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

01 December 2007

Obama’s and Clinton’s Health-Care Plans

      NOTE: For an update on Krugman’s column of February 4, 2008, see this post.
Paul Krugman, a New York Times columnist whose work I usually respect, seems to have an Obama bee in his bonnet. In two recent columns, he has harshly criticized Obama’s views on health care and social security. Both columns bear the stamp of Clinton partisanship, so much so that Krugman appears to have violated the Times’ rule against endorsing candidates.

Today the Clinton campaign took up Krugman’s cudgel. In a widely reported move, it criticized Obama for claiming that his health-care plan would cover everyone.

Unfortunately, Krugman is not as smart as Obama. Krugman and the Clinton campaign are missing the point. It’s true that Obama’s plan won’t cover people who don’t want health insurance. But that’s precisely why it’s politically wiser and economically fairer than Clinton’s plan.

The main difference between the two plans is what’s called a “mandate.” Clinton’s plan has one. It would cover everyone by forcing everyone to buy health insurance, whether wanted or not.

Obama’s plan has no mandate and forces no one to buy insurance. So Obama’s plan wouldn’t cover everyone. It would leave uncovered two groups of people: (1) those who don’t think they can afford insurance and (2) those who don’t think they need it. Obama would induce those in group (1) to buy insurance by making it affordable, mostly by repealing the Bush tax cuts for the wealthy and putting the money into health-insurance subsidies.

Clinton’s plan would try to cover both groups by forcing them to buy insurance. For those who don’t think they can afford insurance, it has to address the very same problem as Obama’s: making insurance affordable. But Clinton waffles on the best way of doing so, namely, repealing Bush’s unfair tax cuts. Clinton still wants to have it both ways; she wants to be perceived as a woman of the people and a tax cutter. As for people who think they’ll stay healthy and don’t want insurance, forcing them to buy it will just create political opposition to the plan and allow opponents to demagogue it to death once again.

Krugman and Clinton castigate the Obama plan for failing to “cover everyone.” The goal they say, is qualifying for that magic label “universal.”

But that’s not the goal at all. The goal is getting affordable health care for all those who want it, after several decades of trying. For ideological reasons, that simple, common-sense goal always encounters determined political opposition. Already Hillary has failed to reach that goal once—at a time when Democrats controlled both the White House and Congress.

Hillary Clinton’s 1993 proposal failed because she failed Politics 101. Her proposal neglected two important constituencies. It imposed a mandate for health insurance on small businesses, increasing their costs without providing means to pay them. It also ignored people who liked their current insurance and didn’t want to change it. For someone supposed above all to be a good politician—these were gross errors of judgment.

Now she’s made similar errors of judgment again. Her current proposal solves the second problem by letting people keep insurance they like. But it doesn’t solve the first. Instead of imposing a mandate on small business, it imposes a mandate on every employee and every citizen. You can bet that conservatives and lobbyists for the insurance and drug industries will make that mandate a rallying cry for opposition. Forcing people who don’t want insurance to buy it will make it harder politically to get it for those who do.

Rather than imposing mandates on people who don’t want insurance, Obama decided to tackle the pressing problem of millions of people who want it but can’t get it. That’s a reasonable political tradeoff. It makes Obama’s proposal much more palatable and resistant to demagoguery. Given our long history of entrenched political opposition to any effort to improve health care, Obama’s approach is more sensible and more likely to succeed.

Krugman also insists that Clinton’s plan makes more economic sense. He says that forcing young, healthy workers to buy insurance they don’t think they need will subsidize insurance for others, making “universal coverage” affordable.

But that analysis is hopelessly simplistic. Who are those young, healthy workers likely to be? White-collar and other highly paid workers won’t refuse to buy insurance; its cost amounts to a small portion of their pay. Nor will older workers and workers with families, who need insurance more and know it. So the people most likely to “self-insure” are young, single blue-collar workers (including the poor and near-poor), for whom the cost of insurance is a substantial part of their earnings.

Forcing these people to buy insurance they don’t want will have two adverse effects. Politically, it will drive young, single, healthy workers away from the Democratic party. It will put the so-called “Reagan Democrats” back in the arms of the Republicans, precisely when Democrats need them to consolidate their status as a majority party. For someone supposedly astute at politics, that’s a downright stupid thing to do.

Economically, Clinton’s mandate will turn the health-care system into a regressive tax. Imposing extra costs on young, single, healthy, low-paid workers in order to finance others’ health care will put part of the burden on those who can least afford it. That’s exactly the opposite of what European systems do. They are financed by progressive taxes on consumption (with exemptions for food and other necessities).

Obama’s plan is therefore smarter politically and fairer economically. It avoids political opposition from people who don’t want government telling them what to do. And it avoids the regressiveness of having healthy blue-collar workers pay for the care of sick people who are more highly paid.

Obama’s plan addresses the crying need of the moment: getting health care for people who want it but can’t get it or can’t afford it. Eventually, we should bring others into the system, too. We all pay for it when young people think they’ll be healthy but miscalculate and have no insurance. But we can handle that politically sensitive and much less pressing problem when—and if—we solve the pressing problem of insuring everyone who wants insurance.

Putting first things first may seem like common sense, but Clinton’s plan doesn’t do that. Obama’s ability to understand both politics and economics at this level is one of many reasons why his candidacy is more appealing that Clinton’s. His practical and politically sensitive approach will get things done while Clinton’s blind “triangulation” will fail, as it has in the past.

In health care as in so much else, Obama is smarter than both Clinton and Krugman. Brains matter, and that’s why Obama will win. The public wants good and workable policy, not clever campaign ads, more political misjudgments, and more Bush-style propaganda.

UPDATES

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. For an earlier update to this post, discussing Krugman’s column of Friday, December 7, see “Krugman Redux.”

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13 Comments:

  • At Wed Dec 05, 10:37:00 AM EST, Blogger alms said…

    You seem to be missing a basic point of health care economics: getting younger people who don't think they need insurance to buy in is critical to making the system affordable. This is not simply because healthy young people subsidize the system, it is because the guarantee that everyone has health insurance allows simplifications to the billing/payment process, and it allows things that exist now -- like the "free care pool" -- to be redirected more efficiently.

    Massachusetts is dealing with this issue right now. The young people who are reluctant to buy in are not yuppies who have done the financial calculus. They are young people who think foolishly that they will be healthy forever.

    As much as I want to increase taxes on the wealthy, that alone is not the answer to all of our problems.

     
  • At Wed Dec 05, 10:56:00 AM EST, Anonymous rle said…

    Sorry, your argument makes sense on its face, but it's naive about the economics of health care insurance. Krugman is spot on about the dangers of adverse selection. It's real, and it's a major bank buster. Mandates are the best way to insure the economic viability of a plan, and that's not just Krugman or Clinton talking.

     
  • At Wed Dec 05, 11:10:00 AM EST, Blogger John said…

    You have it exactly right but you miss one point which I think appeals to capitalists. By not making it mandatory he forces the government to continue to compete with the private sector to make health insurance affordable while Clinton's plan forces everyone in whether or not afforable and doesn't push the government to make it affordable. I like Obama's plan, it is a smarter plan for that.
    What is the point of universal health care if it is just as expenseive as the private sectors version.

     
  • At Wed Dec 05, 11:17:00 AM EST, Anonymous Anonymous said…

    Interesting post. This had been bothering me, but you make some good points. I am glad sullivan linked to it. Cheers.

     
  • At Wed Dec 05, 11:30:00 AM EST, Anonymous Anonymous said…

    Obama would induce those in group (1) to buy insurance by making it affordable, mostly by repealing the Bush tax cuts for the wealthy and putting the money into
    health-insurance subsidies.


    Says you. But affordability is in the wallet of the beholder. One of the biggest issues driving health insurance inflation is state mandates; AFAIK, Obama's plan doesn't prevent states from requiring this or that bit of expensive coverage. I seriously doubt premiums will actually decline under Obama's plan, but, even if they do, the reasonably well-off self-employed 29 year-old is still more likely to want to spend his money on things other than health insurance. I say either we're serious about achieving the long-held progressive goal of truly universal coverage, or not. Clearly one of the leading candidates is not.

    Obama’s plan addresses the crying need of the moment: getting health care for people who want it but can’t get it or can’t afford it.

    As does Hillary's (and Edwards's, for that matter) plan.

    ...we can handle that politically sensitive and much less pressing problem when—and if—we solve the pressing problem of insuring everyone who wants insurance.

    Why can't we do both? As respected Princeton economist Paul Krugman notes, it simply makes more sense, from the perspective of economics, to have
    young, healthy people entered into the system: THAT is something that is likely to bring rates down. Sure, it might be politically "sensitive" to do so, but I thought political courage was supposed to be Obama's calling card. It looks like on this issue, at least, Hillary Clinton is demonstrating the greater degree of fortitude.

    Obama’s ability to understand both politics and economics at this level is one of many reasons why his candidacy is more appealing that Clinton’s.

    Please. Hillary Clinton is part of a political operation that has beaten the Republicans 13 out of 14 times (by my count). If the ability to understand politics is what you want in a candidate, the senator from New York is the clear choice.

    Look, the plans of both Barrack Obama and Hillary Clinton are actually quite similar. Both plans would include guaranteed issue, community rating, subsidies, and employer mandates. Both plans would address costs. Both plans should make health insurance more affordable to those who currently go without. The main difference is that Hillary's plan requires universal participation. At the end of the day, our society quite rightly isn't going to let a young, non-poor person bleed on the street after a car accident. If that's the case, it's only fair that said young, non-poor person be required to make room in his/her budget for a contribution to the system. Hillary's plan appeals to most Americans' sense of fair play. And with adequate subsidies, there's no reason such participation need be a financial burden.

     
  • At Wed Dec 05, 11:45:00 AM EST, Anonymous cminmd said…

    I like your response to Krugman because like you I felt something was off with his attack on the plans. I think the Obama plan makes sense. Libraries are universal- anyone can go in and get a book when they want to. But no one forces you to go get a library card and you can go to the bookstore if you can't wait for a new book. Yet I still think libraries are universally available to anyone who wants to use them. Also, their is no such thing as a mandate without enforcement. How much will that cost? To track down and garnish the wages of everyone that should get health care but doesnt buy it? How much will that add to the cost of the program?

     
  • At Wed Dec 05, 12:51:00 PM EST, Anonymous i h8 mand8s said…

    i, too, was shocked when i read krugman's essay. he seemed so politically tone-deaf, to push for a private profit-driven mandate that virtually ensures a barrage of "Harry and Louise"-style ads about being "forced" to buy insurance: "Harry, does that mean the IRS will have you arrested if you don't pay buy their expensive plans? But you're healthy, and you need the money for your start-up! What are we going to do?"

    The fight for better health care was lost on account of right-wing FUD, and just when it looks politically possible again, why present the right with such a big, soft target? When will we get another chance, after this one? In another 15 years? People who can't afford basic coverage now can't wait for a theoretically "perfect" "universal" plan. I actually wrote Krugman a one-page letter just to make this exact point, going beyond email to get past whatever crank folder is set up for emails to his NYT account.

    (Not to mention how angry I was to see Clinton accusing Obama of not having the "courage" to insist that millions of healthy Americans buy private coverage from the industry. Yeah, Hillary, as the top recipient of health care money, you showed a lot of courage by insisting they get more money.)

     
  • At Wed Dec 05, 01:32:00 PM EST, Anonymous Anonymous said…

    Right on! Very well said.

     
  • At Wed Dec 05, 02:46:00 PM EST, Blogger jay said…

    I’m pleased to get criticism, as well as praise. So Anonymous’ comment (below) deserves a reply on all four counts.

    Point 1. Anonymous, your first point makes no economic sense. How would forcing people to buy insurance hold down costs? Your own words—citing inflation caused by state health-insurance mandates—contradicts your conclusion. If state mandates cause inflation, won’t a universal federal mandate do so even more? That’s the only empirical evidence we have, and it corroborates economic theory. Mandates don’t reduce the price of anything: they increase demand, which drives up prices, and they kill incentives to compete. That’s Economics 101. As for the “says you,” it’s not my promise to reverse the Bush tax cuts for the wealthy and put the money into health care; it’s Obama’s. I believe him.

    Point 2. Hillary’s plan is not equivalent to Obama’s because it has a much greater risk of failing, as did her ’93 plan. Since the time of de Tocqueville, Americans have hated being told what to do. The forces that oppose health-care reform understand that. If you doubt that, read ih8 mand8s’ comment below. He or she understands how easy it would be to demagogue Hillary’s plan to death. The ideological forces that have kept millions of people uninsured for decades understand even better.

    Point 3. If the Clinton machine is so smart and capable, how did it manage to blow health-care reform in 1993? How did it manage to dream up a new plan with such a political Achilles heel? If you think that’s political genius, I’ve got a bridge I’d like to sell you.

    Anyway, machines don’t win national elections; candidates do. If you think Hillary has staggered under the mild and gentlemanly criticism she’s received so far from Edwards and Obama, wait until you see what the Republican smear machine will do. The best way to insure a Democratic defeat next year is to nominate Hillary.

    As for her “track record,” you can’t conflate her and Bill. As far as I know, Hillary has only won two general elections in her life. In one of them, a man who might be her rival next year (Rudy) had to bow out in mid-campaign due to prostate cancer and other personal problems. That record hardly demonstrates invincibility.

    Point 4. Finally, Anonymous, your references to “respected Princeton economist Paul Krugman” and an allegedly invincible “political operation” suggests that you are inclined to respect authority. You need to think for yourself. Once you do, I’m sure you’ll decide that Hillary is not Bill, that Bill’s days are over, and that it’s time for real change in America, while we still have a democracy to demand it.

     
  • At Wed Dec 05, 03:18:00 PM EST, Blogger jay said…

    The last two comments express a view that is persistent and hard to kill. Of course getting every healthy young person to pay into a fund for older, sicker people’s care would lower the latter’s cost of care. No one denies that. The questions are whether doing so would be (1) politically feasible and (2) fair.

    Hillary’s own 1993 failure suggests that it’s politically unwise to propose any program with mandates. The lobbying and smearing machine that beat her 1993 proposal, despite Bill’s enormous popularity as president, is still alive and well. Anyone who thinks it is easier to defeat today just because of Dubya’s failure as president is naïve.

    As for fairness, most young, healthy workers makes less money than older, workers who need more health care. Having the young healthy ones use a greater proportion of their lower wages to pay for the older sicker ones seems regressive and unfair.

    A “single payer” system wouldn’t do that because it would be paid for by taxes, which are progressive, not regressive. Under our income tax system, for example, the more people make, the higher their rate of taxation. They don’t just pay more dollars; they pay a greater share of their income. The same goes for Europe, which supports its universal, “single payer” systems with consumption taxes (sales or value-added taxes), which depend on what people spend, not what they make. With exemptions for food and other necessities, these taxes are less regressive than our income tax. Richer people pay more as they spend more, and the systems encourage saving.

    So Hillary’s mandate would turn our private-sector based health-care system into a hidden, regressive tax on young healthy workers, one that would be very hard to change. If you think that sort of system is economically sound or politically easy to sell, I disagree.

     
  • At Wed Dec 05, 03:35:00 PM EST, Blogger Joe Perez said…

    I agree with your commenters who have noted that mandates are essential for bringing the costs of health care insurance down for everyone, and that Clinton is showing far more political courage than Obama and deserves the credit for it. Jay, you win on the point that the insurance lobby and right-wing Republicans might cry bloody murder and run attack ads for any system that has mandates. Of course political opponents didn't stop Republicans in Massachusetts and governor Romney from enacting a mandate. I say this risk is worth taking. For every Harry and Louise style ad showing a young, healthy 29 year-old entrepreneur who wants to avoid paying into health care for all so as to put more money in his own pocket, there are a helluva lot of people over 30 who know that this fool is better off under Clinton's plan than he realizes.

    Finally, Jay, you are ignoring the point that Obama's own advisor says here http://www.huffingtonpost.com/rj-eskow/health-mandates-why-pau_b_74915.html that Obama will eventually warm to mandates if they look like they're essential. And they will be. So there are going to be mandates one way or another, sooner or later. Clinton's telling us that, and building a difficult consensus towards that end; Obama is attempting to obfuscate and banking on the American people being more selfish and short-sighted than they really are.

     
  • At Wed Dec 05, 04:37:00 PM EST, Blogger jay said…

    I disagree strongly on both points. Massachusetts was and is one of the most liberal states in the Union. The fact the Romney could impose mandates there says nothing about whether they will fly nationally. I’ll bet that opponents are already preparing attack ads pitting Massachusetts’ progressive and communitarian reputation against the more individualistic and self-reliant ethic of the West, South and Midwest.

    As for political courage, who has more? Clinton’s plan pits young, healthy workers, many of whom are politically unaware and don’t vote, against older workers concerned about health care, most of whom do vote. I’d say that Clinton (as usual) is pandering, not leading. How much courage does it take to say, “Look, seniors, I’ll force young, healthy folks to pay for your insurance?”

    What concerns me most is the long term. In the long run, the United States will either join the rest of the developed world with a “single payer” system, or we’ll have to continue patching up our costly and inefficient private system step by step. To get to a progressive “single payer” system from Clinton’s plan, we’ll have to step backward from a regressive system that relies on overtaxing the young, healthy and (mostly) poorly paid. And if we’re going to work step by step, why impose mandates as the first step, when they’ve already proven (in 1993) to be the third rail of health-care politics? That doesn’t sound politically savvy to me.

    As for single payer, Obama has shown that’s where his heart lies. But he’s more realistic and savvy than Clinton in proposing a plan that will avoid the shoals of ideology and sail through quickly. Obama’s plan will insure people who want insurance more quickly, more easily and with far less expenditure of political capital.

    That last point is important. Our national ideological division is not going to vanish overnight just because a Democrat gets elected. Obama’s plan will heal even as it cures. Clinton’s will provide reason for more division.

     
  • At Mon Feb 18, 09:12:00 PM EST, Anonymous William H. Stoddard said…

    I'm glad to see you making these points. It's not just the young people who are hurt by making health care mandatory. I'm 58, self-employed, and uninsured—because when I had health insurance, four years ago, a bare minimum catastrophic policy cost 16% of my gross income, leaving me so broke that I couldn't visit my doctor or dentist; and because my rates were going up, and faced a big jump when I reached 55. Being forced to buy health insurance at current rates would be financially disastrous for me.

    Sure, Clinton says she will lower insurance costs. But I've seen government programs that didn't do what they promised before now. And if Clinton's plan costs too much—I'll still have to pay it, or be penalized in some way. Obama's plan offers me a promise of lower costs—but if it doesn't deliver, I can choose not to take part, and at least be no worse off. I don't see anything good about Clinton's call for a mandate; and I'm baffled that people think a program that could hurt people like me is ethically superior to one that, at worst, won't leave us any worse off.

    And the regressive nature of Clinton's proposal strikes me, too. On the average, people my age consume more health care than younger people, so the benefits of forced insurance will mainly go to my age group; and people my age also have more net wealth, so that redistribution is from relatively poor to relatively rich. I would sympathize with young people who objected to that deal, and not just because it could hurt me, too. It's one thing for the government to say, "Do this because it's for the public good" and force people to comply; some degree of coercion is unavoidable in such cases. But for the government to say, "Do this because it will make you better off" and force people to comply is irrational: it's hardly ever necessary to force people to accept something they see as a benefit. Clinton's call for coercion amounts to an admission that her program won't benefit everybody. Instead, it will create a new kind of class conflict.

    If Obama gets the nomination, I expect to vote for him. If Clinton gets it, she can do without my vote; I may decide McCain is a slightly lesser evil, or vote for a third party candidate, or not vote for any presidential candidate, but I won't vote for her.

     

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