Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

07 December 2007

Krugman Redux

      NOTE: For an update on Krugman’s column of February 4, 2008, see this post.
Today New York Times columnist Paul Krugman published another column praising Hillary Clinton’s proposed health-care mandates. Since my post criticizing his views got more hits than anything I’ve ever published on this Blog, I think I should respond. I’ll be brief.

I have no way of knowing whether Krugman read my post, but he didn’t respond to one of its two most powerful arguments against mandates. Mandates impose a regressive health-care tax because they force young, healthy workers—mostly blue collar, poor and near poor—to pay a higher proportion of their income for insurance so that more highly paid workers can pay less.

A system like that differs radically from the government-financed health-care systems in the rest of the industrialized world. General tax revenues support those systems, and they are progressive because the tax systems that support them are progressive. Mostly the taxes are consumption taxes (sales or value-added taxes), with generous tax exemptions for food and necessities. So they tax the wealthy, who mostly spend more, more than the poor, who spend less. These systems are progressive in the sense that the wealthy pay more than the poor in both absolute dollars and a percentage of income. Those few systems that use income taxation are progressive in the same sense (as is our own income tax).

Krugman never explains why a lifelong progressive should support a progressive system for taxation but not health care. The only possible explanation is that—for some inexplicable reason—Krugman wants to make Clinton look good.

Krugman insists that insurance prices and health-care costs won’t balance unless everyone is forced to participate. But the simple truth is that no one knows. There are too many variables to consider. Most of the studies have been done for political candidates; they are all incomplete, and most have an agenda to pursue.

The devil is in the details. By offering young, healthy workers cheap policies with high deductibles (so-called “catastrophic” health insurance), Obama’s system might get them to participate voluntarily. If Clinton wants to be fair and progressive—i.e., to allow people to satisfy her mandates at reasonable cost—her system will have to offer the same thing. If she forces everyone buy “Cadillac” comprehensive policies, her system will be massively regressive and will encounter massive political resistance. Even if it doesn’t, the very word “mandates” will give opponents a powerful (and unnecessary) tool to demagogue her plan to death once more.

Any system will take some tinkering to get right. The really important goals are five things that Krugman doesn’t even mention. First and foremost, we have to get all the people who want insurance and can’t find or afford it insured. Second, we must make sure that everyone’s insurance is “portable” and employer-independent. Third, we need to get rid of “pre-existing condition” exclusions so that everyone can buy insurance, whatever their current medical condition (this will, of course, require some adjustment in cost). Fourth, we have to put in place uniform national rules preventing private insurers from gaming the system through misleading sales practices or “cherry-picking” customers from limited insurance pools. Finally, we must make sure that all medical insurance covers all medically indicated care (within the dollar limits of the policies), so that doctors, not insurers, regain control of the practice of medicine.

These are the problems that trouble the vast majority of American families. Most of them don’t give a damn whether young, single healthy workers are gambling with self-insurance or not paying their fair share. That’s why Obama’s plan is far smarter politically than Clinton’s.

Obama’s plan will solve these problems more quickly and easily than Clinton’s because he’s given some thought to how to sell his plan to the nation. He eliminates mandates because he knows that they killed Clinton’s 1993 plan and are a red flag to conservatives and even some independents.

Unlike Bush and Clinton, Obama sees both sides of issues. In so doing, he preserves political capital for all the fights ahead, including energy independence, global warming, infrastructure repair, education overhaul, and, yes, social security reform.

In the end, Krugman’s and Clinton’s approach is the same, old tired “which side are you on?” politics that got Reagan and the Bushes elected and made the Democrats a minority party. Obama’s “what problem can we solve?” politics will make the Democrats a majority for at least a generation, if only we have the good sense to nominate him.

UPDATE

It is satisfying to have events confirm your analysis. On April 19, 2008, the Wall Street Journal reported [subscription required] that John McCain already had started pounding Hillary for her health-care mandates, although the general-election campaign had not even begun.

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5 Comments:

  • At Fri Dec 07, 11:00:00 PM EST, Blogger rikyrah said…

    Thanks for these articles. I got the links from Think On These Things.

     
  • At Tue Dec 11, 01:05:00 PM EST, Anonymous Anonymous said…

    Jay your analysis is spot on. I received the links from TPMCafe in a thread where Maggie Mahar is basically co-signing Krugman and touting mandates as well. Your blog was cited as an opposing view.

     
  • At Tue Dec 11, 08:54:00 PM EST, Anonymous Libertarian Girl said…

    Actually, I disagree with your terming of Reagan as a complete partisan.

    He was originally a Democrat, and he brought a fair number of Democrats into his cabinet. A notable one I can think of is Jeane Kirkpatrick, who became his National Security Adviser and then ambassador to the UN. Bush would never bring a Democrat in for advice or for a cabinet post-- completely unimaginable. Reagan was not partisan in the way Bush is and shouldn't be lumped in with him wholesale.

    I wish we could get back to those days when the best person was chosen, regardless of party. That's why I like both Obama and Ron Paul. They don't just go with the party line, Paul moreso than Obama.

     
  • At Wed Dec 19, 11:03:00 PM EST, Anonymous Anonymous said…

    You miss the point entirely about mandates.

    Mandates are there for only one reason: to prevent free-riding, since part of this reform is to enact "community rating" so that everyone gets the same rate and there are no pre-existing conditions exclusions.

    Otherwise, *everyone*, not just the healthy, will skip buying insurance until they have to, and the only people buying insurance will be the already sick. This will make the system financially untenable. Insurance works by pooling risk.

     
  • At Thu Dec 20, 06:59:00 PM EST, Anonymous jay said…

    I think I understand how insurance works, but I don't think you understand either the economic details or the politics.

    Most people who can find and can afford insurance have it now. The problem is insuring people for whom insurance is unavailable because they can't get it (for example, due to pre-existing conditions) or can't afford it. These people don't need mandates; they need available insurance at affordable prices, such as low-cost options covering preventative care and catastrophic events only. If good insurance options were made widely available, the only people who would "need" mandates would be those who don't think they need insurance at all---primarily young, healthy, lower-paid workers.

    That's where the politics come in. Forcing these folks to buy insurance they don't want would: (1) drive them (so called "Reagan Democrats") back to the Republican party, (2) disgust progessives like me, because the mandate would amount to a regressive tax on these healthy lower-paid workers, and (3) give conservatives, who hate any form of mandate, another reason to demagogue health-care reform to death.

    Add to this the fact that no one really knows---based on hard numbers, not hand waving---whether mandates would actually solve the cost problem. I doubt it would, simply because I can't believe there are that many people who would refuse any health insurance if a broad range of different-cost options were made universally available, regardless of employment. Mandates may actually be unnecessary or may solve only a small part of the cost problem.

    So Hillary's proposal is bad in economic theory (regressive), unjustified quantitatively (no one has good enough data to really crunch the numbers), and terrible politically. It's Hillarycare redux.

    Jay

     

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