Thursday, February 07, 2008

Why Obama's plan won't work

I already mentioned economist Paul Krugman's statement that Obama's plan leaves 15 million Americans lacking affordable health care. The thing is, I think Krugman is wrong. Krugman is too optimistic. My analysis is that Obama's plan leaves most Americans uninsured in the end. And here is why:

Obama's plan relies on people voluntarily purchasing health insurance or signing up for public health programs in order to receive health care. Obama combines this with a couple of interesting twists. First is a mandate that health insurers must accept all comers, regardless of how well or how sick they are. Second is that insurers must cover pre-existing conditions. The final mandate in Obama's plan is a mandate that health insurers are not allowed to drop people from their rolls at renewal time.

Okay, so here's a question: with a mandate like these, why would anybody voluntarily sign up for health insurance *before* they got sick? I mean, health insurance is expensive, right? So then the healthcare death spiral that I mentioned back in September 2007 kicks in. As healthy people opt out of paying for health care, that means the remaining people end up paying more, which causes more people to drop out, which causes health insurance to become more expensive, and then yet more people drop out. The end result is that only sick people end up paying for health care -- which is not a viable option, because the small percentage of sick people simply cannot pay for current levels of health care. 15% of the nation's GDP is tied up in health care today, and sick people do not generate 15% of the nation's GDP. There just ain't no "there" there.

In short, without a mandate that healthy people subsidize the care of sick people, there is no universal health care, just a lot of dead sick people. The health insurance industry is already in a death spiral, just a slow one because currently they can kick the sickest people off of their rolls. Now, Obama adds a slick little move to his health care plan -- a "reinsurer pool" funded by the government that takes the sickest of the sick off of the health insurance company's rolls -- but I'm not sure that this would end the death spiral that otherwise results from mandating that insurers accept all comers, but not mandating that everybody buy insurance. When I work the numbers, Obama's plan simply doesn't work -- the health insurance death spiral gets even worse.

My point, the point I've been making all along, is that unless *everybody* is required to participate either via buying private insurance or participating in a public program (and remember, at least 5 million of the uninsured *CURRENTLY QUALIFY FOR PUBLIC INSURANCE PROGRAMS*, they've just never gotten around to signing up), we end up with a system where only sick people pay -- and, in the end, with a lot of dead people. Without mandates, we end up with dead people. Krugman is an optimist. I'm not. Krugman sees 15 million uninsured. I see a whole lot more, if Obama's plan were passed as-is -- which, of course, it will not be, since as a plan this would have such horrific effects that when the CBO works the numbers the entire Congress would flinch in horror and send it to the shredder.

- Badtux the Economics Penguin


  1. Hello dear,
    I just read this today. I'd love to know your opinion of it?

    10 Myths About Canadian Health Care, Busted
    By Sara Robinson, Posted February 5, 2008.

  2. Nice to see someone go head-to-head with Enigma over at Watergate. Good on ya.

  3. Fake Badtux, It's always interesting dealing with the Obamabots, who, like the Bushbots, are members of a cult of personality that is pretty much immune to logic, reason, or the gentle persuasions of simple math and science. The notion that their candidate might be being dishonest with them and with the American public sends them into the same fits of denial as happens when you suggest to a Bushbot that their candidate might be being dishonest with them and the American public.

    Such is the case with the universal mandate necessary to achieve universal health care, where Obama tells his crew that his plan just magically works, despite all the economists who've worked the numbers saying that, at best, it covers only half the uninsured -- and of course at worst, the death spiral that I described back in September, it destroys the whole health insurance system and results in a lot of dead people. Obama knows this. Obama's health care advisor on the economics side of things is the exact same guy that both Hillary and John Edwards used, and would have told him that without a universal mandate, you can't fix the health insurance death spiral. But Obama decided that being elected was more important than being honest. Fine. Problem is, what happens after he gets elected? Well, you can bet that his plan isn't getting into law, that much is for sure, once the implications are clear no legislator would ever vote for it for fear of being tarred and feathered on their next trip back home. So where does that leave the cause of universal health care? Nowhere, that's where...

    - Badtux the Pragmatic Penguin

  4. Nunya, there is no "Canadian health care system". Each province has their own health care authority (insurer) who sets the policies in that particular province. All that the central government does is mandate some basic standards of coverage that the provinces must provide, and ship money to the provinces that are less affluent to help pay for this. The provinces then are free to set whatever local provincial policies they wish for how they will provide care, which may or may not include private health insurance or private hospitals or whatever.

    In short, anybody who says "Canadian health care system" is a liar off the bat. There are actually *ten* Canadian health care systems. They have some similarities in that they all include a single-payer insurer somewhere in the mix that meets some basic standards sent down from Ottawa, but that's about it.

  5. Well, no matter what the plan is, some people won't pony up the smallest of fees. For years, I didn't. Hell, I couldn't afford it. I told myself. But until you get on the bad end of an emergency wait with an uninsured child you may keep telling yourself that. Universal healthcare is an interesting concept. To fund it, we'd have to completely defund some other areas of expense, which (as in the military) I'm fine with. Or you'd have to require everyone to pay for it in the form of a tax, like social security. Any healthcare plans that are implemented are going to have to have broad support, and as such, probably won't meet your expectations. But, it's still better than any Republican plan- which is "Free Market Baby!" So, small steps.

  6. Right, which is why it has to be *mandatory*, like Medicare. You're age 65 and getting Social Security, it gets taken out of your Social Security check, period. The only way the system works is if healthy people subsidize sick people. Otherwise you end up with a lot of dead sick people, because as I pointed out, we're spending 15% of our national income on medical care and sick people do *not* make 15% of the income of America.

    Regarding how to pay for it, you'd pay for it with the 15% of your income that you're currently paying for it, of course. Except right now, that money is coming out of your paycheck as an "employer contribution", or out of your paycheck as a "Medicaid/Medicare Fee", or out of your pocket when you receive medical care. The United States is spending 15% of its national income on medical care, more than enough to do the job, and it won't take $1 more to make medical care in the United States universal -- we're already paying the money, we're just allocating it in a very inefficient manner (e.g., billions for emergency room care, not a dime for primary family care for those who can't afford the full cost of health insurance but who aren't poor enough for Medicaid).

  7. It's only referred to in the article as a system once, the first section that busts a myth:

    "1. Canada's health care system is "socialized medicine."
    False. In socialized medical systems, the doctors work directly for the state. In Canada (and many other countries with universal care), doctors run their own private practices, just like they do in the US. The only difference is that every doctor deals with one insurer, instead of 150. And that insurer is the provincial government, which is accountable to the legislature and the voters if the quality of coverage is allowed to slide.

    The proper term for this is "single-payer insurance." In talking to Americans about it, the better phrase is "Medicare for all."

    I for one, wouldn't mind seeing some of the greedy insurance companies fail:

    "This is a clear sign that the massive deregulation of the insurance industry is now bringing home a backlash of angry injured workers who have been targeted, terrorized and victimized by a system out of control and with no checks and balances."

  8. Real badtux...just keep doing what you're doing...penguins like you are needed to keep thoughts in check, ask lots of questions, and make people continue to think. It's way too easy to get pulled in...who knows which one (Hillary or Barack) is the better candidate is, its probably closer to one is the best pick for one issue, the other better for another, too bad we couldn't combined them into one ideal. This whole issue of polarity and needing to pick sides is problematic in and of itself, because ultimately,there is only going to be one nominee, and who are you going to vote for if you just slammed that person for the past year - McCain??? Please keep coming back with the educated feedback and questions.
    - badtux fan

  9. No one will ever be able to come up with a health care plan that everyone is happy with.

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