Saturday, April 21, 2012

Health Insurance and the Supreme Court

Alan Blinder (an economist at Princeton) wrote an op-ed which appeared in the Wall Street Journal on Friday: Life, Liberty, and the Pursuit of Insurance. He argues forcefully for keeping the Affordable Care Act in place as is because it represents a "bargain made in 2010." In particular, he does not want the Supreme Court to overturn the law nor Republicans to repeal it in the future.

Professor Blinder makes some important points about the horribleness of the previous health care system:
For one, the tax code incents employers to pay part of workers' wages in the form of health insurance, which is why insurance became tied to employment in the first place. For another, we have somehow decided that the state should provide anyone age 65 or older with health insurance, while everyone younger should fend for themselves.
He also points out there is adverse selection in the insurance market and rightly points out that the individual mandate (if actually correctly enforced) would eliminate this particular problem. The ability to purchase "insurance" for pre-existing conditions also is tied to the mandate (insurance is in scare quotes because it isn't really insurance if there is no uncertainty). However, he does not address the fact that even if the law were to survive, the mandate isn't sufficiently enforced. The penalty is so low that it remains optimal for young, healthy people to remain uninsured and buy insurance at a low rate only when something happens (the low rate is guaranteed by the no pre-existing conditions clause) which still leads to the unraveling Professor Blinder hopes to avoid. In addition, he does not discuss how moral hazard plays into the insurance market and how these concerns would be increased relative to the old system if the mandate remains (when people are perfectly insured, they demand more goods and health services than is socially optimal, or they may fail to take costly preventative care measures that result in large health costs (for others, since the individual doesn't pay them) down the line, etc.).

He also goes on and on about how the Supreme Court should not "decide what sort of health-care payment system the nation should have" and we should all accept the "bargain" Congress struck. This strikes me as a strange argument. First, there are clearly more than two choices (the ACA or the old system) so it is hard to see how striking the law down is the same as "judges making economic policy." In addition, while I agree law and economics are different, I think constitutionality, separation of powers, etc. matter in economically important ways (hopefully more on this in the future), and saying the Supreme Court shouldn't have the power to undo unconstitutional acts of Congress is a very strong claim and should be more carefully thought through.

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