Obamacare solves free-rider problem
Admittedly, it is not easy defending a law as convoluted and intrusive as President Obama’s health care reform. But Solicitor General Don Verrilli did such a poor job this Tuesday that Justice Ruth Bader Ginsburg was forced to step in and explain the administration’s rationale for the individual mandate:
Mr. Verrilli, I thought that your main point is that, unlike food or any other market, when you made the choice not to buy insurance, even though you have every intent in the world to self-insure, to save for it, when disaster strikes, you may not have the money. And the tangible result of it is — we were told there was one brief that Maryland Hospital Care bills 7 percent more because of these uncompensated costs, that families pay a thousand dollars more than they would if there were no uncompensated costs. I thought what was unique about this is it’s not my choice whether I want to buy a product to keep me healthy, but the cost that I am forcing on other people if I don’t buy the product sooner rather than later.
The concept Ginsburg is describing (aka “cost shifting”) is indeed the heart of the legal defense for the individual mandate. Problem is, as a factual matter, it is just plain false. Economists John Cogan, Glenn Hubbard, and Daniel Kessler recently explained in The Wall Street Journal:
A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study’s authors conclude: “Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance.” For the typical insurance plan, this amounts to approximately $80 per year.
The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts Institute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.
Where did Congress go wrong? We traced its estimates of the magnitude of the hidden tax of $43 billion per year, or an increase in family premiums by an average of $1,000 per year, to two sources—the aforementioned Health Affairs study, and a non-peer-reviewed study commissioned by FamiliesUSA, a Washington, D.C., group long known for its advocacy of greater government involvement in health care. Yet Congress simply ignored the evidence in the Health Affairs study and failed to recognize the serious flaws in the FamiliesUSA analysis.
So, it turns out the entire intellectual premise for the legal defense of Obamacare comes from a made-up statistic from a liberal health care advocacy group. Furthermore, if Congress wanted to undo the damage from uncompensated care, all they would have to do is require people to buy catastrophic care insurance (or first tax, and then buy it for them).
But Obamacare does not do that. Instead, it forces people to buy “comprehensive” insurance plans filled with things they may not want or need (like free birth control). That is the real cost-shifting going on in Obamacare: from people who otherwise don’t want to buy insurance, to insurance companies who now have a ready-made market for high-cost insurance plans.