S. to show signs of #4.

Here’s an example from Japan. I see evidence of this starting here. My employer, for example, is now collecting my BMI and waist size and will soon want to start tracking my exercise activity.

Of course, the First Lady’s efforts to reduce childhood obesity are also initial steps in the direction of #4.

*Moral hazard – A moral hazard is created when some measure taken to reduce risks, increases the risks people are willing to take.

One example of this can be seen in football. Wearing helmets sounds like a logical safety measure, but has resulted in players hitting each other harder and even taking measures (like doping on steroids to build muscle mass) to hit ever harder.

The link to the post about the BMI penalties in Japan provides an example of moral hazard in medicine.

How distortions shape expectations

I recently suffered an injury to my foot. I got in to see my doctor the next day. They took and x-ray and confirmed no broken bones, just damaged soft tissue that should heal in a few weeks. I saw the x-ray image less than 2 minutes after it was taken. I was amazed at the clarity.

I expected to pay hundreds of dollars from my HSA account for that care, since I had not reached my deductible for the year. But, I thought it was worth it to know that I had no broken bones. I was pleasantly surprised to receive the bill. The total cost for the doctor visit and x-ray: $83.

Some say, sure, that’s the rate your insurance company had negotiated. I say, that’s closer to the rate you’d see in a competitive market where more costs are paid by patients out-of-pocket and that’s similar to what we pay plumbers and HVAC repairmen for a basic service call.

But, our expectations are different for those services, shaped by decades old market distortions of tax-deductible employer plans and third-parties paying the bills.

We might grumble about paying for plumbing or HVAC repair, but we haven’t adopted the expectation that some third-party insurance company pay that cost for us.

Two good ones from Greg Mankiw

I like it when well-respected Harvard economist, Greg Mankiw, gets snippy. In this post on his blog, he snips at Kathleen Sebelius’ lack of understanding of the the term insurance.

Also, I recommend reading Mankiw’s Sunday NY Times opinion column about what fiscal sustainability means.

Government caused the pre-existing condition problem

In this post I explained why I think the tax advantage to employer-provided health insurance, over individually purchases health insurance, is the government-induced cause of the pre-existing condition problem that most folks prefer to solve by introducing even more government, rather than addressing the root cause.

In John Cochrane’s health care essay, he agrees.

Before ACA, the elephant in the room was the tax deduction and regulatory pressure for employer‐based group plans. This distortion killed the long‐term individual market and thus directly caused the pre‐existing conditions mess.  Anyone who might get a job in the future will not buy long‐term insurance. Mandated coverage, tax deductibility of regular expenses if cloaked as “insurance,” prohibition of full rating, barriers to insurance across state lines – why buy long term insurance if you might move? – and a string of other regulations did the rest.

 

Free Market Masterpiece

I agree with Don Boudreaux, of Cafe Hayek, that John Cochrane’s health care essay is a must read.

I first titled the post, “Health Care Masterpiece,” but then changed it to “Free Market Masterpiece”. In his essay, Cochrane does a masterful job of contrasting free market success stories to our government-restrained market for health care.

Here are a few snippets.

I bet you didn’t know:

About 70% of hospitals and 85% of health‐care employment is in non‐profits,whose legal and regulatory treatment protects much inefficiency from competition.

Maybe for‐profit companies pay too much attention to stock prices. But non‐profits can go on inefficiently forever, with no stockholders to complain.  The whole point of a non‐profit is to pursue goals other than economic efficiency.

Here he summarizes the competing goals of various government actions in health care:

…here we have the government forcing small size in order to boost competition with one hand, stopping entry to protect hospitals from competition with another, trying to force larger “networks” through “Affordable Care Organizations” to obtain the needed economies of scale with the third, but laws preserving doctor independence with the fourth.

And:

On reflection, it’s amazing that computerizing medical records was part of the ACA and stimulus bills. Why in the world do we need a subsidy for this? My bank computerized records 20 years ago.

Why, when you go to the doctor, do you answer the same 20 questions over and over again, and what the heck are they doing trusting your memory to know what your medical history and list of medications are?

He answers that question (read it to find his answer) and OMG:

No, we did not get cheap and amazing cell phones by government ramping up the pressure on the 1960s AT&T. Southwest Airlines did not come about from effectiveness panels or an advisory board telling United and American (or TWA and Pan AM) how to reorganize operations. The mass of auto regulation did nothing to lower costs or induce efficient production by the big three.

When has this  ever worked?  The post office? Amtrak? The department of motor vehicles? Road construction? Military procurement? The TSA? Regulated utilities? European state‐run industries? The last 20 or so medical “cost control” ideas? The best example and worst performer of all,..wait for it…public schools?

I will post more quotes later. But, I also agree with Boudreaux that you should take the time to read the whole thing.

“Why I Support Obama”: Point 1

This my response to the first point made by the Facebook Obama Supporter.  Let’s first review her point:

For 30 years I’ve heard politicians talk about health care reform, and he’s the first one to do something about it.  The Affordable Care Act removes conditions on pre-existing conditions, makes health care more affordable for small businesses, raises the age at which children can be on their parents’ policies, removes lifetime caps, and more. With the possible exception of insurance execs, who would not want these changes?

First, politicians have been reforming health care for a long time.

Second, the Obama supporter doesn’t realize those reforms are why we have the problems that she wants the government to solve, like pre-existing conditions.

I wrote about how government created the pre-existing condition problem here.  John Cochrane, finance professor at the University of Chicago, agrees with me.  So does economist Steven Levitt.

Next, the Obama supporter believes Obamacare will make health care affordable for small  businesses. First, intentions of government programs are rarely realized. Usually it’s the opposite — the government programs make things worse. Second, affordability is partly caused by the government tax treatment of health insurance (see links in previous paragraph).  If we purchased health insurance like we do auto and home insurance, small business — or any business — could get out of the health insurance business and focus on whatever they do best.

Next, it’s not clear to me what problem raising the age for children to remain on their parents’ policy solves that wouldn’t be solved by decoupling insurance and employers as discussed in the previous two paragraphs.

Next, lifetime caps?  I haven’t heard of these caps being a problem.  And, in a freer market of health insurance, if people wanted protection over and above the lifetime cap, they could probably get it.

I’m not an insurance exec and I don’t want these changes.  I believe they will have negative unintended consequences that will slow progress and innovation in health care and lower quality and availability.

Plus, I bet insurance execs are not as upset by this as the Obama supporter thinks.  They are now politician’s cronies and as long as they keep their political cronies happy, the political cronies will keep directing our money to them.  That’s easier than developing innovative products that individuals choose over the competition.