February 4, 2008
Op-Ed Columnist
Clinton, Obama, Insurance
By PAUL KRUGMAN
The principal policy division between Hillary Clinton and Barack Obama involves health care. It’s a division that can seem technical and obscure — and I’ve read many assertions that only the most wonkish care about the fine print of their proposals.
But as I’ve tried to explain in previous columns, there really is a big difference between the candidates’ approaches. And new research, just released, confirms what I’ve been saying: the difference between the plans could well be the difference between achieving universal health coverage — a key progressive goal — and falling far short.
Specifically, new estimates say that a plan resembling Mrs. Clinton’s would cover almost twice as many of those now uninsured as a plan resembling Mr. Obama’s — at only slightly higher cost.
Let’s talk about how the plans compare.
Both plans require that private insurers offer policies to everyone, regardless of medical history. Both also allow people to buy into government-offered insurance instead.
And both plans seek to make insurance affordable to lower-income Americans. The Clinton plan is, however, more explicit about affordability, promising to limit insurance costs as a percentage of family income. And it also seems to include more funds for subsidies.
But the big difference is mandates: the Clinton plan requires that everyone have insurance; the Obama plan doesn’t.
Mr. Obama claims that people will buy insurance if it becomes affordable. Unfortunately, the evidence says otherwise.
After all, we already have programs that make health insurance free or very cheap to many low-income Americans, without requiring that they sign up. And many of those eligible fail, for whatever reason, to enroll.
An Obama-type plan would also face the problem of healthy people who decide to take their chances or don’t sign up until they develop medical problems, thereby raising premiums for everyone else. Mr. Obama, contradicting his earlier assertions that affordability is the only bar to coverage, is now talking about penalizing those who delay signing up — but it’s not clear how this would work.
So the Obama plan would leave more people uninsured than the Clinton plan. How big is the difference?
To answer this question you need to make a detailed analysis of health care decisions. That’s what Jonathan Gruber of M.I.T., one of America’s leading health care economists, does in a new paper.
Mr. Gruber finds that a plan without mandates, broadly resembling the Obama plan, would cover 23 million of those currently uninsured, at a taxpayer cost of $102 billion per year. An otherwise identical plan with mandates would cover 45 million of the uninsured — essentially everyone — at a taxpayer cost of $124 billion. Over all, the Obama-type plan would cost $4,400 per newly insured person, the Clinton-type plan only $2,700.
That doesn’t look like a trivial difference to me. One plan achieves more or less universal coverage; the other, although it costs more than 80 percent as much, covers only about half of those currently uninsured.
As with any economic analysis, Mr. Gruber’s results are only as good as his model. But they’re consistent with the results of other analyses, such as a 2003 study, commissioned by the Robert Wood Johnson Foundation, that compared health reform plans and found that mandates made a big difference both to success in covering the uninsured and to cost-effectiveness.
And that’s why many health care experts like Mr. Gruber strongly support mandates.
Now, some might argue that none of this matters, because the legislation presidents actually manage to get enacted often bears little resemblance to their campaign proposals. And there is, indeed, no guarantee that Mrs. Clinton would, if elected, be able to pass anything like her current health care plan.
But while it’s easy to see how the Clinton plan could end up being eviscerated, it’s hard to see how the hole in the Obama plan can be repaired. Why? Because Mr. Obama’s campaigning on the health care issue has sabotaged his own prospects.
You see, the Obama campaign has demonized the idea of mandates — most recently in a scare-tactics mailer sent to voters that bears a striking resemblance to the “Harry and Louise” ads run by the insurance lobby in 1993, ads that helped undermine our last chance at getting universal health care.
If Mr. Obama gets to the White House and tries to achieve universal coverage, he’ll find that it can’t be done without mandates — but if he tries to institute mandates, the enemies of reform will use his own words against him.
If you combine the economic analysis with these political realities, here’s what I think it says: If Mrs. Clinton gets the Democratic nomination, there is some chance — nobody knows how big — that we’ll get universal health care in the next administration. If Mr. Obama gets the nomination, it just won’t happen.
Health Mandates: A Talk With Obama Health Advisor DavidCutler
December 1, 2007
Hillary Clinton, John Edwards, and Barack Obama have each presented detailed proposals for health reform. The Clinton and Edwards plans include health mandates, which require Americans to obtain health care coverage or face (unspecified) sanctions. The Obama plan does not include mandates.
Health mandates are popular among many Democratic-leaning health policy analysts. The Clinton campaign has been going after Obama aggressively on this issue. They’ve said that the absence of mandates is a basic flaw in Obama’s plan; suggested a cynical political calculus behind Obama’s position said that his position feeds a Republican narrative; and took the position that Obama’s plan is politically vulnerable while theirs (and Edwards’) is a political plus in the general election.
(The preceding positions were echoed today by Paul Krugman - see my response, “Why Paul Krugman Is Wrong …“)
I don’t support any Democratic candidate, but I do have strong opinions about health mandates. As a long-time healthcare policy analyst and health manager in the private sector, I disagree with Paul Krugman, Ezra Klein, Jacob Hacker, and others who support mandates. My differences are based on policy effectiveness, issues of fairness, and Democratic political strategy. I think mandates pose more problems than they solve, and that they could be a political loser for Democrats in the general election.
I’ve been engaged in a collegial debate with Klein, blogger/consultant Joe Paduda and others on this topic for some time (see, for example, here, here, here, and here). During an exchange with Klein over the last week it became apparent that, while I had reasons to support Obama’s policy, it was unclear to me what his team’s current thinking was on the topic.
The team published a rebuttal to Clinton’s campaign late today. Earlier I spoke with David Cutler about mandates. Cutler is Professor of Applied Economics at Harvard, Obama’s senior health advisor, and the principal architect of the Obama plan.
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“I’d like to start with a general comment,” Cutler began. “Two possible reasons why people don’t have health coverage are usually given. One is that the uninsured are gaming the system. The other is that they can’t afford it and don’t know where to get it. Most of the literature suggests that the explanation is mostly the latter. That means the single biggest thing we can do to help the uninsured is to make coverage affordable and accessible.”
“That’s why all the Democratic plans focus on removing excessive profits where they exist, improving information technology, and so forth,” Cutler continued. “All the plans do those things, although I think the Obama plan does the most.”
“The mandate argument is: You must buy something – but I’m not going to tell you what it is, how much it will cost, or where you’re going to get it.”
“It comes down to this,” said Cutler. “You’ll never get someone to buy something if it’s not affordable and not accessible. People just don’t do it.”
That’s an area where the Edwards campaign has taken the lead. They suggest automatic enrollment whenever an American intersects with the health care system or government services.
“You can enroll them,” Cutler replied, “and then forcibly collect the premiums. That’s one way to solve the problem. But it’s not necessary to do that.”
“A better approach is to do everything possible to make it affordable and available. When it is, almost everyone will have it.”
There are a couple of concerns about that approach. One is the problem of “adverse selection.” Sicker people – or people with a greater likelihood of becoming sick – will enroll. That will drive plan costs up, making it prohibitively expensive.
“Let’s look at the level of coverage you can get without a mandate. Our estimates, based on studies in the literature, is that we can get 98% or 99% coverage without a mandate for adults. There may be some small pockets of people who choose not to buy it.”
What about those people?
“If there are free riders, Obama is open to mandates. But what he is saying is ‘Look, mandates seem like a panacea, but that’s not where the hard work needs to be done.’ Auto insurance is a mandate, too, and not everyone has that. You’ve got to prove to the public that you’re willing to do the hard work.’”
Would mandates be considered at that point?
“He hasn’t ruled anything out. It’s a matter of priorities. The fact is, the policy differences on the mandate issue aren’t that large at all. Sen. Obama believes they’re an option down the road, if other approaches don’t work.”
And yet Sen. Clinton made another speech about mandates and universal coverage yesterday. And the Clinton had ( Clinton Campaign Manager) Patti Solis Doyle and (Policy Director) Neera Tanden talk about health care differences with reporters this morning.**
And Paul Krugman weighed in on the pro-mandate side of the debate, too.
“I know the arguments,” said Cutler, “but look at the evidence. What really matters is: Can they afford the coverage?”
Part of the debate involves political communications: Is the mandate issue a winner for Democrats in the general election, or a liability?
“I don’t get involved in the politics of it.”
What about the concern – which I and others share – that insurance premiums are an inherently regressive form of ‘taxation.’ The state of Massachusetts has had to waive the mandate for 20% of the uninsured as a result. All the campaigns have been forced to create fairly complex subsidy structures in an attempt to offset that regressivity, but paying for some portion of health insurance out of general tax revenues – either for a public system or some type of voucher – would be less regressive. What about taxation as a funding mechanism?
“That doesn’t seem to be on the table now for any of the candidates.”
Then the devil is in the details, isn’t it? What would premiums costs? Who would get a subsidy, and for how much? Nobody is debating these issues with any specificity, and yet that’s where – arguably – the real debate should take place.
“That’s why we’re suggesting that we lower costs first. Otherwise, you’re saying you want to force people to buy something, but we don’t know how much it will cost or what you’ll get in return.”
There’s been talk that a consensus is forming among policy analysts that 10% of income is the right number for total out-of-pocket health costs, including premiums, copays, and deductibles. But that’s a very high number for lots of people.
“Well, healthcare is 16% of the GDP now. Some of that cost is being borne through taxes already. So it depends what you want to count.”
But 10% for whom? $4,000 for a family of four with income of $40,000 is a devastating figure. Whereas there are probably very few people in the top 2% of income who spend 10% on healthcare.
“That’s where the subsidy debate comes in, and is another reason to address the cost issue first.”
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Overall, Prof. Cutler had a clear and well-articulated response to many of the objections raised to the plan. Since he is not part of the campaign’s communication strategy, I did not ask him about the Clinton campaign’s accusation that Obama had been misleading in suggesting he had a universal coverage plan. He did make it clear that he feels a 98% enrollment level is possible without mandates, and that if that fails Obama will consider their use.
In my opinion, both the Clinton and Obama campaigns could have communicated their points more clearly - and with less heat. It was for this reason that I contacted Prof. Cutler. I have asked him for more background on that 98%-99% enrollment estimate. He says its an “internal calculation,” and it seems quite high to me. I’ll provide any further information as I receive it.
Why Paul Krugman Is Wrong About HealthMandates
December 1, 2007
Now there’s an intimidating headline to write. Paul Krugman slammed Barack Obama today on the issue of health mandates. Here’s why I believe he’s wrong:
From the beginning, advocates of universal health care were troubled by the incompleteness of Barack Obama’s plan, which unlike those of his Democratic rivals wouldn’t cover everyone.
Two misstatements in this opening sentence. First, while it’s true that Obama’s plan won’t “cover everyone,” neither will anyone else’s. Mandates have never achieved 100% effectiveness. The practical design problems of subsidies, exemptions, and benefit levels that accompany mandates are complex and unwieldy. That’s why the Massachusetts Authority responsible for that state’s plan - which Krugman would describe as “covering everyone” - just exempted an estimated 20% of uninsured residents from the mandate.
Secondly, the absence of mandates is not necessarily an incompleteness in the Obama plan. I’ll be posting my conversation on this topic with Obama health advisor David Cutler shortly.
Here’s why: under the Obama plan, as it now stands, healthy people could choose not to buy insurance — then sign up for it if they developed health problems later. Insurance companies couldn’t turn them away, because Mr. Obama’s plan, like those of his rivals, requires that insurers offer the same policy to everyone.
As a result, people who did the right thing and bought insurance when they were healthy would end up subsidizing those who didn’t sign up for insurance until or unless they needed medical care.
Mr. Krugman raises some valid concerns here. But what he doesn’t say is that this would only be a temporary problem under the Obama plan. If it failed to achieve enrollment rates high enough to offset this ’selection effort,’ other measures would be used - including potentially mandates.
The main difference between Obama’s plan and his rivals’ is this: They would mandate health coverage first and fix cost problems later. Obama would do the opposite. While both approaches are problematic, there is a strong case to be made that Obama’s plan is fairer - and much more politically progressive.
Mr. Obama claims that mandates won’t work, pointing out that many people don’t have car insurance despite state requirements that all drivers be insured. Um, is he saying that states shouldn’t require that drivers have insurance? If not, what’s his point?
His point is that the Clinton and Edwards claim - that they provide “universal coverage” - is false. If mandates don’t result in “universal coverage” - and the Massachusetts experience seems to confirm that - than this statement is hyperbole, not fact, and the debate is really about how many people to cover and how fast . It’s not the black-and-white issue the campaigns are making it out to be.
Mr. Obama accuses his rivals of not explaining how they would enforce mandates, and suggests that the mandate would require some kind of nasty, punitive enforcement: “Their essential argument,” he says, “is the only way to get everybody covered is if the government forces you to buy health insurance. If you don’t buy it, then you’ll be penalized in some way.”
Well, John Edwards has just called Mr. Obama’s bluff, by proposing that individuals be required to show proof of insurance when filing income taxes or receiving health care. If they don’t have insurance, they won’t be penalized — they’ll be automatically enrolled in an insurance plan.
That’s a “terrific idea” with no penalties, Mr. Krugman says. Okay, let’s amend Obama’s choice of words slightly: when people are enrolled in a plan automatically and then don’t pay the premiums they’ll be “penalized in some way.” That’s not hair-splitting - it’s a huge difference. If a family of four is enrolled in a health plan with $10,000 annual premiums, that’s a burden. What will happen if they don’t pay?
We’ll fix that with subsidies, says the mandate crowd. But how much will people actually pay? They’re not saying.