UPDATE: Sally Pipes is kind enough to remind us that it just didn’t work in MA. And, of course, Romney’s proposal is tax breaks for people who can afford health insurance but don’t buy it. In other words, another subsidy…

First, let me say that I am reasonably sympathetic to Mitt Romney’s healthcare proposal. At least the Massachusetts one. The reason isn’t so much for the actually policy prescriptions as the seriousness of approach. A long time ago, I heard a podcast from the University of Chicago (my alma mater) Business School where Romney talked about the problem. I can’t find it now, but let me summarize.

Romney viewed the problem as insuring the uninsured. He found that there were several categories of uninsured:

  • The affluent uninsured. These were about 50% of the uninsured in Massachusetts. These are mostly single men who can afford insurance but don’t think they need it. Either they are crazy or healthy.
  • The poor. These are people who can’t afford insurance but who are above the poverty level and therefore ineligible for Medicaid.
  • The uninsurable. There are some people for whom there is no economic logic for insuring. Health "insurance" for these people isn’t so much "insurance" as "subsidy."

The general problem of health insurance boils down to (2) and (3) not being able to get insurance. Romney’s solution was to:

  • Reduce costs by deregulating the insurance industry to lower the cost of insurance.
  • Subsidize the poor and uninsurable.

The problem is that the subsidies cost money. To some extent, the amount can be reduced by deregulation. The catch is an idea called "adverse selection" which applies to risk pools like insurance. Basically, the people with the least risk try to opt-out of the pools so that they can save money. This leaves the pool full of people that need money. When liberals attack Health Savings Accounts, one of the arguments that they make is that they facilitate adverse selection because healthy people will get high-deductible insurance that gives insurance companies very little money to spend on healthy people. Another way of stating it is that insurance companies need healthy people in their risk pools so that the healthy people can pay for the sick people.

In this context, "adverse selection" is viewed as a market failure. (In the sense that the most economically efficient answer, for the system, is not taken by individuals. Instead, they take the solution that is most efficient for themselves. Note that there is a serious argument that this assessment by the individual is incorrect because he bears the cost in taxes of emergency room treatment, etc. It is in this spirit that Romney says that there is universal health care, but not universal health insurance. It should also be noted that there is a source of savings, which is kind of like revenue, here. People who go to the emergency room will be covered by insurance, so the state doesn’t absorb those costs.

So, recognizing this problem, Romney mandated that rich individuals buy health care. Let’s be clear. This is a tax. Romney paid for the subsidies by taxing the affluent uninsured who do not consume health care. They were forced, penalized by prison time in some cases, to purchase health insurance so that insurance companies could use that money to pay for health care for the sick. This tax is usually referred to as a "mandate" and is generally unpopular among conservatives. Here’s what the New York Times had to say:

The Massachusetts plan, which went into effect this year and is still being watched closely to see how it will fare, was Mr. Romney’s signal legislative accomplishment as governor but has elements that trouble many conservatives, most notably a mandate that everyone who can afford it must buy health insurance or face penalties.

Now let’s be clear because the logic of this is unavoidable. Either you pay for it by taxing the healthy or you pay for it by taxing everyone. But, in general, you are dumping new money into healthcare for people who don’t have it now. So Romney’s national plan doesn’t have mandates:

There is no individual mandate in Mr. Romney’s plan for the rest of the country. Instead, it concentrates on a “federalist” approach, premised on the belief that it is impossible to create a uniform system for the entire country. Along these lines, the federal government would offer incentives to states to take their own necessary steps to bring down the cost of health insurance.

This sounds to me like a sleight of hand. If deregulation couldn’t cover the costs in Massachusetts, the most regulated health care market in the country, why would it work anywhere else? The fact is, to pay for the health care of the sick and the poor, you need revenue. Romney achieved that through a private sector mandate (with a serious solution, which I do not think that I disagree with, in the end).  The other option is tax revenue.

Which is it going to be Mitt? Taxes or mandates? Or are you going to require that the states do one or the other?

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4 Comments

sampo · August 24, 2007 at 2:43 PM

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“..penalized by prison time in some cases”

Has this actually happened? how many? link?

“the federal government would offer incentives to states to take their own necessary steps to bring down the cost of health insurance.”

This is Romney’s fulcrum -his be-all-things-to-all-people. For the primary election he takes a dramatic shift to the right. For the general, he plans to take takes an enormous shift to the left.

http://www.factcheck.org/elections-2008/republican_candidates_debate.html
As of May 07, 372,000 in Mass. didn’t have coverage and half of the 140,000 eligible for subsidized insurance hadn’t signed up for it. The state required mandates had to be lowered because a whopping 200,000 didn’t meet the required mandates.

Wouldn’t the lowered mandates require more gov’t subsidies?

Mass paints the most rosey picture for healthcare since it’s the third most wealthy state in the nation. http://en.wikipedia.org/wiki/States_of_the_United_States_by_income

How to cover residents of poorer states who’s residents make 60% of the average Mass resident?

Time to dust off the phrase “fuzzy math”.

Since Romney has recently morphed into a Tancrado-wannabe on immigration, my question to him would be this:

Since “universal health care” is necessary for your plan to be financially solvent, does that apply to the 12 million illegal immigrants?

What say you Mitt? Will illegals be left to die because they aren’t privileged to your healthcare? Or will my tax dollars fund an illegal who’s crooked teeth “require” braces?

I suppose the answer to that question depends on the state from which I ask it. A-la immigration and South Carolina and Florida.

eyeon08.com » Romney’s healthcare plan: The politics · August 24, 2007 at 1:24 PM

[…] eyeon08.com Covering the 2008 election « Romney’s healthcare plan: The policies […]

race42008.com » 2007 » August » 24 · August 24, 2007 at 2:36 PM

[…] Romney’s healthcare plan: The policies […]

who is willard milton romney? · August 24, 2007 at 3:05 PM

eye asks of Romney on healthcare: Which is it going to be Mitt? Taxes or mandates? Or are you going to require that the states do one or the other?…

Drawing to a close an analysis of Romney’s healthcare plan titled Romney’s Healthcare Plan: The Policies, eye of eyeon2008 concludes:
… This sounds to me like a sleight of hand. If deregulation couldn’t cover the costs in Massachuse…

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