A well-said defense of Obamacare

[ajb]

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.

And when I'm old, the young will pay for me.  And when they're old, the new young will pay for them.  It's the fairest way to do it.

A modest proposal which might seem fairer to some conservatives: if you're one of those young free riders, who can afford health care, but chooses not to buy it, then, if you get catastrophically ill -- cancer, car accident, whatever -- you should be denied treatment, and left to die. We'd have to release doctors from the Hippocratic Oath, mind you, but anything to give those young people freedom of choice!

[ajb]

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.

[ajb]

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.

But presumably you need to keep the middle aged alive to pay for your social security, too. And shifting costs away from one group does mean shifting them on to another.  

[ajb]

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.

These days it has much more to do with the government money being yanked out. For all practical purposes, the United States no longer has public universities, at least at the flagship state level.

[ajb]

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.

[ajb]

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.

And when I'm old, the young will pay for me.  And when they're old, the new young will pay for them.  It's the fairest way to do it.

A modest proposal which might seem fairer to some conservatives: if you're one of those young free riders, who can afford health care, but chooses not to buy it, then, if you get catastrophically ill -- cancer, car accident, whatever -- you should be denied treatment, and left to die.

That is how it would work if we were all notoriously stingy progressives. 

The conservative way is that we would all voluntarily donate to save the deserving poor patient in such a situation.

Progressives who insanely think that without government-forced healthcare lots of people will be "left to die" need to explain why that didn't happen before government-forced healthcare.

As you probably already noticed, I'm not saying that anybody would be left to die without the ACA. I'm saying that there are several ways of dealing with the free-rider problem of young people who can afford health insurance, but choose not to purchase it. One (my preferred option) would be Medicare for everyone. One (which the ACA offers) would be to penalize them, ofsetting the financial burden these people willingly inflict on the rest of us, and incentivizing them to buy insurance. A third way would be to let people live, or die, with the consequences of their actions. Our current solution is of course charity, which, as so often, actually amounts to tax dollars through the back door.

The point is that young people who can afford health insurance, but choose not to purchase it, can celebrate their freedom of choice all they like, but the reality is that they're imposing considerable hidden costs on the rest of us, who pay taxes and have health insurance.

[ajb]

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.

Nice to see some supporting data.
The question, of course, is whether rising tuition is a problem or not. To the extent that private-school tuition goes up, that seems like a problem the market will take care of. And with public schools, well, like the paper says (only much more so in the past decade), states have decided not to fund public universities. Each school has choices to make in that context: keep tuition low through drastic cuts, and consequent decline in quality; or invest in quality, and charge more money. If government wants to influence university policy, then they'll need to pay up.

[ajb]

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.

And when I'm old, the young will pay for me.  And when they're old, the new young will pay for them.  It's the fairest way to do it.

A modest proposal which might seem fairer to some conservatives: if you're one of those young free riders, who can afford health care, but chooses not to buy it, then, if you get catastrophically ill -- cancer, car accident, whatever -- you should be denied treatment, and left to die.

That is how it would work if we were all notoriously stingy progressives. 

The conservative way is that we would all voluntarily donate to save the deserving poor patient in such a situation.

Progressives who insanely think that without government-forced healthcare lots of people will be "left to die" need to explain why that didn't happen before government-forced healthcare.

As you probably already noticed, I'm not saying that anybody would be left to die without the ACA. I'm saying that there are several ways of dealing with the free-rider problem of young people who can afford health insurance, but choose not to purchase it. One (my preferred option) would be Medicare for everyone. One (which the ACA offers) would be to penalize them, ofsetting the financial burden these people willingly inflict on the rest of us, and incentivizing them to buy insurance. A third way would be to let people live, or die, with the consequences of their actions. Our current solution is of course charity, which, as so often, actually amounts to tax dollars through the back door.

The point is that young people who can afford health insurance, but choose not to purchase it, can celebrate their freedom of choice all they like, but the reality is that they're imposing considerable hidden costs on the rest of us, who pay taxes and have health insurance.

Anytime people don't buy something they could afford, that's not THEIR fault.  That's the fault of the people offering the product.  Either the product isn't offering value for the cost or it's totally misdesigned for the consumers you're trying to reach.  With health insurance and young people, it's probably BOTH.

Now, the only question we have to answer is WHY are insurance policies SO MISDESIGNED that young people don't want to buy them?  I would say, Look for the answer in the state regulators:  How many state insurance regulators are 20-somethings?

The solution?  Let insurance companies market to young consumers the kinds of health care policies they WILL buy.  Ones that cover catastrophic loss but not, say, all the crap near and dear to progressive hearts, like birth control pills and sex-change surgery.

The problem is that the choice not to purchase health insurance is a choice to burden taxpayers with the costs of any catastrophic care you might need. That's the way the world actually works, right now. The government in effect provides free catastrophic health coverage for people who don't purchase their own, so it seems only fair that people either pay for that insurance, or not receive its benefits.

[ajb]

The cases of private and public increases are of course distinct in important ways.  Private universities are in fierce competition with each other, and since Boards of Trustees are importuned to spend more at the same time that cuts are blamed on their decisions and no one else's, the spending increases continue as do the tuition hikes.  There are a lot more factors in the case of public schools.  State cutbacks are one factor, but so are steadily increasing state reporting requirements, which accounts for some of the increased administrative hiring and extra faculty compensation in cases where they do help there.  But the pumping of more financial aid moneys in also encourages public schools to rely more on tuition at the same time that other sources of funding are in short supply.  There's no doubt that increased instructional costs is a factor too, as well as additional student services that have been piled up by universities which accounts for another good bit of increased administrative hiring.  There are lots of factors, and I think sometimes, because there is a dynamic relation between so many of them, isolating them from one another in quantitative analyses can get tricky.

Certainly, with the proviso that cutbacks increasingly blur the distinction between public and private. A great many flagship state universities now get less than 10% of their funding from state government. They're all looking around for a new business model that works in that environment, and on the whole emulating private research universities seems to be leading to the best outcomes.