What’s Wrong With this Argument?
This is David Leonhardt, writing in The New York Times:
But the law depends to a significant degree on the mandate. Without it, some healthy people will wait to buy coverage until they get sick — which, of course, is not an insurance system at all. It’s free-riding. Just look at Massachusetts. In 1996, it barred insurers from setting rates based on a person’s health but did not mandate that individuals sign up for insurance. Premiums then spiked. Since the state added a mandate in 2006, more people have signed up, and premiums have dropped an average of 40 percent.
I’ll answer in my next Health Alert.
He is data that are not comparable (e.g. higher deductibles). It also looks like he is using national data, not just MA. In the end, MA rates still continued to climb – so he is wrong or lying.
Massachusetts is suffering from medical costs that are rising faster than wages. Its insurance premiums are among the most expensive in the nation. I tell people all the time (to no avail) that insurance isn’t about expanding the pool with healthy people who are supposed to pay far more than their expected costs so others get a nearly free ride. Insurance is about underwriting risk. Besides, even if Massachusetts expanded the pool of healthy people in the risk pool, that would merely masks rising costs. Massachusetts’ state subsidized plans also pays physician reimbursements that are only a few percentage points above Medicaid. The use of the Emergency Room has not fallen and there are long waits to see a doctor. The Massachusetts model has not worked – even the Single-Payer people are criticizing it as unworkable.
The mandate is a myth because it is (reasonably) not enforced on most of the uninsured. According Massachusetts’ 2008 report on the uninsured only 17% of the 150,000 residents who reported being uninsured for all of the year were assessed a penalty. Only 35% of the 71,000 who were uninsured part of the year were assessed a penalty. That’s 50,350 people in 6.5 million: Less than one percent of the population.
It is politically and economically ridiculous to think that the government can assess a financial penalty on people who cannot reasonably afford overpriced health insurance.
Many of these folks pay nothing towards their coverage under the reform. According to the Commonwealth Connector’s latest report, p. 8 — 42% of Commonwealth Care beneficiaries pay zero share of their premiums. This is a one third increase (from 31%) since 2009.
Can anyone credibly argue that this is significantly different from a Medicaid expansion? The Massachusetts health reform was little more than a huge expansion of tax and subsidies, entailing a significant increase in political control of people’s access to medical care, as Devon Herrick has described.
Leonhardt assumes that you have to let people buy insurance after they have been willfully uninsured and after they get sick for the same premium as that paid by everyone else. But of course you do not have to do this.
The entity being measured isn’t the same as the earlier AHIP report is at pains to point out. The 2006 “reform” merged the individual and the small group market in Massachusetts.
A June 2010 report by Oliver Wyman Actuarial Consulting, Inc. for the state concluded that “Studies performed prior to the merger of the markets estimated that individual coverage rates would decrease by 15% and small empoyer rates would increase by between 1.0% to 1.4% of premium.”
In fact, claims costs were up in 2008 compared to 2006, but they were spread over the merged market. The 2008 merged market claims costs were 3.4 percent higher than the small employers’ claim costs, not the 1.0% to 1.5% that was predicted. Loss ratios went up, and so did premiums for small groups.
Finally, the state has the right to reject premium increases. It exercised this right this year.
as other commenters have pointed out, the information about Massachusetts is just plain wrong. The state’s own official reports available on its web site show premiums rising steadily and sharply since the mandate went into effect
but the bigger question is who plagiarized whom? This wording is almost exactly the same as Harrop’s in the Providence Journal, repeating the same information
The only workable mandate is one similar to what we’ve been using for decades to prop up employer-sponsored insurance: a federal subsidy paid for with tax dollars, for those who purchase the required coverage. That one has been quite effective (I don’t say efficient), despite the fact that it’s concentrated where least needed.
The individual mandate as now written is also a tax, but it taxes the wrong people. As in poorer, younger healthy people being forced to subsidize high-risk, older wealthy people.
I should have said that the individual mandate as written in PPACA is also a ‘tax’-financed subsidy, but one that taxes the wrong people.
Linda Gorman brought up a key reference. The exchange merged the small-group and individual markets. Even pre-Obamacare, that’s the only way that an exchange could “function”: By outlawing actuarially accurate premiums, which is why my team has opposed the idea since April 2007(http://tinyurl.com/2aoests).
Because the number of people in the individual market was very small (and expensive, because of guaranteed issue and community rating), their very high costs could be internalized to the much larger small-group market with a small impact (when allocated over the entire population).
This likely helps explain why the 2006 “reform” remains popular in Massachusetts: Most people don’t appreciate the costs. The current issue of political control over medical prices and decision-making – the course favored by Gov. Patrick – is too opaque for most people to follow.
Leonhardt’s 40% figure seems dubious. Looks like he used AHIP data and took the difference between the Massachusetts Individual Market premium in 2006 ($8.5K) and 2009 ($5.1K). However, that 2006 figure is questionable. Check the timeline:
2004: MA premiums at $5.3K according to AHIP (http://tinyurl.com/8v8xb)
2006: Mandate passed
2006 (later): MA premiums at $8.5K (60% increase over 2004)
2007: Mandate implemented
2009: MA premiums at $5.1K (40% drop)
My hypothesis: MA insurers increased premiums significantly in advance of the mandate’s implementation, worried about what effects it might have, and then lowered rates once they figured out the newly insured were not unhealthy. Consistent with this idea is the fact that MA premiums in 2006 cost $3000 more than the two closest states, NY and NJ (both community rating/guarantee issue states) while in 2004, MA premiums were right between NY and NJ. In other words, the 2006 figure is a fluke byproduct of the mandate.
If Leonhardt want to quote the 40% figure, he has to offer an alternate explanation of why premiums increased so much between 2004 and 2006 in MA, but not in NY or NJ, and explain why adding 8-9% more people to the insured pool would have such a dramatic effect on rates.
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I originally posted this on Austin Frakt’s website but he never responded to it.
http://theincidentaleconomist.com/wordpress/read-leonhardt-and-his-links/#comment-9493