Does the Obamacare mandate actually make people better off?

Here is my latest NYT Upshot column, on the topic of the Affordable Care Act.  Here is what is to me the key excerpt:

But there is another way of looking at it, one used in traditional economics, which focuses on how much people are willing to pay as an indication of their real preferences. Using this measure, if everyone covered by the insurance mandate were to buy health insurance as the law dictated, more than half of them would be worse off.

This may seem startling. But in an economic study, researchers measured such preferences by looking at data known as market demand curves. Practically speaking, these demand curves implied that individuals would rather take some risk with their health — and spend their money on other things — partly because they knew that even without insurance they still would receive some health care. These were the findings of a provocative National Bureau of Economic Research working paper, “The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsureds” by Mark Pauly, Adam Leive, and Scott Harrington; the authors are at the Wharton School at the University of Pennsylvania.

One implication is that the preferences of many people subject to the insurance mandate are likely to become more negative in the months ahead. For those without subsidies, federal officials estimate, the cost of insurance policies is likely to increase by an average of another 7.5 percent; even more in states like Oklahoma and Mississippi. The individuals who are likely losers from the mandate have incomes 250 percent or more above the federal poverty level ($11,770 for a single person, more for larger families), the paper said. They are by no means the poorest Americans, but many of them are not wealthy, either. So the Affordable Care Act may not be as egalitarian as it might look initially, once we take this perspective into account.

I should stress that, at this point, I don’t see any realistic alternative to trying to improve ACA.  Still, I find it distressing how infrequently this problem is acknowledged or dealt with, probably from a mix of epistemic closure, a “health insurance simply has to make people better off” attitude, and a dose of “let’s not give any ammunition to the enemy.”  In fact, I think a lot of Democratic-leaning economists and commentators are doing a real disservice to their own causes on this one.

It’s worth noting that Kentucky, one of the best-functioning ACA state exchanges, just elected a Republican governor who very explicitly pledged to tank the current set-up as much as possible, Medicaid too.  I think it’s time to admit this is not just Tea Party activism or Hee Haw political stupidity, rather a large number of the people subject to the mandate simply are not better off as would be judged by their own preferences.  And that is not a secondary problem of Obamacare, it is a primary problem.

Interestingly, I found the NYT reader comments on my piece to be fairly supportive, which is not always the case.  There’s a good deal of “this happened to me, too,” and not so much raw invective about whatever defects I may have.

I think it is a big mistake to argue Obamacare is on the verge of collapse, or whatever other exaggeration of the day may be at hand.  Still, I don’t find the current set-up of the exchanges to be entirely stable, at least not in terms of ongoing popularity, much less consumer sovereignty.

A key question is what happens moving forward.  One option, which I had not initially expected, is for the exchanges to narrow and evolve into an expanded version of some of the earlier plans for a segregated high-risk pool.  In that case, the argument would morph from “don’t worry, enough people will sign up for the exchanges” into “the welfare effects here are still positive, because fortunately not everyone signs up for the exchanges.”  The high risk pool would then at some point require additional subsidies.  In the past, I argued that the penalties for not signing up were too low, but under this scenario it may be desirable to lower rather than raise those penalties.

We’ll see.  The piece covers other issues as well, do read the whole thing.

Here is Megan on the costs of ACA plans.  Here are some interesting calculations from Jed Graham.


Once people outside the subsidized groups realize that ACA has doubled their costs for nothing, they are not going to be very happy about it.

Except it hasn't "doubled costs," so you will have tough time selling that.

Just because the average hasn't doubled doesn't mean some people haven't seen their cost double. For example in the group plan for my office when we had to switch to a compliant plan we went from a single price for single, spousal, or family coverage to pricing based on age. If you were over 50 you saw a large increase, sometimes more then doubling, while younger workers saw a decrease. Everyone saw an increase in deductibles, if you add that to the increased premiums you could make the argument that the maximum out of pocket doubled for the average enrollee.

I don't dispute costs for the median or average plan are not the same as costs on the high end of the spectrum. The ACA actually put the first ever limits on the differences in premiums insurers can charge for individual and small group plans based on age (max 3:1 ratio). So hard to see how that particular issue with your plan was introduced by the law.

My company is only one anecdote, but we switched insurance plans and designs 2 out of 3 years leading up to ACA implementation. In each case, the changes were not favorable to the employee wallets. Benefits administrator told us it was because premiums were increasing. Ok,I'm sure that was the case. The ACA is a great gift to companies in that they are able to pass along any health insurance cost increases to employees and blame it on the law--even though costs have been going up for decades. Of course, very few employees have the information to assess what is going on with their particular workplace plan.

The difference is because we were no longer allowed to keep the old plan, which was a true insurance pool, not a risk based pool. My old plan could have been grandfathered in but was dropped by the insurance company due to too many pool members not being grandfathered. This isn't a case of the company blaming the increased cost on obamacare either, I was the one making the decision on the coverage changes. The choices were to take the compliant plan closest to our old plan with a 14% overall rate increase and a $500 higher deductible or a 8% rate increase with a $1500 higher deductible. This was after several years of increases of around 6% with no coverage changes.

Possibly you are in the class of people that hasn't realized it yet?

My belief is that if Obamacare fails, its most likely replacement is some form of single payer.

Despite its many problems, Obamacare gets the big picture framework about right. Health insurance markets were wholly dysfunctional prior to the law, so it's not like Obamacare broke a great system. IMO, creating functional individual health insurance markets requires some combination of incentives, minimum coverage rules, penalties, and a ban on medical underwriting.

We can argue about the details, but at a high level, this framework is the only workable model short of single payer, which I believe would deliver a far less optimal result. The problem is vaguely analogous to electricity market restructuring. Re-engaging market forces requires a much heavier regulatory footprint than a monopoly or single payer model, but by incorporating market forces and price signaling into the regulatory regime wherever possible, we get a much better result than a purely government run approach.

You can have your opinions and prejudices but you cannot invent the facts.

Dysfunctional Big Picture framework: before Obamacare 80% of poll respondents were content with their health care. In a few years (if Obamacare isn't repealed) 20% will be content. As numerous Obamacare co-ops are failing, soon many others will be unable to solvently function. Millions of people were forced out of plans because they didn't [provide enough Obama mandated goodies. If you think costs didn't rise at magnitudes far above minimal inflation . . . Another thing, no casualty insurance company could survive a state mandate to insure against losses people's homes after the fires start. But, it will not have been Obamacare that caused it. No . . .

Satisfaction polls of the general public might miss the point. A healthy person might be satisfied, but that same person might be most concerned about future risk.

If you ask me if I am satisfied about my health care, yes. But no, that is not why I have insurance.

If so, are you now saying Obamacare has made people less healthy? Poll numbers are down and you connected them to healthiness.

Many people were content with their healthcare because most people don't use very much healthcare in a typical year. All they notice is the cost of their insurance.

Before Obamacare, many policies were designed to cover the typical one or two doctor visits that most people need in a year while excluding the big stuff. Maintaining customer satisfaction was just a numbers game. Maximize cost savings while minimizing the number of people hit by the fine print in the policies. It was a game that insurers played well.

For a taste of how the old model worked, google "Homeland Healthcare complaints" or "USHealth Group complaints". Here you can see the reactions of hundreds of people as they realize that the low premiums and great coverage they previously raved about were actually a mirage.

And I'd argue that most people don't know the true cost of their insurance because it is mostly hidden, and tax free.

Totally agree that junk insurance works for the 90% of people who don't really need it in a given year. What would there be to complain about?

"Totally agree that junk insurance works for the 90% of people who don’t really need it in a given year. What would there be to complain about? "

If the insurance is satisfactory to 90% of people on a given year, then it's clearly not junk. And attempts to label it so are the basest kind of propaganda.

'If the insurance is satisfactory to 90% of people on a given year, then it’s clearly not junk.'

Anyone want to bet that observation was made either by an excellent mark for the insurance industry, or a member of it?

Yeah, I'll put $100 on the other side of that bet. Care to match it?

"If the insurance is satisfactory to 90% of people on a given year, then it’s clearly not junk."

It's close. The correct word is "profit" for insurance companies. Not that I'm anti-profit, but the very nature of insurance is that most premiums are wasted from the consumer's perspective.

A high percentage, including Republicans, also want an increase in the minimum wage and more gun control.

"Ban medical underwriting"

Whaaa?? Should we also ban driving underwriting for auto insurance and mortality underwriting for life insurance?

The connection between behavior and health is tenuous and much of medical underwriting is at odds with the political philosophy of 'equality of opportunity, not necessarily equality of outcomes.

Someone unlucky enough to get leukemia (probably bad luck or bad genes) shouldn't be saddled with a lifetime of economic disadvantage. We can afford to socialize those types of cost.

OTOH, charging people more for decisions they make is more reasonable (eg smoking, maybe weight).

????? Tenuous?????? Behavior is the dominant determinant of health. Sure there are genetic factors, environmental factors in the extreme and maybe "luck" but of course there are genetic and luck factors in automobile accidents and of course in mortality.

this framework is the only workable model short of single payer

How about instead of taking government regulation induced problems (employer insurance tax subsidies, super-tight insurance limiting regulations, crazy barriers to entry to restrict supply, thousands dying from the expensively slow FDA approval process, etc...) and constantly layering ever more regulations on top in order to "fix" it, we just go to an actual free market-based health care and insurance system? It seems to work really well for the least regulated things we purchase every year and it has the added benefit of costing both the government budget and individuals themselves much less while most efficiently allocating scare resources. A great pareto improvement!

Ok, I guess some of the health care providers, drug companies and insurance companies would technically be harmed be removing the various regulations which benefit them at the expense of their potential competition, but overall it's still a great improvement to use free markets, even if you consider them flawed for some reason.

This idea could work great, as long as you're willing to let people who don't buy insurance and can't pay bleed out at the curb of the emergency room.

This is the typical reason for dismissal of plans like Sewell's but those costs are a fraction of our total costs and could be covered by either charities or a government program at a fraction of the current system's costs.

The truth is, I believe that even an irresponsible 28 year old who thought they were invincible, just before the leukemia diagnosis, deserves to get treated even when they can't pay because they didn't bother to buy insurance.

If you disagree with this view, then your free market approach could work. But once you accept that free care always there as a fallback, there's no way an unregulated market approach can work.

Tyler, The last link by Jed Graham doesn't seem to be working.

Probably this article:

Let me get this straight: The fact that ignorant, irrational people now have to get health insurance is the worst aspect of Obamacare? Come to Skandinavia, Tyler, just to see what you're missing.

What's irrational about forgoing health insurance? I have't interacted with the medical system in fifteen years. If I do so I have more than sufficient assets to self-fund my own care. If I need antibiotics I buy generics from India. I broke my finger a few years back, and looked up how to set a fracture on Wikipedia. Beats the hell out of getting MRSA at a hospital. Frankly I think doctors are mostly people too dumb to make it in business, and those quacks kill just as many people as they save. The scientific evidence backs me up on this (look up the RAND healthcare study).

Thanks to Obama, I'm forced to send a couple thousand a year to United Healthcare. Money I'll never use or get back.

Are you even familiar with what the word "Insurance" means? So if you have real disease you prefer to go bankrupt? Good Luck...

What "real disease"? The only conceivable treatment for a healthy 30 year old that would exceed $100,000 is intensive chemotherapy. Given chemo's abysmal effectiveness, I'd gladly skip the hellacious side-effects of glorified snake-oil. (Link below). Trauma care from a car accident would probably run $80k on the initial bill, but anyone who doesn't negotiate medical bills is an idiot. Hospitals regularly discount 75%+ from list price for uninsured patients. I'm exponentially more likely to require serious medical care in my 80s. Forgoing health insurance and compounding the money in the stock market for several decades significnatly reduces the NPV of medical burden in expectation. The math is dead simple.

"[I]n most other cases, chemotherapy is remarkably ineffective. An exhaustive analysis of cancer treatment in the United States and Australia showed that the five-year survival rate for all patients was about 63 percent but that chemotherapy contributed barely 2 percent to this result."


This is a serious misrepresentation. The last sentence of the immediately preceding paragraph says,

The bulk of this spending goes to chemotherapy, which is used in a variety of ways and has proven effective on some cancers, including leukemia, lymphoma, Hodgkin’s disease, and testicular cancer, especially if these cancers are detected early.

ALL insurance has a negative NPV, that's what made Warren Buffet a billionaire. A plan offering catastrophic coverage can make sense even if you have significant assets, what doesn't make sense is the mandatory minimum coverage in the ACA.

Are you familiar with the meaning of "insurance", Moreno? I seem to remember an awful lot of argumentation coming from your direction if not you exactly, that health insurance was needed to cover small, expected, and regular expenses, like birth control and preventative care. So you might want to reconsider your argument, given how ACA proponents have demonstrated that they don't care what insurance means.

" Somebody Else Pays My Medical Bills " .....

... that's what health "insurance" means to most Americans and the political class.

That common view is totally divorced from any rational or actuarial understanding of insurance. Hence discussions on this subject quickly deteriorate to emotional, subjective viewpoints.

Who should pay YOUR medical costs ?

No. I dont think i said that. The most important is to make sure that you don't go bankrupt due to some freak accident/disease. I have read somewhere that this was the leading cause of bankrupcy in the US (i am not sure if this is true). Maybe Doug has $100,000 ready for any eventuality, but not me, and i dont think most americans have.

Somebody Else Pays My Medical Bills

Indeed they do. That's the idea of insurance. Somebody else pays when your house burns down also.

@Bernard Yomtov

But they don't pay to unclog your toilet or change your air filters.

It'll continue to be impossible to have a real discussion about this topic as long as the definition of "insurance" isn't settled for the debate.

Doug, your story sounds like the best spin on what people do without insurance, but surely you know some are not such good "doctors" as you and only multiply costs or outright die from untreated infection.

"Thanks to Obama, I’m forced to send a couple thousand a year to United Healthcare. Money I’ll never use or get back"..."If I do so I have more than sufficient assets to self-fund my own care. "

Boo hoo crybaby. You do realize to 'self-fund' a bout with, say, cancer would require at least $100,000 on hand in cash. If you are talking about chronic cancer you should probably be able to finance over $500,000 at least (every time my wife sits down for a treatment we're talking at least $15-$20K). If you have these sorts of funds then a few thousand you might pay to the IRS for not having insurance, no doubt, is pennies compared to your regular income tax payments.

If, however, by 'self-fund' you think that since you happen to have a credit card that you could charge a few hundred dollars from the urgent care....well you're very short sighted.

Hey everone, I found John Galt!

Problem is that neither "ignorant, irrational people", nor anyone else, can just buy health insurance anymore. I had a perfectly good major-medical policy that I bought on the individual market long before the ACA went into effect. However, due to the ACA's mandates, it's been replaced by one that includes features that I do not and will never need or want, including female birth control (but not vasectomies!) and maternity benefits. To that extent, the ACA is a means of siphoning money out of the pockets of people like me and redirecting it to a constitutency that the Democratic Party counts on for votes.

"the ACA is a means of siphoning money out of the pockets of people like me and redirecting it to a constitutency that the Democratic Party counts on for votes." Of course; what else could it be? The question for national health care/insurance systems isn't whether they are deliberately redistributive - of course they are - but whether they are cheap, competent, honest and so on. In the USA? Fat chance.

A fit vegetarian might complain that their policy is transferring money to fat and lazy carnivores. That's just the way insurance works. You never got to choose people you like as co-insured

"You never got to choose people you like as co-insured"

That's a fantastic statement, except for the reality that he was getting exactly that service before the ACA. I know, I know, facts are painful but you actually have to try to fold them into your argument.

Are you kidding me? Do you think Blue Cross let me join a group of fit hikers as my "group?" Do non-drnkers ask to insure no alcohol related illness?

Where did he get that service, exactly?


shouldn't the group of fit hikers be the judge on whether you could join, rather than Blue Cross?

What is keeping a group of 1000 healthy individuals from self insuring, and being compliant with ACA by matching the Bronze plans. That can match the previous high deductible plans, and could possibly be implemented with much less overhead than a car share.

What Olga doesn't understand is the vastly overpriced, anti-competitve, corporatist US healthcare system.

Sure, if insurance was as cheap as in Canada or Europe, it wouldn't be that big a burden to force people into it.

But Obamacare has ossified an already overpriced, anti-competitive system, and made it both much more expensive and mandatory.

Obamacare has made all Americans indentured servants to a corrupt healthcare system.

If you think the US should be more like scandinavia, you are advocating for big cuts in health care spending (>30%). I'm all for that, but do you have a realistic plan to get us there?

Single payer (or a reasonable facsimile), like in Scandinavia?

Do you HONESTLY believe that single payer in the U.S. would reduce the prices paid for health care at all, let alone by 30%?

The mandate to buy insurance is for the benefit of the insurers to keep them in the business.

The alternative is the government paying for all the health care the public wants with taxes or debt.

I know that lots of people believe the "free market" can do it cheaper, and they are correct, yet very few people are moving to Africa, for example, where all health care is free market, except for the charity care provided by people from socialist health care systems like the US and Europe and industrial Asia.

So, why aren't more people moving to Africa for its superior free market health care system?

And I doubt businessman Bevin will cut Kentucky's GDP, increase unemployment, and create a health care system crisis just out of hatred of everyone getting half the access to health care he does, instead of virtually no access. After all, free market health care was not extending the lifetimes of Kentucky's long time residents.

The ultimate thing all of the whole episode of attacks on Obamacare is that conservatives and Tea Party are arguing for expanding Medicare to every person from birth to death.

After all, not one person has called for creative destruction to solve the problem of people without insurance or other assets who need health care. If your car needs work but you can't pay, then the tow truck owner takes your car, cuts it up, and sells the parts to cover the costs you caused society by failing to take responsibility for your car. If you need medical care, and you chose to not be able to pay, then you should be euthanized and your body chopped up and sold.

The Tea Party *literally* wants to harvest poor people for their organs and turn New York into Mogadishu!

I thought they were opposed to death panels?!

"free market health care was not extending the lifetimes of Kentucky’s long time residents": good God, how did Kentucky ever manage to have free market health care? How terribly unamerican.

Ya Africa is entirely comparable to the US..... Not to mention Few if any nations in Africa have a free market system, you can't have a free market system without property rights derp.

The tea party was arguing for the status quo. And it would have been nice to see some market reforms. But people will still die under obamacare and they'd still die under the old system. We never see a rational discussion about healthcare but most people want their cake and to eat it too, no one dies from lack of healthcare and no one has to pay for someone else.

Likewise, not many people were migrating to Europe for the health care.

same as it has always been in america--exploit the lower middle class....

That seems like an excessively extreme solution, Mulp. I don't want to be dismembered and recycled for spare parts to the high WASP capitalist bidder just because my ancestors came from the wrong place. You must be a racist.

If people don't want to buy insurance because they'd rather spend the money on other things now and get free health care later because the government can't or won't credibly commit to not bailing them out, isn't the mandate internalizing an externality?

I mean, maybe the better solution is for the government to tell patients who don't have insurance or cash to pay out of pocket that they should have thought of that before they got sick, but that's not really on the table politically. It's not even in the room.

Insurance costs something and people dont want to pay for it ... but better pay now, than 100x that later. On the other hand, i kind of wonder how good the coverage is...

"people dont want to pay for it": specifically they want someone else to pay for it. No doubt many employees fondly imagine that their employers pay for it.

If only we could all be among the richest people in the world, enjoying our socialist ownership of resources we sell to global capitalism, like Morono Klaus.

If the mandate were a mandate for things that were externalities, sure, tautologically, you'd be right. The ACA isn't that. The ACA is a grabbag of mandatory coverage that actually creates externalities. Unless you thing that people who spent little on accupuncture, or birth control (because they are biologically incapable of becoming pregnant), were creating externalities?

Birth control reduces insurance costs (if you are an insurance company, paying for a single childbirth is enough to cover 1000 people's birth control). So if anything the externality runs in the opposite direction. People using birth control are the ones who subsidize the more moral types who instead have kids.

I'm not even going to ask what % of health insurance premiums you think are going to cover acupuncture.

Yea, that's exactly what I thought. When the problem is a tragedy of the commons, surveying the individuals on their views of a regulation type solution is entirely beside the point. If the government tells the farmers that they can each graze 2 cows on the common pasture, and then you ask the farmers if they are happy, they will all say no - they want to graze more cows. The essence of a tragedy of the commons is that if each individual acts in their own best interest, the result will be in nobodies interest. Surveying the farmers is just a way of finding out what each individual thinks is in his interest.

Tyler is pointing out a very simple phenomenon that Dems and Republicans both have been well aware of, even before the ACA. There is a small segment of American society that--perhaps rationally--thinks that, although they can technically afford it, it is not in their best economic interest to buy health insurance. Yes, they are taking the risk of some unexpected catastrophic costs, but they know they can show up at the ER and still get care if they really need it.

However, we get back to the basic fact that an insurance market doesn't work if everyone isn't at least implicitly required to be in the pool. So, this segment of society that would prefer to take their chances ends up having to buy insurance or pay a tax penalty. It's not rocket science, and even Republicans realized this when they were pushing the individual mandate years ago. Yes, some people who might not have otherwise bought insurance are required to do so, so the large swathe of people who actually want insurance can afford it. Welcome to society.

And if worse comes to worst there's always bankruptcy as a way of shoving the cost onto someone else.

"However, we get back to the basic fact that an insurance market doesn’t work if everyone isn’t at least implicitly required to be in the pool."

Every insurance product doesn't have a mandate, so it's unclear to me how this statement could even manage to emerge in your brain.

"individual mandate"

The inclusion of a grab bag of identity politics related mandatory coverages nonwithstanding of course, right?

For a health insurance market this is absolutely true. Healthcare is a service that everyone will need at some point in their life. There isn't an effective health care insurance system in the world that doesn't have pretty much everyone in the pool.

" Healthcare is a service that everyone will need at some point in their life."

That's true. Some people will need two aspirins the morning before they're run over by a bus. Others will be kept clinically alive for years after their brain has stopped functioning. (See Sharon, Ariel) If homo sapiens, at least in its super-civilized western form, requires that a huge and unprecedented portion of its wealth be distributed to medical professionals and insurance executives, despite the eradication of the most serious infectious diseases and the widespread knowledge of healthful behavior, then what's the point? If the species is so fragile maybe it deserves extinction.

In most states car insurance is mandatory if you own a car.

Come to think of it, they should do that for guns.

ACA aggravates this problem by cost-shifting from one group to another, from women to men, from old to young, from the sick to healthy. You can argue that a young, healthy, man is not being demanded to do anything more than is in his economic self-interest, but that would only be true to the extent that price had not been inflated, particularly for the benefit of the pre-Social Security set, who tend to vote far more than 20 yr olds.

We can also talk about healthcare costs bundled into the mandates for which insurance pooling concepts don't apply, such as birth control. This program could have been cheaper, but there were other policies being promoted.

It's true that young men in the individual health insurance market take a big hit under Obamacare. OTOH, Private employer plans have worked this way for years. These plans typically include maternity coverage, so again young male workers subsidize their female co-workers. Yet I've never heard any complaints.

Also, keep in mind that once a man reaches age 35 or so, the subsidies start flowing in the other direction. Starting at age 35-40, even after considering maternity benefits, men's healthcare costs are greater on average than similarly aged women. Not to mention that 35-40 years old men are also getting subsidized by both young men and young women.

"ACA aggravates this problem by cost-shifting from one group to another, from women to men, from old to young, from the sick to healthy."

You just defined health insurance, ACA or no.

Right, and let's remember that those people who show up knowing that emergency rooms are obliged to treat them without money are free riders in the true sense.

What, in the sense of being bankrupt?

In Los Angeles the Kaiser group has a hospital a bit too close to skid row. By law they must treat walk-ins. In what way does either debt collection or bankruptcy fix this? In what way does it compensate Kaiser members for their mandated service to the community?

Face it, it is a taking, just one Republicans approve of, implicitly, when they ask to roll back to 2008.

I can accept conservatism when it tries to conserve something good, but too often these days it is "better the Devil we know."

Why not just adopt universal health care? Cheaper and better.

The fact that it could be "cheaper and better" doesn't remotely imply that it will be, especially at the hands of one of the more obviously incompetent national governments in the advanced world.

Perhaps I'm just too much of a winner, but I hate this kind of losers argument.

Well it can't be better because we already have the best in the world. And it can't be cheaper because that would require the government to force price cuts on healthcare providers, and that is a political impossibility. Therefore we can expect it to be more expensive and worse.

You missed the story about higher death rates for middle aged white men? It defeats the old argument that "it's the minorities dragging us down."

Even with demographic adjustment we die more than those others.

As I say, it's a losers argument that we can't do better, not because we are the best, but because we prefer being worse.

I'm highly skeptical that the richest country in the world (>10M people) is so despite one of the more obviously incompetent governments. Especially given that poor governance correlates pretty well with low GDP/captia.

So dearieme you think Cuban government is very competent? I dont think thats an argument.

Cheaper and better? The keywords are: Willingness to Pay and Cost per QALY gained...

Why make the assumption that people's choices (or lack thereof) reveal their real preferences? Hasn't that been proven wrong? Behaviour economics... Their is someone making the calculation that they're better off using emergency services but that's likely a very low percentage of the people not signing up.

Since when is the election of a politician proof that everyone of his policies were supported by the electorate? Is that why they spend so much time campaigning on personal stories and emotionally arousing topics?

Yes, in an insurance market, there are people who would have more money in their pockets had they not purchased insurance. If I look at how much insurance companies have received from me since the first time I bought a car and compared it to how much they have spent on me, I'd have been better off had I not ever purchased any insurance...

Behavioral Economics... There is... Sheesh

Anyway, mental gymnastics are fun but if you're looking to spark a real debate, the best way to start would be to refrain from self indulgent logicals shortcuts. Using traditional economics... That's saying"I know the data no longer supports my view but bear with me, I have a point to make that depends on this assumption"

Simple question: are the increasing number of obese choosing an optimal utility?

If you don't believe the Behavioral Economics you have to say yes, their revealed preference is just fine.

Yes. But how does that make their preference just fine?

Look, the revealed preference points both ways, and actually highlights the contradiction. We have fat people and a huge diet industry.

Behavioral Economics neatly explains why both exist.

Yes, we must consider that people floating on rafts of garbage to escape Cuba aren't being rational. Isn't that your real point, Claude? That people aren't rational, but gee golly, you're just sure that your own political preferences are, to the extent that justifies a socialist dictatorship?

How could it be otherwise? Please explain how "Behavioral economics" says otherwise (you might as well have said "epigenetics")

What those healthy people who Cowen claims are worse off due to Obamacare would prefer is not to have an obligation to buy health insurance when they are well and the right to buy health insurance when they become sick. Of course, that's the recipe for a death spiral. What Cowen ignores, what healthy people ignore, is the risk of a long-term illness, a chronic illness, that will require expensive treatment for a very long time or all of their remaining time. Maybe Cowen doesn't know anyone who, under the pre-Obamacare world, suffered a chronic illness, leukemia for example, lost her job and the health insurance that came with it, was denied coverage for her pre-existing condition, exhausted her savings paying for expensive treatment, and ended up destitute as well as sick. Maybe Cowen doesn't know anybody like that. I do. Do you? In fact, chronic illnesses, not just cancer but diabetes, heart disease, and many others, at once death sentences, are now treatable, chronic illnesses due to advancements in health care. Cowen focuses on the unpopular part of Obamacare, the mandate requiring healthy people to buy insurance, while ignoring the benefits of Obamacare's popular provision that prohibits insurers from denying coverage for a pre-existing condition. Insurance doesn't work if only the old and sick buy it, so it's necessary to require healthy people to buy insurance so that sick people can buy insurance. High risk pools, insurance for only sick people, have a dismal history for reasons that are obvious. As for the insurance available on the exchanges, what's happened is that insurers have adapted by offering high deductible and co-pay plans that lure the healthy while saddling those with illnesses to high out-of-pocket expenses. It's in the insurers' interest to lure shoopers on the exchange to these high deductible and co-pay plans, and maybe the architects of Obamacare should have anticipated the insurers' response. What options does Cowen offer to correct this? None.

"maybe the architects of Obamacare should have anticipated the insurers’ response": come now, that would have required that they behaved as responsible grown-ups.

Tyler missed the surveys that show most people with Obamacare policies are happy with them. Also his interpretation of the Kentucky election forgets that by far a majority of people are on employer sponsored plans, not on Obamacare exchange plans.

He also should check how people not on employer sponsored insurance vote.

Of *course* most people with Obamacare policies are happy with them -- 86% are receiving subsidies!

And, yes, the number of people covered by the exchanges is small, which means that there are relatively few voters who support Obamacare out of self-interest.

You have to be careful with that 86% number. If you don't qualify for subsidies it's better to shop on the exchange then buy the same policy offered on the exchange directly from the insurer. This lets you avoid the middleman. Frankly I'm surprised the ratio isn't 100%. Why bother with the exchange headache if not for the subsidy?

Also, everyone buying individual insurance in a given market goes into the same risk pool regardless of whether they get the policy on the exchange or off and prices for like policies are the same regardless of where you buy them.

"Also, everyone buying individual insurance in a given market goes into the same risk pool regardless of whether they get the policy on the exchange or off"

Do they? Are insurance companies who offer individual policies in a state 1) required to participate in the exchange and 2) required to price policies the same on and off the exchange? My sense is that neither of these are true -- insurance companies can decline to offer policies on the exchange, and can offer different policies with different pricing off the exchanges (though they still have to include the mandated benefits). Since insurers know that off-exchange policies can't be bought using subsidies, it seems that would give them a better risk pool (wealthier people tend to be healthier people).

The key is that each insurer must maintain one unified risk pool per state that includes all individual policyholders. The claims experience of this unified risk pool drives the premiums for all the individual products that the insurer offers in the state.

An insurer can choose to craft different policies with different features for on-exchange sales vs off exchange sales. However, the premiums for those policies are set using the claims experience of the unified risk pool.

As an example, say an insurer wants to use a limited network on the exchange, but add a policy with a better network off the exchange. The insurer will use the claims experience from the unified risk pool to get the base rate for the new off exchange policy. Then they'll make adjustments to that rate to account for the higher costs of satisfying the claims using the better (more expensive) network.

And what's to prevent an insurer from offering only plans outside the exchange in a particular state?

I believe they are free to do that. The problem is that the individual market is actually rather small in most states and without the 'free' marketing that the exchanges provide, it often isn't worth it for insurers to only offer off-exchange policies. If you only end up with a few thousand insured, the marketing costs alone could push insurer overhead past the 15% max allowed by Obamacare (the rule that says 85% of premium dollars must be spent on healthcare applies to off exchange policies as well as exchange policies).

I challenge Tyler to show statistics that demonstrate that people without employer provided insurance or Medicare supported the republican.

Note that the turnout rate in Kentucky was only 31 % and includes many people with employer provided care and Medicare.

Come on. Tyler does not do data. He can barely be bothered to read abstracts.

This analysis doesn't doesn't address the fact that unlike lower income folks, people with incomes above the subsidy cutoffs have more to lose from going uninsured. If you're poor without insurance and have unexpected medical expenses, you can ignore the bill collectors and even file for bankruptcy with relatively few repercussions. However, people with incomes above the subsidy cutoffs tend to have much more to lose from this approach and thus face a higher cost from going uninsured.

In your NYT article you say the program ended up costing less. Costing less for who? After the Act was implemented my monthly premium (for individual 45 year old in Nebraska) went from $260/m to $320/m. And I just got a notice that in 2016 it will increase 13%. Blue Cross informed me that in both cases the premium increases were "across the board" and had nothing to do with my individual situation. There are a lot of news stories you can find on the across the board premium increases set for 2016, in some states over 40%. For the people who pay the premiums and earn more than 40,000 per year (and thus don't qualify for the lower cost programs) we are paying substantially more than we did before.

One thing many people miss is that prior to Obamacare, most individual policies were repriced for age just once every 5 years. Under the old system, a 44 year old often paid the same premiums as a 40 year old, then saw a 25-30% spike the next year, as they crossed into the next 5 yr age bracket.

This is a big reason for many of the huge premium increases people saw in the transition to Obamacare. Obamacare eliminates the 5 yr brackets in favor of adjusting premiums annually for age.

Under the Obamacare rules, even if premiums stay flat year-over-year, anyone buying individual insurance will get hit with a 3-5% increase each year due to their increased age (I'm not sure if Obamacare age rating increases are linear or increase faster as you age like they did under the old system).

As I indicated previously, Blue Cross told me the increase in my rates reflected across the board increases and not based on my individual situation. It's well documented that the there are big increases set for 2016 for everyone, not just age related increases.

Tyler, you still don't get it. ACA has nothing to do with efficiency, or even with providing health care. It's a POLITICAL ISSUE. The only thing that's important about political issues is WHICH SIDE WINS. The Democrats won on ACA, therefore according to Democrats and their media auxiliaries, ACA is a success.

Pointing out shortcomings in ACA means you are on THE OTHER SIDE and that in turn makes you a STUPID BAD PERSON because obviously SMART GOOD PEOPLE are Democrats and support ACA unconditionally. The Democrats in the media tell us so, therefore it is true because they are SMART GOOD PEOPLE and so you must believe them.

Arguments about efficiency mean you are a STUPID BAD PERSON like Republicans who actually think about the real-world effects of policies. That is not the purpose of policies. All policy measures are now regimental banners and you must flock to them and cheer to show you are on the correct side. Emotion, mob mentality, and blind partisan hate are the only things that matter in politics today.

This cuts both ways.

Not American, so I don't have to deal with this nonsense but:
Easy answer: set up a system where you only have to make tiny 'system' payments (say 25% of going rate) until the first claim - then the actuaries can take their piece.

"Easy answer: set up a system where you only have to make tiny ‘system’ payments (say 25% of going rate) until the first claim – then the actuaries can take their piece."

That's pretty much how Obamacare policies work (at least the most popular Bronze and Silver plans). They have relatively low payments and high deductibles. However, the plans tend to include a lot of mandatory requirements. So the "low" payments tends to be higher than what a lot of people were paying previously without the high deductibles.

ACA critics

NOT ONE PERSON has been helped (frequent assertion places like red state blog, NOT ONE person is getting a positive thing out of ACA)

Rate Shocks/Ocare horror stories/Boehnoer put phone help on hold and then claims no help
Hannity bald faced lies on national tv

THE WEB SITE will never work
People won't sign up/they won't pay 1st month premium/they won't renew

Sen Cruz asks for facebook posts of horror stories; gets hundreds of my life is save

It is doing some good, but ...I didn't read the whole column which is long;' does tyler, as an economist, discuss the cost to you and me of people who don't carry health insurance, the cost to you and me when they wind up in the ER ??

if you think i am are wrong

Why do you think anybody would take your post seriously? Particularly when you admit you can't be bothered to read the column under discussion.

"I didn’t read the whole column which is long;’

The Bevin victory in Kentucky is interesting.
Some of Bevin's largest margins were in the eastern counties that had the biggest increases in Medicaid. Statewide over 400,000 persons have been added to Medicaid.

Did these persons not read the newspapers about Bevin? Did no one contact these persons? Are these persons kept from voting by ID card rules, et al?

Were these persons so mad about the Kim Davis issue with gay marriage that they ignored the Bevin threat to Medicaid?

Or is there in fact an element of Hee Haw stupidity?

Maybe some from Kentucky can answer me.

Focusing on health care insurance, rather than the economics of health care itself, doesn't make any sense. Nothing gets done unless someone makes money on it. In the case of health care, lots of money. Doctors today are technicians that read computer outputs and measure them against baselines before prescribing treatment. For this, through their guild system, they get seven figure salaries. But they're just one cog in the big health care machine that employs millions, from engineers designing hospitals to pharmaceutical chemists to plumbers running med gas lines to janitors mopping up vomit to clerks in gift shops. Since they all need to get a cut of the action, getting a couple of stitches or a prescription to relieve some hypochondria costs a fortune. More government action won't improve the situation.

The place gov action is needed is for Medicare to stop paying for crap that doesn't work. Consider costs in coverage decisions and accelerate the move away for FFS. Global budgets. Cap spending and demand quality/better outcomes.

"The place gov action is needed is for gov to stop paying for crap that doesn’t work."

That's what it does, right? You're asking for the sun to stop rising.

What is hilarious about most of the comments above is that the ACA's supporters have almost surely not had to price out the details because they are securely covered by their employer. I have done the analysis every year the last three, and my qualification for subsidy has been unchanged, and the answer keeps getting worse each year- buying a policy makes less sense than it did in 2013.

Unless you are regularly spending over the deductible or are fully subsidized, the polices make no economic sense whatsoever. The rubber will meet the road when the issue about strengthening the penalty to sustain the exchanges is finally dealt with after the next election- I predict the Democrats will run for the hills at that point, and the penalty is waived altogether. Maybe Cowen is right- that would be a better outcome for the exchanges than a strengthening of the penalty, but then there will be a big political battle to increase the subsidies.

I presume your calculation was for a healthy, lucky person

Oops, I tripped and my mouth fell on this salad. I am so lucky!

Your glancing blows are increasingly stupid.

My dad died of cancer, maybe he just needed one more salad in his life.

From what I've seen, most people choosing to go uninsured are a certain breed of faux rugged individualists. They talk a good game of economic freedom and individual responsibility, but as soon as they get sick, they run hard toward the government teat.

What I'd like to see is a change that makes it so medical expenses incurred while uninsured can't be discharged in bankruptcy. I'm fine leaving people to make their own economic choices about insurance, but I'm not fine with them being able to push the costs of those bad choices onto everyone else.

We might also find commenters who are willing to let hospitals turn away anyone who fails a credit check, but that's the game, no Republican politician in practice would let that happen.

So another round of "free markets" that are actually government mandates in costume

The insurance industry will lose money if the Affordable Care Act is repealed, and they'll respond by increasing premiums, by cost-cutting in terms of benefits, and by narrowing their provider networks. Even if you're healthy, I fail to see how your situation will be improved if the Affordable Care Act is repealed. And if you have a pre-existing condition or if you need expensive medical care, you'll be royally screwed.

Not me. I've been paying my own insurance for the past five years and it went down under the ACA. And I had inpatient surgery (appendectomy) last year. I'm a male in my late forties. I expect that my premiums will continue to rise just like my taxes. It's the price I pay for living here.

I was fairly with Tyler's comments above, until the strange twist that Democrats are locked in Healthcare. I mean geez. We have had how many years "repeal Obamacare" without any actual philosophy of healthcare attached?

The most generous thing you can say is that Republicans liked 2008 vintage healthcare law, but if you believe that, then everything about "free markets" they said was a lie. The 2008 regulations were not at all free market and included that important clause that emergency rooms have to treat you even if you had no money

We have had how many years “repeal Obamacare” without any actual philosophy of healthcare attached?

0 years. Just because you are ignorant of the many alternatives doesn't mean they don't exist.

Your google foo must not be very strong if you can't find any of the many ACA-replacement proposals over the last 6 years from Republicans.

I see proposals from 2009 to 2015 linked just in the top 10 hits. Heck, one of them even has a table listing 8 different Republican proposals.

You can maybe argue that a few of them are light on details, or even that you don't like their implications, but please stop pretending they don't exist.

I didn't Google because I am not interested in fringe of for-show proposals. We've had 98% repeal drama, and yes if you care you can Google for the 2% handwaving.

So when you say "without any actual philosophy of healthcare attached" you really mean, without any actual philosophy of healthcare attached that i care to read or make note of"?

"What have the Romans ever done for us?"

Isn't this true of all insurance? I am trying to figure out what my life, home, car, umbrella insurance policies have gotten me recently... I guess I should just get rid of them. Thanks Tyler!

It is ironic for Tyler to maintain in this case that the medical establishment gets the benefit of Obamacare, but neglects the fact that costs of non paying patients get passed on to consumers and taxpayers.

Contrast this to discussions of who bears the cost of other policies such as minimum wage hikes.

Those costs are trivial

Seems pretty misleading to talk about 250% of poverty, then cite the income figure for the poverty line. It's almost as if the sentence is written to give the impression to more people that they're harmed by the policy...

The objective of the individual mandate was never to improve the welfare of those who would not otherwise voluntarily purchase insurance. When coupled with community rating, the mandate is designed to extract transfers from those who are relatively healthy in order to subsidize the premiums of those who are relatively sick. By definition, this can only occur when healthy people receive less value from their health insurance than they would rationally expect, given their premiums and expected level of risk. In the short run, the law will benefit those who are relatively poor and sick at the expense of those who are relatively rich and healthy. No one ever expected it to be a Pareto improvement. This is just my opinion, but, in the long run, the law will harm everyone, even the poor and, especially, the ill . This is because it will slow economic growth, dampen medical and insurance innovation, reduce the the efficiency of the provision of medical care, and place (arguably immoral) limits on private healthcare spending. Also, it makes real healthcare reform even more politically impossible. In short, I'm not a big fan of the ACA.

"the mandate is designed to extract transfers from those who are relatively healthy in order to subsidize the premiums of those who are relatively sick."

I'm perplexed at people who think this is some type of insight. Whether you approach it from the right or left, every plausible health system does this. Note:

Vouchers/tax credits: In general those paying taxes are those who are healthy enough to work. Those benefitting the most would be those who are sick or soon will be.

Single payer: Again those paying taxes will fund this which means the healthy generally.

There are some exceptions, of course. The Rolling Stones, for example, no doubt pay huge amounts of income tax on their royalties and occasional performance...more than the youngest and most fit construction worker will ever pay. But the pattern is generally true.

What would be very interesting is if you had some proposed system that *didn't* rely in some way on transferring from the healthy to the less healthy.The Hunger Games would be a possible contender, but then that wasn't really a health system.

In his column, Cowen criticizes the ACA on the basis that it does not benefit those who would not voluntarily purchase insurance at community rated prices but would be required to do so. I was merely pointing out that the law was never intended to help those particular people just as progressive tax rates are not intended to help high income individuals. Krugman explains the basic logic of the mandate here
As I said above, I disagree with his conclusion. The preexisting condition problem could be solved with guaranteed renewable individual plans. John Cochrane explains how such a system might work here
I agree with most of the points made by Cochrane. Though, I would personally place greater emphasis on precautionary savings as opposed to insurance and am more skeptical of the use of private provision in emergency settings. Also, though I found the Hunger Games Trilogy to quite entertaining (in spite of the fact that it is not especially well written), I fail to see how it is relevant to healthcare policy.

I didn't mean to reply to you too quickly. The Hunger Games analogy applies because you're not going to design any plausible system that isn't in some way a transfer from the more healthy to the less healthy except for means testing (the rich sick person pays more for care than the poor sick person).

You're right the system was not designed to benefit those who wouldn't have voluntarily purchased health insurance at community rates. Although 'voluntarily' is a strange word here. Anyone who could buy insurance could also opt to pay the penalty, which is smaller than the price of the insurance. Clearly if anyone found no benefit to buying health insurance, they would simply treat the penalty as an annoying but modest tax. So the population you are talking about is actually quite where 'voluntarily' buying insurance on their own just misses the target of being worth it but with the negative incentive of the mandate penalty kicked in, it shifts the decision in favor of buying insurance. A truly marginal population!

"I’m perplexed at people who think this is some type of insight. Whether you approach it from the right or left, every plausible health system does this."

Was our previous health system implausible? Before Obamacare, there was widespread recission where insurance companies denied insurance to those who were sick and just kept healthy people on the rolls, meaning it was a transfer from those who are relatively healthy to the insurance company rather than those who are relatively sick.

I'm not saying Obamacare single-handedly changes this, but it certainly makes it much less the case than it used to be.

I'm not clear how 'widespread' dumping the sick off of insurance and adding the healthy was. Medicare/Medicaid does not charge more for sick patients so those systems clearly benefit the sick more than the healthy (if you are an old person who never gets sick Medicare is something like $80 less per month for you). Those two programs alone cover a huge portion of the population. The bulk of the remaining people were and are covered not by insurance they buy directly from the markets but from employer provided insurance.

Employer provided insurance is community rated, same premium for everyone. Clearly that benefits the sick more than the healthy. (ACA plans are actually a bit less community rated since they do allow some variation in premiums based on age and smoking). You could argue that at some level people who are very sick are unlikely to be holding down jobs so employer provided insurance is automatically for the benefit of the healthy only....but more and more of health costs these days are due to chronic illnesses.

Plans that were purchased out of pocket entirely by the individual were and are a small portion of the market and yes without 'community rating' those plans did try to achieve pools of the healthy while dropping the sick. I'm not sure that is really a 'health system' though.

This is why I note the irony of people who try to make a big deal about the healthy subsidizing the sick. You're not going to be able to make a system out of forcing the sick to pay for the healthy. Republican alternatives to Obamacare have all failed in that self-imposed, silly goal. For example, one idea was 'risk pools' where everyone is free to buy or not buy insurance (maybe with tax credits) but those who are priced out of the market because of pre-existing conditions are covered by state supported 'risk pools'. Blah it's the same as Obamacare. Health(ier) taxpayers pay taxes to cover the sick. How is that different than paying premiums that also cover people sicker than you?

Since no one will be able to afford private insurance, we will be driven into Obamacare. This is the goal of the program, believe it or not.

..most people will not be able to afford it...

During the Bush administration pretty much all "income" growth came in the form of higher insurance premiums paid for by employers. What's the revealed preference there?

It surprises me that the people that I know that complain about the PPACA are people who would get very high subsidies.

The Affordable Care Act may not be as egalitarian as it might look initially

Still, I find it distressing how infrequently this problem is acknowledged or dealt with, probably from a mix of epistemic closure, a “health insurance simply has to make people better off” attitude, and a dose of “let’s not give any ammunition to the enemy.” In fact, I think a lot of Democratic-leaning economists and commentators are doing a real disservice to their own causes on this one.

It is very odd to see Democrats support a plan to force lower middle class people to be reponsible and pay for thier own health insurance and Repulicans work agains it.

The thing about insurance, is you don't know if you need it until it's too late. While the mandate may make many worse off, we don't know who those are until their run in a given demographic is over. Lowering this risk is priceless to individuals who fall into the wrong percentage, and this mandate makes that risk-management affordable.

My ACA plan is going up by 47% next year. (Gasp). The death spiral awaits. I read that insurance for two people can now cost ~25k. That is a huge fraction of the national median income. ACA aside, does anybody get that a crisis is brewing? Health care is now the biggest industry in the US. How much do we have to spend to get health care? Isn't it time to focus on the supply side? A ping up demand in the absence of supply side reforms is clearly not working...

Are you arguing that these individuals are worse off because costs of treating the uninsured that were previously paid through a progressive tax system are now distributed less progressively and they pay a greater share. Or is the suggestion that welfare is decreased even if we compensated for this transfer effect.

This is really geared toward Professor Cowen, but others who want to reply are welcome to join in. You mention in your posting about your NYTimes piece:

"I should stress that, at this point, I don’t see any realistic alternative to trying to improve ACA. Still, I find it distressing how infrequently this problem is acknowledged or dealt with, probably from a mix of epistemic closure, a “health insurance simply has to make people better off” attitude, and a dose of “let’s not give any ammunition to the enemy.” In fact, I think a lot of Democratic-leaning economists and commentators are doing a real disservice to their own causes on this one."

Since Republicans in Congress have held several votes to overturn the ACA law, how precisely are Democrats supposed to work across the aisle with Republicans to make the law better?

With so many states declining Medicaid expansion (all Republican-controlled), how are people who would otherwise qualify for Medicaid supposed to afford insurance on the open market instead of participating in Medicaid as the law was written until Chief Justice Roberts ruled the law was constitutional, but states could not be compelled to expand Medicaid?

If Republicans at the Federal and State level want to destroy the ACA, how will this law be reformed? When Republicans won't even put forward a better plan or set of reforms in a spirit of compromise, just exactly how is a flawed law such as this one going to be made better when the alternative is to shred it, and take away all these Americans' health insurance? I know the law is not the best written one, but when the alternative is "You get nothing, but be sure not to get sick or have an accident!" That's practically living in a world ruled by Tony Soprano where you hope the big boss has mercy on you, and/or kills you quickly, since your options are don't get sick or die as quickly as possible if you end up with some horrible medical bill.

I support Libertarian theories on some matters, but "Try not to get sick if you don't have health insurance!" is not a plan. And no adult would advise their child that this was a healthy, sound life strategy.

I do not relish paying taxes, but I hate even more when a wealthy country lets poor people and people who fall through the cracks die in the gutter because some of us don't want to pay $20, $50, or $100 more a year in taxes to cover those who got screwed in the "Be born to the right family" life success plan.

Any reforms that would be passed would have to run the gauntlet of not being killed by the Hospital and Insurance Industrial Complex, which like the wealthiest 100 or so families in America have a lot of financial clout with Congress on the Federal level in what laws do and do not get passed.

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