Korobkin on the Clinton/Obama Mandate Contretemps

posted by Frank Pasquale

Television has an extraordinary abilty to drain the substance from policy–so much so that even after their 20th debate, the difference between the Democratic candidates on health care has been shrouded in slippery charges and countercharges. Fortunately, Russell Korobkin has an excellent commentary on the Clinton/Obama mandate controversy. Korobkin has a deep understanding of both managed care and the political dynamics at stake here; his diagnosis follows:

Whether the government should require everyone to purchase health insurance is a difficult issue about which reasonable people may differ. (Full disclosure: I am an unpaid member of a health care policy advisory committee for the Obama campaign, but I personally favor individual mandates as part of comprehensive health care system reform). But the sound argument to be made in favor of mandates is very different from the one reiterated daily by Clinton. . . . Clinton could reasonably argue that, as president, she would need to accept an individual mandate in order to win Congressional backing for market reforms and subsidies that would truly help the uninsured. Instead, she chooses to claim that mandates are themselves the goal. . .

I have heretofore refrained from commenting on the controversy because of the diversity of circumstances of the uninsured. Mandates can be a good idea for the more well-off uninsured, but raise many difficulties for those lower on the income scale.

For example, I can’t see why taxpayers generally should allow, say, a single person making over $75,000 annually to a) avoid paying any insurance premiums, b) demand high tech care in case of an accident, and c) go bankrupt to avoid paying the bills incurred. On the other hand, such “free riders” are often only responding rationally to a competitive market economy that puts the “lowest cost provider” of labor at an advantage over those who pay their fair share (and demand their employer do the same). A mandate levels the playing field for this group.

But as an NYT story reports, only about 16% of uninsured households make over $75,000 per year. Given that the “the average annual premium [is about] $4,479 for an individual and $12,106 for a family,” affordability becomes a much bigger issue when we go down the income scale. For the 40% or so of uninsured families with less than $25,000 in annual income, an average policy could easily bankrupt them. They can purchase very cheap insurance, but in some cases that is tantamount to no insurance at all.

Massachusetts has addressed that problem by setting a standard of “minimum creditable coverage,” and subsidizing those below certain income thresholds to help them purchase it. Yet there are important objections to this method of providing care. Consider the incentives it creates for the subsidized–they tend to lose government subsidies to the extent they make more money. As Fuchs & Emmanuel state, this is but the tip of an iceberg of difficulties with the “subsidize the poor & let them buy their own insurance” approach:

The proposal that would make the least change in the existing system is mandating that every American have health insurance that meets some minimum standard and having the government provide income-related subsidies or tax credits to the poor and near-poor to enable them to purchase insurance in the individual market or through exchanges formed for that purpose. . . . One version of the individual-mandate approach envisages the elimination of employer-based and means-tested insurance and the phasing out of Medicare. All Americans would be required to purchase one of three levels of coverage with income-related subsidies.

The fact that mandates with subsidies would build on existing systems of finance, organization, and delivery is perceived as an advantage by some and as a disadvantage by others. The advantage lies in simplicity of plan design and the likelihood that no large groups would believe that they had been hurt by thereform. The disadvantage is that this would preserve the existing methods of finance with all of their flaws and do little to increase the efficiency and effectiveness of the organization and delivery of care. Without increased

efficiency, overall health spending would be likely to shoot up. . . .Mandates with subsidies seem relatively simple, but implementation could prove to be complex and expensive. Enforcement of a mandate on 300 million Americans would not be trivial, as evidenced by widespread noncompliance with liability insurance mandates by millions of automobile owners. What will happen when a patient who does not have health insurance shows up at a hospital with a heart attack or after a bad accident?

Administration of income-related subsidies is also likely to prove problematic. . . . With premiums now close to $10,000 per year for decent family coverage, the subsidies for low-income families would have to be

substantial. Potential loss of subsidy would discourage efforts to increase income and encourage misreporting. . .

As I have noted earlier, advocates of market-based health care reform face many paradoxes here. They may think that the ideal way to rein in health care spending is to give individuals money (rather than subsidize care directly). But to the extent those subsidies are tied to low levels of income, they create the same old incentives to work less (or not at all) that the right has long blasted traditional social welfare programs for creating.

Perhaps we can learn something from Taiwan, an indisputable economic success story that decided in the mid-1990s to try to cover all individuals (and has largely succeeded):

[T]he experience of the insured in Taiwan is certainly better than that of Americans dependent on the caprices of commercial health insurers. In 2005, polls showed a 72.5 percent satisfaction rate—and much of the dissatisfaction is with the cost, laughably small though it is by U.S. standards. When co-payments and premiums were increased in 2002, the satisfaction rate plummeted to 59.7 percent. To put this in perspective, the premiums at the maximum are less than $20 (U.S.) per month (the annual per capita GDP is $16,500 U.S.).

Premium collection is similar to that of Social Security contributions in the United States. Employers and the self-employed are legally bound to pay. However, unlike the US Social Security Fund, the NHI is a genuine pay-as-you go system. The aim is for the premium income to pay costs. There is a continual tussle over who bears the cost of the national service—currently 27 percent is paid by the government, 35 percent by employers, and 38 percent by employees.

The various constituencies seem to have cooperated to avert long-term financial problems, adjusting premiums, co-payments, and provider fees in a way that has left them all reasonably content, while providing protection for weaker and poorer groups and those suffering chronic illnesses. Even the generous safety net seems to have another net below, with exemptions for those who cannot pay, loan option to pay premiums, and referral to charitable organizations for payment when even that fails.

In any event, perhaps the most heartening thing I’ve heard in this whole debate recently was a perspective from David Cutler, another Obama advisor. Like Korobkin, he understands the complexity of the US political system and realizes that we can’t have everything on the table at once. The key here is to slowly change minds about provision of care for the most disadvantaged groups–and then use successes in those areas to build the political capital necessary to put models like the French, German, and perhaps Taiwanese on the table.

PS: For more on the political risk of advocating mandates now, see:

 February 27, 2008 at 10:17 am   Posted in: Health Law    Print This Post

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