Tuesday, March 23, 2010

Is There a Health Insurance Bailout in our Future?

Governments have short time horizons. Faced with a long-term problem such as the actuarial bankruptcy of Social Security, it almost always makes political sense to stall, to find some way of putting off the political costs of dealing with it. With luck, the problem may go away. If not, the costs will fall on some other politicians in the future.

Now that Obama's health care plan has passed, he will be under pressure to produce results that look to most voters better than the past, or at least no worse. In the short run that should not be a problem, since most of the provisions of the plan are set well in the future. Most of the taxes to pay for it come into effect in 2013, the requirement that health insurance companies take anyone who applies, including those with pre-existing issues, in 2014, the tax on high end health plans in 2018. The fine for not having health insurance starts in 2014 at $95 or 1% of income, and reaches its full value in 2016. For the next few years, at least through the end of Obama's current term of office, the controversy over the plan will be mostly a war of words, without much evidence on its real consequences.

Eventually that will change. If, when most of the provisions of the plan are in effect, it appears to be working very badly, if health insurance is more expensive than it used to be, if many younger workers find they are being required to spend a lot of money for insurance they don't want, there will be two political consequences. One is that the Democratic party, strongly identified with the changes, will suffer a decline in its reputation. The other is that whatever politicians are in office will look bad, since voters will blame current problems on those currently in charge.

The obvious solution is to find ways of pushing the costs of the program into the future. Insurance companies take in money now in exchange for the promise of future payments. Under political pressure to charge less and promise more, they may adopt the policy followed by General Motors when it solved its labor problems by paying striking auto workers with the promise of future pensions: Make promises they cannot fulfill, in the belief that when the crunch comes the U.S. treasury will come to their rescue.


Anonymous said...

I don't see how the law can be held constitutional. How can the government force people to buy products in the private sector or be fined by the government.

If this stands, the government can force us to buy GM cars or face fines.

Anonymous said...

Is Michael kidding? The Constitution means whatever the Supreme Court says it means so anything they sign on to is Constitutional. They've pretty much argued over the years that everything the federal government does is Constitutional including each of us being forced into Social Security. Nothing new here with mandatory healthcare coverage.

Anonymous said...

In Gonzales v. Raich, the court took the view that any thing you do on your own property for your own use or benefit that could, in theory, effect the value of commerce in another state, can be controlled by the fed.

But this is new. Forcing people to buy private sector products or be fined. If this is upheld, the UN should reclassify America as a fascist democracy.

Anonymous said...

Exactly. Whatever the SCOTUS says is constitutional, is. Plain and simple.

Rex Little said...

The "unconstitutional" horse left the barn decades ago. The draft--a flagrant violation of the 13th Amendment--has been upheld. Federal laws against marijuana grown, sold and used entirely within one state haven't been overturned. Do you think there could possibly be five Justices who take the Constitution seriously enough to strike down health care?

Donald Pretari said...

I think that the real issue this time was about the acceptance of some kind of Universal Coverage. You will be surprised how many people in the near future will start admitting that our current system is a fiscal pig's breakfast. Consequently, people will start looking at long term solutions. Mine is a version of this:


Don the libertarian Democrat

chriscal12 said...

Michael asks how the government can force people to buy products in the private sector.

We should remember that this has been done with auto-insurance for quite a while now. The analogy isn't perfect, since the insurance mandate only applies if you decide to own a car; and I believe it's a state, rather than federal law (but I could be wrong).

In any case, the precedent is largely already there.

Anonymous said...

The auto insurance example isn't a good example for the health insurance issue.

First, the goal of auto insurance is to pay for damages you cause to someone else. Here in Ohio, you need to have coverage for $25,000 in damages or show you have $25,000 in the bank. Also, here in Ohio nothing happens to you if you don't have insurance. I've had 2 cars totaled by uninsured drivers and nothing happened to them. Didn't even get a ticket.

Second, it's a voluntary process. The government doesn't require you to submit proof of insurance on your taxes or pay a fine.

The goal of government health insurance is being setup so that any time a parent takes their kid with a runny nose to a doctor, any one but the parents will have to pay the doctor.

We should stop using the word insurance and replace it with welfare since that's the objective.

Daniel [oeconomist.com] said...

chriscal12, the requirement to buy auto insurance is imposed by the states, rather than by the Federal government, and is founded on the legal doctrine that driving is a privilege rather than a right (as opposed to, say, living). Further, requiring people to buy medical insurance is equivalent to a tax which is neither an excise tax nor an income tax, and hence plainly prohibitted by the US Constitution.

But, as others note, the effective constitution is what the SCotUS says it is. Assuming that Justices Alito, Kennedy, Roberts, Scalia, and Thomas remain on the Court, I could predict the outcome if I knew how Kennedy would rule.

Dale said...

I drive legally in Washington State without buying insurance. I purchased a $60k CD at a credit union, filled out some paperwork, and now I earn a little interest instead of paying an insurance company a few hundred dollars every year.

Something like this could work for Sickness Insurance.



Attn: Daniel P. Mason

Peter A. Taylor said...

Michael wrote:
"We should stop using the word insurance and replace it with welfare since that's the objective."

Amen! The primary purpose of government involvement in the health care industry is to prevent charity payments from showing up on the budget.

Anonymous said...

There wont be a bailout of health insurance. The senate bill was designed to encourage employers to stop providing insurance to employees, and then encourage the newly uninsured individuals not to get coverage. Why would they. The don't have to have coverage until after they get sick or injured.

Smaller insurance companies will be pressured to merge with the larger companies. As these larger companies run in to financial problems, the government will arrange GM style bankruptcies for them and merge them into its so called health exchanges.

The American people know socialism when they see it. They haven't run it to fascism which is the model Obama is using. But the outcome is the same.

Anonymous said...

It's just one more slice in the "Death of a Thousand Cuts" being dealt to the country. The cuts are coming faster, though.


Andrew said...

Health insurance is not a requirement, you just pay higher taxes (aka "the penalty) if you don't have it.

Seems reasonable to me--if you're uninsured you have a much higher chance of ending up either bankrupt or on the dole.

Also, Laura: don't be a pessimist, we're only a few decades from seasteading and the singularity everywhere.

Anonymous said...

encourage the newly uninsured individuals not to get coverage. Why would they. The don't have to have coverage until after they get sick or injured.

Wait: that's what would happen if insurers were forbidden to exclude people for pre-existing conditions but people weren't required to be insured. The point of mandatory insurance is to prevent exactly that problem. If you don't want mandatory insurance, and you don't want the system to go bankrupt because people opt out until they get sick, you're back to the current system, in which if you've ever been seriously sick or injured, you cannot switch insurance -- an enormous transaction cost that impedes market competition.

Now, I'm not happy about the Federal government requiring me to buy something from the private sector -- that's why I favored a public option, so there would be more choice and competition in the market.

BTW, another (even more offensive, to me) precedent is electronic income tax filing. Under the GWB administration, it was available for free to poor people, and for the rest of us it was available only through a handful of Federally-blessed private companies. In essence, the Federal government had given (in exchange for who knows what campaign contributions) these few companies the exclusive right to collect tolls on a Federally-built road. Fortunately, the Obama administration changed this policy: now anybody with a computer can e-file for free, although the companies can still charge for their software that does some of the work for you (which seems like a reasonable value-added to me).

Anonymous said...

The goal of government health insurance is being setup so that any time a parent takes their kid with a runny nose to a doctor, any one but the parents will have to pay the doctor.

That's an eloquent expression of outrage, but not supported by the facts. Nobody has suggested that the patient (or the patient's parents) not pay for health care. (If the bill did say that, who do you think would pay the doctor?). The suggestion, rather, is that everybody (including those parents) pay a little bit all the time, so that those few who happen to get seriously sick or injured can be treated without spending more than they'll earn in a lifetime. You may not agree that that's a good idea, but don't criticize the bill for things that it doesn't say.

Wise Health Insurance said...

it's amusing people being ugly and angry when they don't even know what all the health care bill entails. people are saying Obama doesn't care about the poor b/c he is forcing people to get insurance, but he is making it easier for those less fortunate to get government subsidized health care.... at low to no cost to you. most of what is being said are assumptions and here-say. read the plan, find the facts, educate yourself and vote for someone who believes the same things you do next election (that's for both congressional and presidential). then feel free to get on your soapbox and roar away.