Last week’s CPAC conference’s discussion of health care was dominated by (yet more) calls for Obamacare’s repeal, along with preeminent mocker, Sarah Palin’s memorable “I do not like this Uncle Sam. I do not like his health care scam.” More measured Republicans worried that CPAC offered no constructive health care suggestions and ignored the new Republican alternative to Obamacare.
No one seems to have noticed that Ted Cruz fairly accurately characterized Obamacare as “a massive wealth transfer from young healthy people to everyone else.” That’s a pity. That sentence and Cruz’s contempt for such transfers are revealing. They show that Republican rhetoric conflicts with the economics of health insurance, in particular with the fact that only government interfering in the market can solve our health insurance problems. Republicans can only produce good health care policy when they build it on a base of reality.
Here is the economic reality that Cruz misses: health insurance consists of transfers from the healthy to the sick. It’s just like fire insurance. Everyone pays premiums. Those who have fires get massive transfers of wealth, paid for by those who don’t have fires. All insurance is about transfers from the lucky to the unlucky.
Cruz, of course, does not really object to transfers everyone freely and separately agrees to in the market place, as when people choose to buy fire insurance. He objects that the government has (through the Democratic process) “forced” these healthy to sick transfers on us, unlike (most) fire insurance. Under Obamacare, the government forces people to buy health insurance or pay a fine, and forces insurers not to charge sick people more, among many other rules.
But the truth is that the free market can only provide health insurance for currently healthy people.
Insurance protects people in case something bad happens, like fire insurance paying off if you have a fire. But once you’re sick, say once you get cancer, you no longer need insurance: the bad thing happened and now you need care. In a free market, no insurer will be willing to accept $10,000 to sell a policy that would force them to pay out $50,000 in care.
Free insurance markets can’t protect the cancer victim, the person who already has cancer. To do that, government must force the healthy to pay for the sick.
Canada does that with government insurance. Obamacare uses the reviled mandate and “community rating” (insurers not allowed to charge more to sick people).
But forcing insurers to not charge more to sick people is not fair to insurers without other rules. Think about the plans with super star cancer centers in their network. Cancer victims will flock to those plans. Meanwhile, the healthy people will take the cheap plans, knowing they can always switch later if cancer strikes. Obamacare fixes that with risk adjustment: Take from the plans with more healthy people and give to the plans with more sick people.
Government forcing the healthy to pay for the sick is rather like the government forcing us to all pay for firefighters and defense. The free market can’t supply those either. But through the democratic process, we all agree that the government can force us to pay taxes, which in turn pay for firefighters and defense. Even those of us who are not happy with our government’s specific defense or firefighting policies recognize the basic principle that we all have to be forced to band together.
And what about transfers from young to old? Cruz’s massive transfer line was in the middle of his description of the bad deal young people are getting. Young people are getting a bad deal in many ways. But Obamacare is fixing the unfair deal young people have long gotten: paying taxes for Medicare without getting government health insurance until they turn 65. More importantly, Obamacare means that even the unfortunate young people without jobs or in jobs without benefits can still afford health insurance.
It’s true that Obamacare forces 25-year-olds to pay more for health insurance so that 55-year olds can pay less. But 25-year-olds eventually become 55-year-olds. Maybe Obamacare’s rules about how much 25-year-olds subsidize 55-year-olds are too draconian. A Republican who accepts the general principle that government needs to interfere could make a viable alternative suggestion, making it cheaper for young people. Republican Senators Coburn, Hatch and Burr have at least joined the game, with a serious proposal, albeit one with some real drawbacks.
With Obamacare actually implemented now, more and more Republicans will know a self-employed cancer survivor saved by Obamacare. As that happens, perhaps the Ted Cruzes, Sarah Palins and other CPAC stalwarts will accept the need for government transfers. Or perhaps more Republicans will ignore them and seek Republican alternatives that address the real problems.