Topic: Cato Publications

Two Reasons Why an Individual Mandate Will Not Solve the Free-Rider Problem

The idea that government should compel people to purchase health insurance is gaining traction among Republicans and Democrats.  The idea is called an “individual mandate,” because it would require individuals to purchase coverage (as opposed to a mandate that requires employers to provide coverage to their workers).  Former Massachusetts Gov. Mitt Romney (R) put that idea into effect in the Bay State.  California Gov. Arnold Schwarzenegger proposes to do so in the Golden State.  A number of other states are considering it.

What makes the idea attractive is the fact that many people obtain health care but don’t pay for it.  Unless health care providers can (1) collect from, (2) avoid, or (3) deny care to those people (which in many cases is illegal), the costs must fall on someone else.  Thus, the reasoning goes, decreeing that everyone must obtain health insurance would solve that “free-rider” problem.

But there are two important reasons why it will not:

  1. There would still be people without health insurance.  Many will not obey the decree.  California mandates that all drivers must carry auto insurance, yet according to the Insurance Research Council, 25 percent of California motorists are uninsured.  In fact, the share of uninsured motorists is higher than the share of residents without health insurance (18 percent).  Even with a mandate, there will be uninsured people who free-ride at others’ expense.
  2. Free-riding by people with health insurance.  According to research by the Urban Institute’s Jack Hadley and John Holahan, people who have health coverage account for at least 30 percent of uncompensated care delivered to the non-elderly.  Since uncompensated care accounts for just 4 percent of health spending, a mandate could affect at most 2.8 percent of spending.

So an individual mandate could solve at most two-thirds of a very small problem, but chances are it would do even less good than that.

That small benefit must be balanced against the costs.  According to The New Republic’s Jonathan Cohn, who is generally sympathetic, “individual mandates … require substantial government intervention in the free market.”  Government must monitor yet one more aspect of the citizens’ lives.  It must define what qualifies as health insurance, which is an invitation to the sort of special-interest rent-seeking that has made health insurance unaffordable for so many.  It must tax some citizens to subsidize those who cannot afford coverage.  A final cost of such mandates is that rather than solve the much larger problem of moral hazard, they actually make that problem worse. 

An individual mandate would not fix our broken health care system.  It would simply pump more money into that system. 

What is interesting, then, is this.  Journalists and left-ish policy wonks explode when special interests try to line their own pockets by supporting, say, ineffective weapons systems.  But where is the outrage when this or that group seeks to do the same thing with ineffective health care proposals?

NEJM Reviews Medicare Meets Mephistopheles

This week’s issue of the New England Journal of Medicine carries a review of the Cato Institute’s latest health care book, Medicare Meets Mephistopheles by Cato adjunct scholar David A. Hyman. Reviewer Peter Jacobson of the University of Michigan School of Public Health writes:

Hyman’s bracing critique reflects the fact that neither Medicare’s problems nor the ascendancy of market-based approaches to solving them can be ignored any longer.

Medicare Meets Mephistopheles provides a good starting point for free-market advocates who are serious about preventing the federal government from imposing price controls on prescription drugs, or otherwise stealing from future generations.

Identity Crisis Book Forum Thursday at Cato

On Thursday, the Cato Institute is having a book forum on my book Identity Crisis: How Identification is Overused and Misunderstood.

Commenting on my presentation of the book will be James Lewis from the Center for Strategic and International Studies and Jay Stanley from the ACLU.

The REAL ID Act is under siege from state leaders who are bridling at this unfunded surveillance mandate, and legislation was introduced at the end of the 109th Congress to repeal REAL ID. But the immigration debate this year will surely fuel the push for a national ID with the demand for “internal enforcement” of immigration law. Identity Crisis lays the groundwork for all these discussions.

The event is streamed for those not in the area. To register, go here.

Schwarzenegger’s Shakedown

Much has been written about TerminatorCare, Gov. Arnold Schwarzenegger’s (R) plan to guarantee health coverage to all Californians by employing every lousy idea the Left has ever conjured. 

But much of what has been written about TerminatorCare is wrong. Media accounts and even some policy wonks have reported that Schwarzenegger, through the magic of Medicaid, would have taxpayers in other states pay for only half the cost of his plan. Would that that were so.

Instead, Schwarzenegger actually proposes to use an old Medicaid trick that would put non-Californians on the hook for much more than half the cost. First, he would boost state payments to providers, which triggers federal matching funds. But then he would tax the providers so much that he would recover the state’s initial outlay plus most of the federal matching funds, which he would then use to finance the rest of the plan.  At the end of the day, California would spend zero extra dollars on provider payments, yet the ruse would net an additional $1.3 billion from taxpayers in other states.  

After one cuts through the budget gimmicks, one finds that Californians would contribute only $1.3 billion to the plan, while taxpayers in other states would contribute $4.5 billion — or over three times as much.

I haven’t seen so many people who couldn’t shoot straight since Commando

Ooh, wait, I have another one! The Schwarzenegger health plan brings to mind the tagline from Commando:

Somewhere… somehow… someone’s going to pay!

(Hey, with a dry cool wit like that, I could be an action hero.)

The National ID Debate, Part II

“It is the policy of the United States that the Social Security card shall not be used as a national identification card.”

So reads the last line of the Illegal Immigration Enforcement and Social Security Protection Act of 2007. The bill would put an encrypted machine-readable electronic identification strip on each Social Security card, which would enable employers to access an “Employment Eligibility Database” at the Department of Homeland Security. The database would include the citizenship status of every Social Security card holder.

Employers who hired someone without checking this … national Social Security identification card … against the Department of Homeland Security’s database would be punished. (Must remember: “It is the policy of the United States that the Social Security card shall not be used as a national identification card.”) 

So goes the push for “internal enforcement” of immigration law — sure to be an important topic in the immigration debate this year. 

The national ID law that is now in place, the REAL ID Act, is a reaction to the terror attacks of 9/11, and the assumption that knowing who someone is tells us what that person plans to do. 

But the REAL ID Act is in retreat. With states bridling at the burden they’ve been asked to bear in order to implement the act, legislation to repeal REAL ID was introduced late last year, and it is likely to be re-introduced soon.

The next wave of the ID debate will be about immigration.

On Thursday, January 18th, we’ll be having a lunch-time book forum here at Cato on my book, Identity Crisis: How Identification is Overused and Misunderstood. I will present the book, and I have invited two interesting commentators — skeptics of different parts of my theses — to weigh in. 

Please join us for what I hope will be an interesting discussion of identity issues, and a preview of an important part of the coming immigration debate. 

Register for the book forum here.

Those Who Sell Out Will Eventually Be Punished

In a sick way, I’m enjoying the debate over price controls for prescription drugs under Medicare Part D. Of course, I don’t want Congress to dry up the stream of drugs that will keep me alive and vigorous when I’m a geezer. It’s just … what were the Republicans and the drug companies thinking when they created Part D? What did they think would happen? Did they really believe that, if they’d create this program, Congress would never impose price controls?

As I argued on TV today, Part D has Congress buying — through the middleman of the private drug plans — a product with high research and development costs and low marginal costs. And Congress buys those drugs for a politically powerful group of citizens (the geezers). That kind of setup cannot last. The temptation for Congress to pay nothing more than the marginal costs will be inexorable, because doing so pleases constituencies that are paying attention (seniors and current taxpayers) and harms only those constituencies that are either unpopular (drug manufacturers) or else aren’t paying attention (future seniors, including those not yet born).

The writing is on the wall. It may not happen this year, but unless we scrap Part D, sooner or later we will get price controls on seniors’ prescription drugs.

So let’s scrap Part D.

What? You’re a Republican who voted for Part D, against conscience and better judgment?? And now you’re afraid to scrap Part D for fear of (gasp!) flip-flopping or offending the geezers?? Then start talking about fundamental Medicare reform, buddy. And start now.

‘Net Wars

It’s a politician’s dream:

Congress is about to embark on new policymaking that will make some of America’s largest and wealthiest corporations into big financial winners and others into big losers. Given the money at stake, firms are dispatching lobbyists, armed with perks and campaign contributions, to D.C. to ensure that their clients end up on the good side of the legislation.

Making the dream even more wonderful is that the issue is obscure and complex. Most Americans will be affected, but few Americans will understand the issue and thus be able to hold politicians accountable for bad policymaking.

Welcome to the Net Neutrality fight.

To understand the fight, think of how the Web is increasingly making use of video and audio content, e.g., YouTube’s video streams, Internet radio’s audio streams, even Cato’s webcasts and podcasts. And now, on the technological horizon, is the ability to receive whole movies over the Internet. The flow of all of that data places considerable strain on high-speed Internet service providers (ISPs), who have to maintain and upgrade their portions of the Internet in order to keep the streams moving quickly.

Notice the economic asymmetry that results: content providers benefit from the upgrades, but high-speed ISPs like Comcast and AT&T pay the cost. Such asymmetries open the way for consumer-harming inefficiency and mischief.

The ISPs have responded to this situation by threatening to charge content providers for priority access. That is, a modest, text-driven website like Cato@Liberty, which doesn’t use much bandwidth, would likely go uncharged because it wouldn’t need priority service, but YouTube, with its bandwidth-consuming media streams, would need priority service and thus have to pay fees to the high-speed ISPs.

The content providers would prefer to avoid those fees, of course. They’re asking Congress to prohibit the ISPs’ proposal, and instead mandate “net neutrality” — ISPs giving equal priority to all Internet content, regardless of uneven bandwidth demand.

The New York Times nicely summarizes this fight:

Beyond the debate, the fight over net neutrality is, like most regulatory political battles, a fight over money and competing business models. Companies like Google, Yahoo and many content providers do not want to pay for the kinds of faster Internet service that will enable consumers to more quickly download videos and play games.

There are interesting arguments for both neutrality and non-neutrality. For a good argument for neutrality, read this article [pdf] by Stanford Law School’s Larry Lessig that appeared in the Fall 2005 issue of Regulation. Lessig’s Stanford colleague Bruce Owen makes a good argument for non-neutrality in this article [pdf] from the Summer 2005 issue.