Unforeseen Contingencies

Greetings from the 2012 AEA/ASSA. This year’s meetings are being held in Chicago, one of my least favorite places to visit. I don't find Chicago very interesting or scenic...although I admit I did get a kick out of these crazy loons. I estimate there were 15 to 20 "occupiers," although a friend claims she saw as many as 30. (I'm told there are 25,000 economists in attendance here. That seems rather high to me, but it will give you an idea of the scale of things. I was particularly amused that the "occupiers" were berating a crowd of economists walking by who were mostly East Asians of apparently limited English skills, and clearly oblivious to the show. But there’s no point in complaining about facilities, locale, and locals; let’s get down to business.

I sat in on an interesting panel this morning that discussed evidence on demand-side effects of the 2006 Massachusetts insurance reform, "Romneycare." Since the MA approach is similar in some respects to the 2010 Affordable Care Act (ACA, "Obamacare"), it seems likely that the United States is going to have some variant of this, regardless of the outcome of the 2012 elections. So what did I learn?

There’s evidence that coverage of children marginally increased, there was probably a small reduction in ER visits, there seems to have been little effect on premiums for group health insurance, while non-group premiums were reduced... nothing very surprising. One conclusion is that there's no particular reason to think the Massachusetts reform, or ACA for that matter, will have any effect of reducing health care spending, or increases thereof.

To me, the most interesting results were evidence that suggest the individual mandate is crucial for preventing adverse selection – there’s very strong evidence that the mandate brought healthier people into the insurance pool. There’s also evidence that subsidizing insurance cannot compensate for absence of the mandate, and certainly not at the levels provided in ACA. Implication: if SCOTUS rules that the individual mandate in ACA is unconstitutional and separable, expect adverse selection to plague the program. No one was prepared to guesstimate the severity of adverse selection, but there was discussion of how to go about it.

One thing I noticed throughout this and a second session on demand-side effects of insurance reform is that the researchers are quite technically competent and careful, yet also seem almost entirely unaware of issues beyond insurance design. The attitude seemed to be that when SCOTUS rules on ACA, the only question should be whether the insurance is designed properly. In fact, that's not an issue for the Supreme Court. Despite explicit criticism from one discussant, the issue really is "if the government can make us buy insurance today, it can make us eat bananas tomorrow.” (His last slide showed a banana with a caption "First, let's kill all the economists.") Economics shows that without the mandate the insurance reform won’t work, fair enough. But economics also shows that governments are not maximizers of social welfare who step in to correct market failure. Governments do need to be carefully constrained, because any power given to government can and probably will be misused. Identifying some good that might be attained by granting a power is not sufficient to justify granting that power. What are the negative consequences of granting the power? How might it be abused? Where is the barrier to mandatory bananas, after all?

To bring this home, consider that the federal government just passed, and Obama signed into law, the Defense Authorization Act of 2011. Provisions in this bill effectively allows the president to have anyone in the world arrested and detained, permanently, without judicial oversight. Sure, it’s just for terrorists, so who could disagree? [Answer: anyone who understands that the intentions of lawmakers are not the same as the results a law achieves, and that self-interested governments will use powers to their own ends, not just to "maximize social welfare." You’d guess that economists would understand that, wouldn't you?]

More from the meetings tomorrow.

P.S. I don't have a link handy, but Ezra Klein of the Washington Post had a dandy short history of the proposal for an individual mandate. It was largely a Republican position, and the list of GOP lawmakers who at one time proposed or endorsed it was really something to see. These are the same government officials who are supposed to be maximizing social welfare. This is clear evidence that their interests lie almost entirely elsewhere.

Update: This isn't the history I mention above, but it's a nice list of Republicans for individual mandate nevertheless.