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A Short Trip Down Memory Lane

Sunday, March 12, 2017 17:02
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How did a Republican program introduced on the eve of the George H.W. Bush administration wind up in the crosshairs of the Republican Congress under House Speaker Paul Ryan (R-Wis.) twenty-five years later? Here, at the beginning of the attempt to repeal Obamacare, let’s take a quick trip down memory lane.

It was in 1989 that economist Stuart Butler proposed an individual mandate in a Heritage Foundation monograph, A National Health System for America, practically on the eve of Bush’s inauguration:

The requirement to obtain basic insurance would have to be enforced. The easiest way to monitor compliance might be for households to furnish proof of insurance when they file their tax returns. If a family were to cancel its insurance, the insurer would be required to notify the government. If the family did not enroll in another plan before the first insurance coverage lapsed and did not provide evidence of financial problems, a fine might be imposed.

That autumn, in Assuring Affordable Health Care for All Americans, a conference talk, Butler explained why the provision of health care is unlike almost all other markets:

If a man is struck down by a heart attack in the street, Americans will care for him whether or not he has insurance. If we find that he has spent his money on other things rather than insurance, we may be angry but we will not deny him services – even if that means more prudent citizens may wind up paying the tab.

In 1991 Mark Pauly, of the University of Pennsylvania, elaborated on the concept, in a widely-read article in the journal Health Affairs. The individual mandate became the basis for a Congressional Republican proposal introduced in 1993 as an alternative to Hillary Clinton’s anticipated proposal of a single-payer national health service. The scheme was subsequently endorsed (subscription required) by Newt Gingrich.

And in 2006, Massachusetts Gov. Mitt Romney, who was preparing to run for president, explained his health insurance plan for Massachusetts this way in a Wall Street Journal op-ed article (subscription required):

Some of my libertarian friends balk at what looks like an individual mandate. But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on the government is not libertarian.

When the individual mandate became the basis of Obamacare, in 2010, Butler sought to wiggle out of credit for the idea:

The confusion arises from the fact that 20 years ago, I held the view that as a technical matter, some form of requirement to purchase insurance was needed in a near-universal insurance market to avoid massive instability through “adverse selection” (insurers avoiding bad risks and healthy people declining coverage). At that time, President Clinton was proposing a universal health care plan, and Heritage and I devised a viable alternative.

Why do today’s Republicans hate the individual mandate so much?  The roots are to be found in the 2010 mid-term Congressional election that produced the Tea Party.  As libertarian law professor and Tea Party theorist Randy Barnett told James Taranto, of the WSJ editorial page, in an interview (subscription required) in 2011:

What is the individual mandate? I’ll tell you what the individual mandate, in reality, is. It is a commandeering of the people. . . . Now, is there a rule of law preventing that? No. Why isn’t there a rule of law preventing that? Because it’s never been done before. What’s bothering people about the mandate? This fact. It’s intuitive to them. People don’t even know how to explain it, but there’s something different about this, because it’s a commandeering of the people as a whole. . . . We commandeer people to serve in the military, to serve on juries, and to file a return and pay their taxes. That’s all we commandeer the people to do. This is a new kind of commandeering, and it’s offensive to a lot of people.

This is, of course, profoundly misleading. Nearly a century ago, states began to compel motor vehicle owners to purchase liability insurance in case their vehicles are involved in accidents causing harm to others.  (Then, too, Massachusetts and Connecticut led the way.)  Law professor Barnett has proposed a constitutional amendment that would outlaw the practice.

A succinct statement defending the individual mandate is a 2013 letter signed by thirty prominent economists, led by the late Kenneth Arrow, the founder of modern health care economics:

[I]nsurance reform without subsidies and mandates has consistently failed. In the five states that have tried comprehensive insurance market reform without an individual mandate, healthy people chose to stay out of insurance, sick people took it up, and premiums increased.  Only broad participation markets can end the cycle of insecure coverage and high costs.

As for Obamacare, is it broken, as the president and the Republican Congressional leadership asset, or not?  MIT professor Jonathan Gruber, an architect of both the Romney plan and Obamacare, told CNN last autumn that it was merely under siege:

I think probably the most important thing experts would agree on is that we need a larger mandate penalty. We have individuals who are essentially free-riding on the system. They’re essentially waiting until they get sick and then getting health insurance.

Health care restructuring in the United States is a little like the issue of retarding climate change in the larger world.  If you believe the science, the question is not if, but rather how and when. In each case, different paths are available:  carbon taxation vs. cap and trade for atmospheric emissions; individual mandates vs. a single-payer system like Medicare for the provision of health care.  Sooner or later, we must choose one or the other – or decide to let the uninsured heart attack victim die in the street.

.                                                xxx

MIT Sloan School economist Steven Ross died earlier this month, at 73, of a heart attack.  Many economists will not have known his work well.  He did not win a Nobel Prize for his arbitrage pricing theory, though he came very close in 2013. He spent a good deal of time consulting and managing money.

As an apostle of what he called neoclassical finance, Ross is sometimes absent-mindedly excluded from economics altogether. Indeed, two weeks ago I left him (and his fellow Cal Tech alumnus Robert Barro) off a short list of  prominent students who studied with the late Kenneth Arrow during Arrow’s Harvard years. Yet it was Ross who, in 1972, wrote down the first broad underpinning of the basics of agency theory, the then-new and surprising exploration of what happens when one person hires another to make decisions.

There is always a lot of this sort of baleful news going around. But Ross was “truly exceptional,” according to Robert Merton, also of MIT Sloan; “a giant” in the ranks of economists in the last third of the twentieth century, in the words of Bengt Holmstrom, also of MIT. Plans for services and a celebration at MIT Sloan School of his life are forthcoming.



Source: http://www.economicprincipals.com/issues/2017.03.12/1980.html

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