THE BLOG
11/30/2007 10:32 pm ET Updated May 25, 2011

Health Mandates: Why Paul Krugman's Wrong -- And A Talk With Obama's Health Advisor

The issue of health care - specifically health mandates - became the subject of heated debate between the Clinton and Obama campaigns this week, and Paul Krugman weighed in strongly on the Clinton side of this issue.

Here are excerpts from two pieces on this subject in The Sentinel Effect - a response to the Krugman piece, and an interview with Obama's health policy advisor, David Cutler. (Note: While they are strongly pro-Obama on this specific issue, that doesn't represent an endorsement of any candidate. )

from "Why Paul Krugman Is Wrong About Health Mandates"

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.

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.

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 ... 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 effect,' Obama says other measures would be used - including possibly 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 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 assertion that their plans 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. That's not the black-and-white issue some campaigns make 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: " ...If you don't buy it, then you'll be penalized in some way." Well, John Edwards has just called Mr. Obama's bluff.

John Edwards' "terrific idea," to use Mr. Krugman's words, is to automatically enroll Americans whenever they filed taxes or received medical care. No penalties? Not when they're enrolled, perhaps - but what happens when they don't pay their premiums? If a middle-class family of four is enrolled in a health plan with high monthly costs, that could be a heavy burden. And there has to be a penalty if they don't pay up, or the entire plan collapses.

... Mr. Obama ... (is) ... echoing right-wing talking points on health care.

... I understand the concern about the use of words like "forced" by the Obama campaign. But that's mild compared to the words the GOP will use in 2008 - and they'll say them no matter what Obama does or doesn't do. So rather than crying "foul" when someone challenges them, the Clinton campaign and others should use this as an opportunity to sharpen their talking points - or primary voters may conclude they don't have it in them to make their case when the going gets tough.

(the complete piece is here)

from "A Talk With David Cutler, Obama's Health Policy Advisor"

I've been engaged in a collegial debate with Ezra 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. So I discussed the issue with David Cutler. 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.'"

And yet Sen. Clinton made another speech about mandates and universal coverage yesterday ... 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?"

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 it's another reason to address the cost issue first."

(the complete writeup of the interview is here)

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The Clinton and Edwards campaigns, and many progressive observers, have claimed that the mandate issue is an issue of principle. But insurance premiums are an inherently regressive way to collect money, which means mandates succeed or fail - and are fair or unfair - only after complex analyses and the creation of fairly complex subsidy schemes.

In that light, are mandates really "fairer"? Or does this debate really concern tactics more than it does principles?

One rational solution to the fairness problem is to fund a new healthcare system with taxes. But that's "single-payer," and therefore anathema to all the leading candidates. The Obama approach looks to address cost issues first, then to promote near-universal enrollment without mandates. If that approach fails, Obama would impose mandates - but he would be mandating people to enroll in plans that are (at least theoretically) less costly.

There is room for tactical debate and discussion. But, in the absence of a taxpayer-funded system, it seems to be a reasonable approach.