A well-said defense of Obamacare

[Torie]

It is solid only if it were true. Alas it is not. The young will be getting into the business of subsidizing the old, above and beyond medicare. They are being asked to overpay for their insurance. The moral hazard was the nose in the tent, to move them from free riders into subsidizers - from one end of the field to the other. And we still have a dysfunctional delivery system, with not much competition and price policing to boot.

[Torie]

It is solid only if it were true. Alas it is not. The young will be getting into the business of subsidizing the old, above and beyond medicare. They are being asked to overpay for their insurance. The moral hazard was the nose in the tent, to move them from free riders into subsidizers - from one end of the field to the other. And we still have a dysfunctional delivery system, with not much competition and price policing to boot.

All insurance is subsidy by the lucky of the unlucky. Because of Medicare the young are subsidizing those in the latter years of middle age. 

No insurance is about being unlucky. But when you are forced to pay more than necessary to insure your unluckiness, because you are forced to pay more given your age and level of health so that someone else pays less (to wit, pay more than necessary to deal with the free rider problem), that is a subsidy - not insurance. The two concepts must not be conflated in order to make an intelligent policy choice here.  Generally it is preferable to finance subsidies on a means tested basis, but for some reason the Left just doesn't it get it on this one.  They want to slam young folks, not rich folks.

[Torie]

So it makes sense for the young to subsidize someone else, when available cash is really tight, in exchange for a subsidy when they are older and have much more cash lying around, on average? No, I am going to stand by my position on this one, thanks.

In any event, the system is headed for collapse, because the young will just pay the penalty if they need care, which will cost them a lot less, and that assumes the penalty is ever paid, and the IRS enforcement mechanisms to do that seem close to nil. All the IRS can do is offset the penalty against any tax refund that might otherwise be owing per my readings on this matter. So the whole scheme should fall apart in a hurry. You just wait and watch.

[Torie]

So it makes sense for the young to subsidize someone else, when available cash is really tight, in exchange for a subsidy when they are older and have much more cash lying around, on average? No, I am going to stand by my position on this one, thanks.

In any event, the system is headed for collapse, because the young will just pay the penalty if they need care, which will cost them a lot less, and that assumes the penalty is ever paid, and the IRS enforcement mechanisms to do that seem close to nil. All the IRS can do is offset the penalty against any tax refund that might otherwise be owing per my readings on this matter. So the whole scheme should fall apart in a hurry. You just wait and watch.

That's why I think you should be in favor of letting the young and deliberately uninsured die when they get sick.

No, I need to keep the young alive to pay for my social security. So I want to encourage them to be insured by not having to cross subsidize others.

[Torie]

The worst cross-subsidy is how public universities were nearly free for the boomers but kids these days have to rack up huge debts to pay for the same education because the Boomers won't support the kinds of taxes their parents paid. That's a more pernicious cross-subsidy.

The parents didn't pay any more in taxes, and probably less overall. Those high marginal rates were paid by almost nobody. The cost of higher education is however a scandal. Something is terribly dysfunctional with that market. I (well my parents) paid about $2000 a year in tuition for eight years from 1969-1977 (college, business school and law school, all at elite institutions), maybe about $10,000 now in inflated dollars. But the cost of tuition is now around $40,000, which means a quadrupling in tuition costs in real inflation adjusted dollars.

Something is rotten in Denmark. Probably the government pumping money in, had something to do with it, but it would be great if someone directed me to some intelligent paper on the subject, that has been peer reviewed and sustained that review.

[Torie]

More fully, there have been a couple of financing models for research universities that have proved sustainable. One is the European model (formerly roughly similar to the American public university model), where most or all of the cost of the university is paid for by the government out of tax revenue. Taxpayers subsidize university education whether they get it or not, but since there's a strong correlation between university attendance and income, it roughly evens out.
The other model is the American private research university, where tuition needs to be extremely high, not only to cover the costs of running the institution, but also to subsidize the talented kids who could never afford full fare. That's how somewhere like Harvard works -- rich parents cheerfully pay $50 000 a year, but half the students receive some kind of financial aid, such that families making less than about $120 000 a year pay little or nothing.
For that model to work, of course, you need lots of rich parents who are suckers enough to pay that much. If you don't have enough of them, or if you set tuition too low, then there isn't enough money left over to subsidize "poor" kids. Either way, rich people subsidize research universities, whether through their taxes, or through paying too much for their kids' tuition.  Conservatives might prefer the latter model, as one that preserves consumer choice, but of course it builds in a number of inequities and inefficiencies as well.

There was financial aid, and grants back in my day too. I am not persuaded that the bulk of the massive tuition increases can be attributable to a huge ramp up in cross subsidies, with the rich paying more, and the poor paying less, with more poors in the system. That is probably part of it however, I just don't think it is the major part.

[Torie]

Something is rotten in Denmark. Probably the government pumping money in, had something to do with it, but it would be great if someone directed me to some intelligent paper on the subject, that has been peer reviewed and sustained that review.

Not a peer-reviewed paper (I'd have to do some digging for that) and this is a bit dated of a FinAid research report.  But despite the ten-year old numbers, I think the identification and breakdown of cost-drivers is still basically good.

http://www.finaid.org/calculators/tuitionanalysis.pdf

Thanks anvi. Some of it doesn't make much sense to me, but to evaluate it, one would need to look at the underlying data, and how it was massaged. I tend to agree that some of it is due to higher salaries, and higher quality, of faculty. And some of that has to do with the ramp up in real incomes of the highly skilled in general. And ascribing maybe a third of the cost problem to that, seems kind of plausible maybe. The balance however seems less plausible.