Saturday, November 08, 2008

A Response To Piaw

My long-time political rant buddy (and bike buddy) Piaw wrote an excellent article on why universal health care makes sense not just from a warm-fuzzy-take-care-of-everybody perspective, but also makes good sound economic sense and will make the whole health care system more effective and efficient. But there was one part I wanted to respond to in more than just a comment:
No mandate. Now this is a problem. It creates a moral hazard, in that if you're healthy, you have no incentive to join the insurance pool and help subsidize all the unhealthy people like me. This is even more true if (as anticipated) you can sign up for health insurance after you got hit by a bus or some other health catastrophe, and still get the same cheap coverage that you could have gotten if you signed up while healthy.
Now, yes, this is a problem - why would you ever buy insurance (unless you were planning to have non-emergency procedures done or needed ongoing care or medication) if you could do it after something bad happened?

So, if you assume no mandate, there are two obvious choices: allow retroactive signup, or don't. The former, and you get people not paying in, and then sometimes suddenly sucking up bunches of taxpayer money. The latter, and you get people declaring bankruptcy, sucking up a bunch of health care provider money, since they're probably only going to get paid a few thousand (average American has almost no savings) before the poor soul gives up and stops trying to pay any of it.

Neither of these sounds very good. Either way, you get losses to the group as a whole, and you're choosing between not incenting healthy people to opt in and driving people into the ground. So, what other option do you have? Well, what if you said that you can retroactively sign up - after you've been hit by a bus or found out you have cancer or whatever - but you still have to pay a large sum. The question then becomes, how much? It needs to be more than the insurance would have been; otherwise, you're still not providing an incentive to opt-in. It also needs to be a low enough amount not to drive somebody into bankrupcy - ideally, you want to make the person pay as much as possible of their medical bills without destroying their life. Make it easy to get a loan to cover such expenses, too, even with features like income-sensitive repayment, so that the person does pay it off over time, rather than trying to get out of it. That way, you get the best of both worlds: incent people to pay while they're healthy, get the maximum repayment possible if they don't, and avoid driving people into bankruptcy.

Why am I defending the no-mandate portion of the plan? Well, for one, I think it'll be far easier to sell to Americans if they can opt out - if it doesn't have that valve, it sounds a lot like the "European socialism" that many Americans have vague, high-unemployment ideas about and are afraid, or at least suspicious, of. For another, I believe both in letting stupid people shoot themselves in the foot (so long as they don't substantially take others down with them), and in letting people who think they can beat the odds give it a try. Heck, if it were up to me, I'd make it possible to opt out of Social Security, at least the retirement part of it - but then, I'm the generation that isn't expecting to get any money out of it.



Blogger Piaw said...

Those are pretty good ideas for doing without a mandate, but ultimately, I think they will fail. You have to remember that the young healthy ones think they are invincible, and the fact that they might have to go into debt if they got unlucky wouldn't bother them. I'm a big fan of libertarian paternalism, and health insurance seems like a great place to apply them --- have people signed up for it by default, and force them to opt out of health insurance.

11/09/2008 11:19 AM  
Blogger Amy said...

I should have added that yes, the default would be that you're signed up, and that you have to opt out - I'm in favor of the idea of Nudge, that the default should be the consensus idea of what's most sensible.

Yes, young healthy people do think they're invincible - I've been referring to it for a while as "The Twenty-Something Immortality Complex," and heck, I've even still got a touch of it in some areas - although much less than I did, say five years ago. You could make it so that you can't opt out until you're around 25, at which point you've hopefully had a few hints that you're not invincible. Clearly, parents shouldn't be able to opt kids out either.

11/09/2008 3:21 PM  
Blogger Piaw Na said...

25? I know people in their 30s who still think they're invincible. :-)

11/09/2008 10:51 PM  

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