2008-02-24

Posted Elsewhere 2

Comments on this Facebook posted item:

As a supporter of Obama, I've thought about this issue some myself. Having read the article, I think Krugman is being somewhat disingenuous in the way he presents the issues, and has cited economics research selectively.

First, he neglects to address the critical difference in the way affordability is achieved between the plans. Obama's plan aims at reducing up front costs: the premiums paid by plan subscribers. Clinton, in contrast, provides after the fact refundable tax credits, meaning that the poor will have to bear the full cost of insurance up front regardless of whether they can actually afford to lay out that amount. Moreover, since there is a mandate, someone unable to afford the up front cost will get penalized later. I think Obama is entirely right to oppose a mandate in this circumstance, i.e. as it functions in Clinton's plan.

Second, Krugman is right that many people fail to enroll in existing programs, but he neglects to mention that research in behavioral economics has consistently shown that the up front costs of a product or service unduly sway purchasing decisions. Consequently, so long as the up front costs remain high, as they might under Clinton's plan, many people may be dissuaded from purchasing insurance. Of course, Clinton has a mandate to force them to buy insurance, but it is enforced through the tax code and so is not an up front cost, and its true effect on initial decision making will have to be discounted accordingly. Again, I think Obama is right to focus on up front affordability.

Third, Krugman has it backwards when he says "it’s hard to see how the hole in the Obama plan can be repaired". While it might be politically challenging for Obama introduce a mandate, his plan is perfectly compatible with adding one. Clinton's plan, however, cannot be repaired to address the complaints above--they go to the very heart of her proposal. For anyone who takes these complaints seriously, as I do, Clinton's plan is a non-starter.

Fourth, the last thing the tax code needs is any more complication, which itself imposes costs (time, tax preparers, etc.) on citizens. The tax code is generally an indirect and inefficient tool for implementing social policy. Furthermore, the complexity of the tax system already means that many people do not take advantage of the credits, etc. for which they are eligible, so the same might well be the case with Clinton's credits. American politicians in general are addicted to manipulating the tax code, but the Clinton's have been particularly bad about it. One of reasons I like Obama is that he appears to want to avoid this approach when possible.

Having said all that, I would likely support Obama's plan additions to promote universal coverage. Changing health insurance from an opt-in to an opt-out system would likely help, but (as with the opt-out retirement savings plans promoted by both Clinton and Obama) it is not clear how this would work for the unemployed. Similarly, it isn't clear how a mandate might be enforced if not through the tax code. Nonetheless, if it should turn out that Obama's plan isn't successful without one, I would be willing to swallow that pill.

I might as well add that Obama's plan may be seen as less threatening by swing voters. His success in more conservative midwestern states on Super Tuesday might be some indication of this.

Another thought: Krugman suggests that the possibility of free riders is a serious problem for Obama's plan. As someone who has had to choose whether to purchase crappy but expensive, high-deductible student insurance, I have had to consider whether it is worth it and it isn't obvious that it is. High-deductible plans provide very little tangible benefit to someone who doesn't get rather sick: they don't make it affordable to go see a doctor for minor illness or preventative care since that falls under the deductible. So you're basically buying insurance against the relatively unlikely possibility (for a young healthy person) of serious illness, for which you could get emergency care anyway. So there is some rationality is not getting that sort of policy. But being a free rider wouldn't be nearly so rational if the policy in question did provide tangible benefits as both Clinton's and Obama's public policies would do.

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