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Saturday, January 22, 2011

The Need for Health Care is "Bigger Than the Individual States"

Richard Thaler on the health insurance mandate:

Adding Clarity to Health Care Reform, by Richard Thaler, Commentary, NY Times: ...Perhaps the most unpopular feature of the health care legislation now in place is a provision that requires nearly everyone to buy insurance. It is known as the mandate, and it is the aspect of the bill that could end up before the Supreme Court. In contrast, nearly everyone seems to approve of the provision ensuring that pre-existing medical conditions won’t prevent you from finding affordable insurance, as well as the rule that prevents insurers from dropping you if you get sick.
Unfortunately, it is hard to have the popular features without some version of the mandate. A health insurance system cannot work unless most healthy people participate. ...
The Supreme Court may make the ultimate decision in the next year or two. If it rules the mandate unconstitutional, the viability of the rest of the plan is not clear. Until the legal issues are settled, the status of health care reform will be uncertain.
In this light, here are three thoughts about constructive steps we might take now:

Skipping forward:

 ... My "Reagan plan." ... In 1984, President Ronald Reagan signed a bill encouraging all states to adopt a minimum drinking age of 21. To nudge states into going along, the plan said that any state that didn’t join would have its highway funds cut by a certain percentage. Although Mr. Reagan initially had misgivings about the plan, he would later come to embrace it, saying that the harm caused by teenage drunken drivers was “bigger than the individual states.”
All of the states ended up complying, although some were reluctant — and South Dakota, in fact, sued. But ... the Supreme Court ruled 7 to 2 that the law was constitutional.
Here is how the Reagan plan could apply to health care: Adopt a new bill that says that if a state doesn’t want to accept a mandate ... it may opt out of health care reform. But a state that chooses this course would lose ... federal funds...

I've discussed the mandate in the past. Why We Need an Individual Mandate for Health Insurance uses a standard market failure (adverse selection) argument to explain why we need broad based coverage. But I should have emphasized the need to provide households with help in purchasing the insurance. The current health care legislation does not do enough to help people with the additional, mandated expense for health insurance, an expense that comes at a time when wages and income are stagnating for the majority of people and jobs are hard to come by. In this regard, a system where the government provides health care for everyone and pays for it out of taxes is preferred.

    Posted by on Saturday, January 22, 2011 at 02:07 PM in Economics, Health Care, Market Failure | Permalink  Comments (32)


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