Last night, Health and Human Services Secretary Kathleen Sebelius gave a
trainwreckof an interview about Obamacare on The Daily Show.
Host Jon Stewart kept pressing Sebelius on the individual mandate: How come companies got a one-year delay of the requirement to provide health insurance to full-time workers, but individuals didn’t get a delay of their own mandate to buy insurance? Don’t individuals deserve the same “courtesy” of a one-year delay?
Sebelius couldn’t satisfy Stewart because she never gave the correct answer to his question: The difference between the two mandates is necessity.
The individual mandate is essential to the good functioning of the insurance markets created by Obamacare, and the employer mandate isn’t.
Sebelius should have given the explanation that health policy scholar Adrianna McIntyre gave in July:
Just because “individual mandate” and “employer mandate” sound the same doesn’t mean that they are. Equating the two reaches an impressive new level of political theatre — and demonstrates willful ignorance of the motivations behind each mandate.
The individual mandate isn’t about fairness relative to employers. It’s about this chart. Pulled from the landmark paper on adverse selection by David Cutler and Richard Zeckhauser, this is the graphical representation of the dread insurance “death spiral”.
Adverse selection isn’t an especially difficult concept to grasp. With guaranteed issue (telling insurers they can’t discriminate based on pre-existing conditions), sick people are more likely to sign up for insurance. That makes the risk pool — the group of people an insurer covers — less healthy and more expensive. That causes premiums to rise and healthy people drop out, in a cycle that perpetuates until insurance is woefully out of financial reach. This is a market failure, and requiring individuals to purchase insurance works to correct that failure by keeping the young and healthy in the risk pool.
In other words, if you don’t have an individual mandate, the risk is that only sick people will buy insurance, and then premiums will skyrocket, making it unaffordable for everyone. It’s called the Affordable Care Act, but the care will only be affordable if you get broad participation in the insurance pools, which the individual mandate produces.
But instead of Sebelius explaining that to Stewart, they ended up having a lame discourse on “fairness.”
Jon Stewart thinks it’s not fair that employers got a break while individuals didn’t. Kathleen Sebelius thinks that is fair because Obamacare also produces lots of new benefits for individuals, like insurance subsidies, while employers don’t get new benefits. She also thinks it wouldn’t be fair for individuals to be able to skip insurance and then go to emergency rooms and get their bills paid.
Who cares? The individual mandate is a tool that improves the overall fairness of the health care market by making insurance coverage broadly available and affordable. That’s why it’s fair. All the rest is noise.
A lot of political debates get bogged down in these kinds of questions of micro-fairness. Take, for example, road pricing. Congestion pricing, road tolling, and market pricing of parking all reduce traffic and cause the economy to grow faster. They create broad benefits that can be shared among society. But every time proposals come forward in these areas, we get bogged down in fights over whether it’s “fair” that some individual’s commute is going to get more expensive.
Focusing on micro-level fairness leads to all sorts of errors. It leads to policies like rent control, which protect incumbent tenants from “unfair” rent increases, instead of policies that would broadly reduce the cost of housing. It leads people to obsess over bank CEO pay instead of bank leverage. It leads to copyright laws that focus on rewarding artists rather than fostering the availability of great content.
And in the case of Obamacare, it leads to the Secretary of Health and Human Services failing to defend the law even to a left-of-center chat show host.
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