Tuesday, July 18, 2017

Freedom Apparently Means Whatever Republicans Need It to Mean

by Neil H. Buchanan

The Republicans' ongoing effort to take away health care coverage from tens of millions of people is probably only on hold.  In any event, their attempt to pass the Trump-McConnell bill has just "collapsed," because Senators Jerry Moran and Mike Lee have joined Rand Paul and Susan Collins in publicly opposing the bill.

That is a very good thing, of course, and I should take a moment to applaud Senator Collins, whom I have bluntly criticized many times over the last few years.  On this bill, hers was a public position that actually mattered, not a "free vote" or a statement of "concern" that then was not backed up by action.  Because the bill was unconscionable, she took a public stand against it.  I hope that she stands up like this again in the future, on health care and other issues.

Unfortunately, the other three Republican opponents of the bill -- Paul, Moran, and Lee -- did so because the bill was not harsh enough.  Apparently, Senator Ted Cruz's add-on to the bill, which saw him explicitly choosing full public funding for some health care recipients in order to give insurers the "freedom" to offer junk insurance policies to others, was too government-y for Paul and the others.

All of which means that Republicans' efforts to take away health care from vulnerable people is currently in limbo only because one of them was appalled enough to say no while three said, "Can't we make this even worse?"  Who knows how many Senate Republicans will sign onto something that the hardliners could support?

But there is another aspect of the Trump-McConnell bill that is worth considering, which is the Republicans' strategy to replace the dreaded "mandate" to buy health insurance.  It turns out that people's freedom to contract is sacrosanct to Republicans, unless that freedom must be sacrificed in order to destroy Barack Obama's Affordable Care Act (ACA).

Although it now seems a lifetime ago, the first Republican assault on the ACA was based on the idea that the government should not be able to take away people's freedom to abstain from buying something.  In very short order, we were hearing virtually the same talking point from everyone on the right, which went basically like this:
"Obama wants to force people to buy health insurance, because liberals think that everyone should have health insurance and that people will be glad that the paternalistic government forced them to do something for their own good.  Well, broccoli is good for people, and if people were forced to eat it, they might end up being happy that they lived longer and healthier lives.  But the government should not have the power to force people to eat broccoli!"
That argument is utterly fallacious for multiple reasons that are not relevant here.  But even though the ACA survived both of the challenges that reached the Supreme Court, a majority of five justices actually did endorse the broccoli argument, saying that the Commerce Clause does not empower Congress to require people to buy something.

The ACA's so-called personal mandate was actually not a requirement to buy (much less eat) the health insurance equivalent of broccoli.  It instead gave American adults a choice: buy ACA-compliant health insurance or pay a fee/tax/penalty/exaction.  In fact, the amount of money involved in the tax penalty was so low that a person who chose not to buy insurance was far ahead of the game in terms of money out of his pocket (until he became ill, of course).

But the broccoli-inspired issue that bothered the Rand Pauls of the world was that the government was supposedly forcing people to engage in a transaction that they did not want to consummate.  Big Brother was forcing people to do something that they did not want to do!

The degree of coercion involved in the ACA tax penalty was certainly much less than the proverbial gun to the head (which is, in other contexts, conservatives' preferred definition of what it means to be "forced" to do something), but it was enough to drive Republicans crazy.  They have even recently talked about cutting the IRS's funding (even more than they already have), specifically to prevent it from collecting the tax penalty.

The problem remains, however, that the logic of a universal private system of health insurance requires people to buy health insurance when they will not need it.  The logic is by now familiar, but it is worth repeating.  If people can sign up for insurance even when they have a preexisting condition -- which is one of the most popular aspects of the ACA, and which Republicans have at least claimed that they support -- then they will have every reason not to sign up until they are sick.

No insurance system can work unless people who currently do not need to draw benefits are paying into it.  This means that any legal framework that could allow for-profit (or even nonprofit, come to think of it) companies to provide affordable insurance to people has to have healthy people paying premiums.  No auto insurance company would allow tow-truck drivers to sell insurance to people who have just totaled their cars, because the insurers have to rely on the revenues paid by people who have not yet been in accidents.

And here is where things become especially interesting.  In both versions of the Trump-McConnell bill, Republicans would have replaced the personal mandate with a six-month waiting period.  That is, the most recent version of the bill says (in sec. 206(c)(3)) that insurers cannot issue policies to people who have not had at least twelve months of continuous coverage until a six-month period has passed.

It is a clever provision, because it essentially says to a person: "If you want to go without insurance, you're free to do so -- if and only if you are willing to wait six months the next time you decide to become insured."  In place of the choice between paying a tax penalty or buying insurance, then, the bill confronts a citizen with the risk of being unable to buy insurance when he wants to do so, if he exercises the free choice to be uninsured today.

I would think that many economists and other empiricists would have a blast in trying to calibrate the effectiveness of these two approaches.  I have no intuition about this, because it involves trying to predict how many young people (who tend to think of themselves as immortal) are going to be more worried about saving a small penalty versus those who would panic at the idea of being unable to buy insurance coverage for six months.  Who knows?

As a matter of freedom, however, it is difficult to see how this legal imposition from Big Brother is meaningfully different from any other.  The proposed law says that a health insurer "shall impose a 6 month waiting period," whether the insurer wants to do so or not, and regardless of whether the market would (in the absence of this requirement) see insurers offering policies to people who have been uninsured for less than six months.

Indeed, the question of effectiveness cuts against the liberty interest.  If the six-month mandate is actually better than a tax penalty at inducing people to buy health insurance that they otherwise would not be interested in buying, then Big Brother has more effectively impinged on their free choice than by imposing the tax penalty.

One could argue, I suppose, that the tax penalty involves paying money, but that has never been the necessary or sufficient condition to deem something to be anti-freedom.  And even if it did, the six-month waiting period works precisely because it forces people to ask themselves a money-from-my-pocket question: "What is the risk-adjusted cost of being uninsured for six months, compared to the certain cost of the tax penalty?"

In the model of human behavior favored by economic libertarians, people rationally make choices by weighing just this kind of trade-off: Is a 0.01 percent chance of being diagnosed with cancer during the waiting period worth the savings from not paying premiums?  Truly free choice, in this narrow and ultimately illogical view of the world, would allow people with different degrees of risk aversion to make different choices.

In a nutshell, here is how the two systems deal with people who would be tempted to withdraw from the market for health care:
ACA: You don't want to buy health insurance?  Cool.  Pay this tax penalty.

Trump-McConnell: You don't want to buy health insurance?  Cool.  Face this potentially disastrously costly possibility, which we are explicitly preventing you from insuring yourself against.
Is one of these approaches more like forced broccoli-eating than the other?  It is difficult to see how.  The ACA recognizes that health insurance markets will only work if enough people are insured, and so does Trump-McConnell.  Both try to influence people to do something that they currently find unappealing by giving them constrained choices, preventing willing insurers from offering products to willing customers unless a legal hurdle -- one that carries a government-imposed cost -- is met.

Is the problem that the ACA's system allows the government to keep the money from the tax penalties?  No, because the supposed argument for "freedom" is not about funding Leviathan but about coerced choices by the government.  In any case, I would be willing to bet a great deal of money that Republicans would not have been any less opposed to the personal mandate in the ACA even if the revenues were used to fund a prize for an essay contest on the wit and wisdom of Ronald Reagan.

It was always difficult to escape the sense that the broccoli argument -- the idea that the government must never be permitted to coerce people to do something that they would not do in a truly free market -- was pretextual nonsense.

That Senate Republicans voiced no concerns about their proposed six-month waiting period confirms that they know that health insurance laws must limit people's choice in order to prevent opportunistic behavior.  They just needed to dress up their coercion in different garb, to be able to say that they are not imposing a mandate.  That is a labeling exercise, not a principled defense of freedom.


Joe said...

I have limited respect for Collins since her position on this thing was repeatedly the "concerned Republican" position.

When it was first crafted, her position would seem to warrant her to at least not block it from coming to the floor. Or, later, not blocking the Senate from being able to clean it up some. But, she was a hard "no" then. (Minus, I guess, certain amendments, which Republicans voted for in many cases.)

Now, she can be the maverick again. There is a core respectful policy position there, yes, so okay. But, I'm not overly impressed. Plus, there were others really on the fence like Heller.


The overall 'liberty' argument as you note is b.s. The link to Dorf's talk with his daughter was good. Depressing we have been hashing the same arguments for over five years now though. Then again, on other questions, it has been much longer than that.

David Ricardo said...

This post by Mr. Buchanan is one of the few, maybe one of the very few that publicized the issue of the individual and employer mandate as a critical issue of universal insurance. And other than the drastic reduction in Medicaid, repeal of the mandates was the single most important issue in the Republican plan.

The simple fact, as explained by Mr. Buchanan is that if you are going to have a fee-for-service/insurance based health care system (which you should not but that a discussion for another time) is that you have to have compulsory purchases of comprehensive coverage. It won’t work any other way, as the health insurance industry trade group and the Blue Cross/Blue Shield folks just said.

The risk going forward is that the Trump administration will ‘de facto’ repeal the mandates by not enforcing them. This will mean huge premium increases as healthy people drop out of the insurance market both with individual policies and employer policies and small employers forego insurance completely. The result will be huge increases in premiums as insurers have to pay more for the risk pool that they do cover, and hospitals have huge increases in bad debt from people who don’t get insurance but show up for treatment anyway. These increases will hit both the group and individual markets.

So the system will over time unravel, not because of flaws in ACA, but because of ignorance, arrogance and indifference of the Republicans. Welcome to the future of health care costs people, you ain’t gonna like it.

Shag from Brookline said...

If this "freedom" is an example of libertarianism, it is more proof that libertarians can't actually govern.

By the way, does Trump's reaction to do any and everything to "kill" Obamacare violate the "take care" clause?

I had visions that before Moran and Lee, Sen. McCain might have mulled over his long career while recovering from surgery during which he had great medical insurance at government expense plus his own wealth and the wealth of his spouse, to better understand the plight of those unfortunate when it comes to health care, especially with the harshness of the Trumpcare repeal and replace of ACA. McCain recently joined the ranks of octogenarians and was recently reelected, so may not run for another term. We octogenarians (I'll be 87 before the Summer is over, with a little luck) who have had the benefit of Medicare can well appreciate the role of government with health care. McCain has the opportunity to be a hero again when he returns to the Senate chambers following his recovery. A healthy America can better thwart Russia attempts at meddling, interfering with American elections. This could be Warren Buffett moment for John McCain in the twilight of his career. (Buffett is a couple of weeks younger than me, just a kid.)

Rob Benjamin said...

Re Shag from Brookline's commment, "By the way, does Trump's reaction to do any and everything to "kill" Obamacare violate the "take care" clause?", why are so few people asking what seems obvious to me. Independent of the question of premium subsidies, how are actions openly intended to prevent the law from working NOT a violation of the Take Care Clause?

Joe said...

In response to a report of Trump saying that, Take Care blog tweeted:

Take Care‏ @ShallTakeCare 10s11 seconds ago

Take Care Retweeted Ruth Marcus

We literally created a whole blog about it ... and turns out #Trump isn't so keen on the whole "Take Care" thing @ShallTakeCare

So, maybe they will have something on it soon.

Greg said...

Wow, this view of waiting periods vs. penalties is one of the few areas where I am in almost complete disagreement with Prof. Buchanan.

First, I want to point out that there is one item I'm not clear on, which is whether or not the 6-month waiting period is mandatory, or simply the maximum waiting period that insurers are permitted to impose, which in practice all insurers will of course choose to impose. I had always assumed it was the latter. While in practice these are the same, in principle they are different.

It comes down to the Broccoli argument. There are a lot of ways that the government can encourage people to buy broccoli, and some they can't (or at least, shouldn't.) The government can subsidize broccoli growers, subsidize broccoli buyers, or offer tax breaks to broccoli buyers or sellers. It can even say that if you want to sell cookies, then you have to also sell broccoli. It can say that if you want to sell cookies, you have to sell them bundled with broccoli-. Government ought not to say that if you don't buy broccoli, then you can't buy cookies*. It can say that if you don't buy broccoli, then sellers can choose not to sell you cookies (possibly for a limited time**.) Similarly, the government generally ought not to say that if you don't buy broccoli then you will be forced to pay the government money+.

In most of the above, at least from the consumer perspective, broccoli is insurance when you're healthy, and cookies are insurance when you're sick.

- This doesn't really match the broccoli/cookies as healthy/sick insurance analogy.

* This is the republican plan if they actually force the waiting period on the consumers and the insurers.
** This is the republican plan if the waiting period is a restriction on the maximum waiting period that insurers may impose.
+ This is the ACA individual mandate.

Now, I suspect that the ACA method is more effective at encouraging healthy people to maintain insurance, and I could be convinced that insurance is unique enough that we really ought to allow the ACA method. However, in principle I am in favor of the method of allowing insurers to impose a waiting period.

NOTE: I would have no problem with the ACA if it raised income tax rates by an amount that averaged $750 per person and then offered a $750 deduction for maintaining health insurance. It's increasing the tax based on failure to buy something that I object to. From a constitutional perspective, it isn't clear to me how the 16th amendment allows this kind of penalty-based (or arguably existence-based with a permissible refund) tax.

David Ricardo said...

The previous post illustrates that many people while reacting understandably to reject the mandate requirement simply do not understand its role in the health insurance sector and why it is not like other potential government mandates.

To answer the first issue though, it appears that the Republican bill requires insurers to have a 6 month waiting period before enrolling an individual who did not have continuous coverage. To wit

‘‘(A) IN GENERAL.—With respect to health insurance coverage that is effective on or after January 1, 2019, a health insurance issuer described in subsection (a) that offers such coverage in the individual market shall impose a 6 month waiting period (as defined in the same manner as such term is defined in section 17 2704(b)(4) for group health plans) on any individual who enrolls in such coverage and who cannot demonstrate 12 months of continuous creditable coverage (as defined for purposes of section 2704(c)(1)) without experiencing a significant break in such coverage as described in subparagraphs (A) and (B) of section 2704(c)(2). “

Insurance only works if there is a large, diversified, statistically independent risk pool where the probability of any one incident requiring a payment is small but the financial cost of incident is large. In effect, the insured is transferring the risk of a financially catastrophic event to the insurer in return for making a payment that is low relative to the cost of the adverse event.

So insurance cannot have affordable payments if the risk pool has a large component of individuals who are likely to file a large claim. A risk pool that covers cancer treatment and that is dominated by cancer patients, actual or potential, will have such a large claim risk that the premiums will be unaffordable. Similarly a risk pool of women who are likely to conceive will have an unaffordable premium with respect to maternity coverage.

Most nations solve this problem by having government programs which cover almost everyone and every condition. Medicare works this way, enrollment is de facto required. But we have rejected this in America with respect to private insurance and instead have a fee-for-service health care system with private or government insurance. So in order for this to work in the private market everyone must be required to enroll. The problem with ACA was not its individual mandate, it was that the penalty for not enrolling was too small.

The best comparison is not with a requirement to eat healthy foods but with the requirement that in order to operate a motor vehicle one must have a driver’s license, the car must meet safety standards and one must have liability insurance. An untrained driver operating an unsafe vehicle without insurance is a danger to others, and his or her actions can do great financial and physical harm to others.

Similarly, an individual without health insurance causes high medical costs that are borne by others. It is a person who essentially free loads off of society, because government requires that the medical industry provide care.

Look, none of us want to be coerced by government, and the idea of being forced to buy health insurance one may not want or may not need is not pleasant, but it is the only way the current system can work. This is why Mitt Romney came to the conclusion that there must be a mandate. This is why the insurance industry said that the Cruz plan to segment coverage was unworkable in any form.

Joe said...

none of us want to be coerced by government, and the idea of being forced to buy health insurance one may not want or may not need is not pleasant

Society is like that, yes. Rules apply, even if they are not pleasant. Big picture, it is supposed to be more pleasant than the alternative.

Anyway, we are in the long run either way buying a type of health insurance. Our tax dollars goes toward the health costs of various individuals, a subset that we ourselves might at one point join (such as those on Medicaid). Health cost related bankruptcies effect people in various respects. Bankruptcy is a type of relief that amounts to sort of insurance. Limited it might be, but mandatory emergency care in various respects is paid by the public somehow etc.

It's increasing the tax based on failure to buy something that I object to. From a constitutional perspective, it isn't clear to me how the 16th amendment allows this kind of penalty-based (or arguably existence-based with a permissible refund) tax.

The broccoli argument amounted to a liberty claim and was inapposite because a tax based incentive to buy insurance is not the same as being forced to eat something. Tax incentives are a dime a dozen. The one here logically applied to a basic aspect of the economy (1/6 or whatever) with basic universal effect in a range of ways. It isn't some sort of special interest thing favoring one food product or something.

The insurance tax here is a type of excise from what I can tell. Mere "existence" isn't enough. If you merely "exist," you won't be making enough money to be taxed. People don't merely exist anyway. They work and do a range of things where they can be taxed in variety of ways. This includes making health related decisions where an excise tax involving not buying health insurance can kick in.

I don't see how this violates the 16th Amendment.

Greg said...

Thanks for the clarification. In that case, I agree, the Republican plan is equally as coercive as the ACA plan.

As for the rest of your note:

I'm well aware that some kind of incentive to get health people to buy insurance is required. I simply disagree as to the form that incentive should take, and in principle prefer a waiting period form of incentive (or a tax credit) over a monetary penalty form of incentive. This may be insufficient (hence why I'm open to being convinced that the monetary penalty is better) but a waiting-period incentive arguably hasn't been tried.

(Of course, I'm probably an outlier, as I'm the only person I know who purchased renter's insurance when I had an apartment. As such, I probably over-value the effect of a waiting period on the average insurance purchaser, hence why I'm arguing primarily on principles.)

The Cruz plan is completely unworkable, I'm in complete agreement there. I'm focusing only on the ACA individual mandate vs. some form of waiting period. I'm also excluding any kind of single-payer option as well.

I don't feel that the motor vehicle analogy is appropriate because the individual mandate applies to everyone. It isn't that if you want to drive a car you have to pay for liability insurance. The individual mandate is closer to saying that if you want to exist then you have to buy health insurance. While those sound equivalent, they aren't, since a person can choose not to drive a car and has a number of reasonable alternatives. There are no alternatives to existing.

NOTE: The fact that there is a minimum income threshold below which the individual mandate does not apply muddies the waters a little bit, making it sort of an income tax and sort of a punishment, even though it was marketed as purely a punishment.

Joe said...

To be clear, the tax power is only part of it.

The federal government is regulating commerce and other things here and there is no constitutional barrier here stopping the feds from requiring a range of people to buy insurance or pay a penalty. Health insurance is basic to healthy commerce.

"Similarly, the government generally ought not to say that if you don't buy broccoli then you will be forced to pay the government money."

What about something like a pollution preventing filter on a car or insulation on one's house that can reduce global warming? Is it wrong for government to say if you don't buy such things that you should be taxed? Broccoli is trivial. Insurance is not. The "generally" is telling. It means sometimes it is warranted.

David Ricardo said...

Just a couple of points of clarification.

1. I don't think it matters what kind of incentive is used as long as it is effective. But experience shows that it must be a strong incentive. The six month period likely doesn't work because if a person is going to need immediate treatment they will get it. We do not let people die because they cannot pay for health care.

2. The eating healthy argument I think fails because, I want you to eat healthy for your benefit, but frankly I don't care enough or think it important enough to make it a requirement. But the reason we require car insurance, safety regulations and driver training is to protect the public, not the driver, from the consequences of accident/injury. With respect to health insurance, I want you to be required to have it for my benefit, not yours. In order for me to have affordable coverage everyone must be enrolled, and also, I don't want to pay for your health care through higher taxes or higher premiums.

3. The biggest political problem here is that the people crafting legislation have zero understanding of health care economics and the principles of insurance. Even if one disagrees with him, one must admit that Sen. Cruz has impressive credentials. But as far as health care and insurance, he knows nothing. He has no right to impose his ignorance on the rest of us.